UBS Precious Metals Trader: Acquittal, Then a Civil Spoofing Settlement

A former UBS precious metals trader agreed to a $100,000 civil penalty in a Commodity Futures Trading Commission spoofing settlement after his acquittal on a criminal conspiracy charge. The Commission alleged that he displayed large orders he intended to cancel so that smaller orders on the opposite side would trade. For someone who worked beside the trader or reviewed the desk’s activity, the question reaches beyond what appeared on the screen to what the trader wanted those orders to accomplish.

The Commission’s allegations covered precious metals futures trading from at least August 2008 through at least November 2013. He had worked for UBS through January 2014.

The case brings together two parts of futures spoofing evidence: the sequence visible in the market data and the instructions allegedly passed from a senior trader to a junior colleague. The complaint describes both, including how much of an order the market could see.

Gold and Silver Orders That Changed the Apparent Market

The alleged scheme used large gold and silver futures orders to create a false impression of buying or selling interest on COMEX. In its civil complaint, the Commission alleged that the trader paired a visibly small order he wanted filled with a larger order for the same contract on the opposite side of the book, intended for cancellation.

The order book shows the quantity offered or bid at each price. Traders use that visible depth to judge supply and demand. A large addition to the sell side can make a price decline appear more likely, encouraging others to sell. A large addition to the buy side can suggest demand that will push prices higher.

That information was the alleged means of deception. The Commission said the trader wanted other participants to respond to the displayed interest by trading against his smaller orders, sooner, at a better price or in greater quantities. The people reacting to the book made real trades on the strength of interest he allegedly intended to withdraw.

The complaint also alleged that he typically placed the larger orders behind the best available price, reducing their chance of execution. The display could influence the market while keeping the large order away from an immediate trade.

A Large Bid Behind a Small Sale

The Commission’s July 1, 2013 example in the civil consent order alleged that the trader wanted to sell one gold futures contract. In that account, he placed a 111-lot buy order on the opposite side while that sale was pending, increasing visible demand by more than 90%.

According to the Commission’s account, the market moved up and filled the small sell order within 1.2 seconds of the large bid appearing. The large bid allegedly remained in the book until the market later approached its price, when the trader canceled it. In that account, the small sale completed and the much larger bid disappeared.

The Commission’s allegation makes the apparent contradiction plain: a trader looking to sell presented himself to everyone else as a substantial buyer. We see the unfairness in the information itself. Other participants had to decide whether to trade against a picture of demand the Commission alleged was false.

A Large Offer Behind Repeated Purchases

The Commission’s October 17, 2013 example alleged the reverse pattern. Its account in the consent order describes a one-lot gold futures buy order followed by a 99-lot sell order that more than doubled visible supply and exceeded five times the volume at any visible price level.

The Commission alleged that the trader lowered the large offer to help fill pending small buys, entering more small buy orders as earlier ones filled. Its account describes him canceling the large offer entirely when buying interest increased and the market approached its price. In that account, the repeated purchases were the objective and the apparent selling pressure helped obtain them.

The Allegation That Spoofing Was Taught at the Desk

The Commission alleged that the senior trader taught a junior colleague how to combine a partly hidden genuine order with a fully visible opposing order. Its complaint places that training at the bank’s Stamford, Connecticut precious metals desk, where the junior trader sat beside him and observed his trading. The complaint describes the instruction to make the intended trade look smaller:

The Commission further alleged that he instructed the junior trader to place a large, fully visible order on the other side to induce market participants, including algorithmic traders, to transact against the genuine order. The junior trader allegedly learned to cancel that large order after the genuine trade filled.

That is a pointed allegation about what the desk was teaching. Keep the trade you want partly hidden. Put the interest you intend to withdraw on full display. We look at instructions like these alongside the trading they describe, because they can explain the purpose behind the imbalance another participant only saw on a screen.

The Criminal Acquittal and the Civil Settlement

The criminal case ended with a not-guilty result on the conspiracy charge on April 25, 2018. The Justice Department’s case update says the court had previously dismissed three commodities fraud counts and three wire fraud counts.

The Commission’s civil action ended later by agreement. In its announcement, the agency said the court imposed the civil penalty, a one-year trading and registration ban, and a permanent prohibition on spoofing and the deceptive trading practices it addressed. For this CFTC enforcement outcome, the sequence matters: criminal acquittal, then a negotiated civil resolution.

What Evidence Is Required to Prove Fraud?

Spoofing evidence connects the trader’s intent when entering an order with the displayed quantity, opposite-side trades, price changes and cancellation. Here, the alleged training adds an account of why those actions were taken to the sequence in the trading data.

The industry’s transaction records and trading communications extend beyond completed trades to filled, unfilled and canceled orders and specified communications leading to execution. For a desk or operations employee, that means the unfilled order can carry an essential part of the trading story.

We examine the smaller order and the larger opposing order together: what the market could see, which order filled, what was changed while the trade was pending, and when the displayed interest disappeared. A colleague who heard the instruction may be able to explain why the genuine order was split into small visible pieces. Someone reviewing the order messages may see the same sequence repeated across trades.

A 2016 article in Futures and Derivatives Law Report, The Exercise of Anti-Spoofing Authority in U.S. Futures Markets: Policy and Compliance Consequences, describes surveillance technology’s ability to examine the entire life cycle of orders. Its analysis emphasizes the volume of submission, modification, cancellation and execution data involved, and the market expertise needed to interpret it.

That gives an insider’s explanation a specific job. It connects the trading sequence with the purpose of the orders and the instructions behind them. Our work with you starts with that connection, whether your view comes from the desk, the systems supporting it or the review of its activity.

The Same Order Pattern in an Automated Strategy

In Panther Energy Trading’s civil settlement, the Commission alleged that an algorithm entered large orders intended for cancellation to help smaller genuine orders trade on the opposite side. The Commission’s July 2013 order concerned the company and its owner.

The parallel is the relationship between the two sides of the book. In Panther’s case, the Commission alleged it in the algorithm’s behavior. In the UBS trader’s case, the complaint combined order sequences with an allegation that a senior colleague taught the method at the desk. For someone who understands the trading system or the desk’s instructions, either can explain why the largest visible order served a smaller trade going the other way.

The Whistleblower Opportunity in Trading Evidence

The CFTC Whistleblower Program can pay awards totaling 10% to 30% of qualifying sanctions collected to whistleblowers. For someone who watched a desk use large orders to help smaller trades fill, we assess the order data and the award opportunity together.

The trading detail is where that conversation begins. If you know why a desk displayed orders it intended to cancel, your account can connect the market’s view with decisions made inside the business.

Bring Us the Purpose Behind the Orders

If you know the desk instructions or the trading sequence behind a suspicious order pattern, speak with our whistleblower experts about the purpose behind those orders. We work beside you to build the commodities fraud case and bring in CFTC whistleblower lawyers who understand order-book evidence. We stay beside you through the case, with your knowledge of the desk at the center of our work.