A former Bank of America Corporation trader pleaded guilty to spoofing admitting to entering phony order to try to influence the stock market for U.S. Treasuries. Tyler Forbes who traded the secondary market for U.S. Treasury notes entered large “spoof” orders seeking to move the market ahead of genuine orders that he intended to fulfill. The Spoof Orders were eventually canceled. Spoofing is a kind of stock market trickery more frequently being used by traders and it is an illegal act devised to manipulate the stock market to gain illicit profits. Market prices are determined by the supply and demand of the market. The greater the demand, the higher the price of a stock is likely to go. Conversely, the lower the demand, the lower the likely price. That’s when the market is not being manipulated. These days market manipulation including spoofing is rampant. What’s even more troublesome is that high-frequency trading makes the effect even more profound–an effect that the average stock picker could not possibly anticipate. By using algorithms to make a high number of stock trades and then canceling them before they go through, spoofers can actually bump securities prices significantly. The spoof creates an illusion that there is greater demand for a security than there really is. In the case of Mr. Forbes, he attempted to sell $65 million in 10-year Treasury notes and placed a phone $150 million buy order. This, according to the reports, created a false appearance of market interest. Mr. Forbes is reported to have been involved in 194 instances of spoofing, according to reports.
The Commodities Futures Trading Commission has charged David Scudder, Global AG with spoofing-in this case cross-marketing spoofing in which two correlated markets were used for the scheme. In this example, Mr. Skudder placed hundreds of large orders for soybean futures that he intended to cancel while placing orders on the opposite side of the soybean market in the options of soybean futures.
It is not clear why the phenomenon of spiking is occurring with greater frequency except that it is not easy to catch and a great percentage of these occurrences are successful in their design to manipulate the market, gaining illicit profits without punishment or prosecution. The SEC, DOJ and CFTC have ramped up their efforts to monitor the market and catch the spoofers but they all need more personnel and new data-driven software monitoring programs to catch the wrongdoers.
In yet another instance of spoofing, a final judgment and consent order was rendered against James Vorley and Cedric Chanu who were precious metal traders for Deutsche Bank. According to reports, they placed several precious metal orders in New York, Singapore, and Hong Kong and canceled them before execution.
JEFFREY NEWMAN, A FORMER PROSECUTOR, IS NOW A WHISTLEBLOWER LAWYER AT THE FIRM NEWMAN & SHAPIRO AND HANDLES SEVERAL CASES OF WHISTLEBLOWERS IN THE SEC WHISTLEBLOWER PROGRAM AS WELL AS FALSE CLAIMS ACT WHISTLEBLOWERS. HE CAN BE REACHED AT 617-823-3217 OR AT JNEWMAN@NEWMANSHAPIRO.COM