Wed. Nov 30th, 2022


Deutsche Bank

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traders convicted of manipulating precious-metals prices shouldn’t go to prison, federal probation officers recommended, sparking a backlash from prosecutors.

A federal jury in September convicted

James Vorley


Cedric Chanu

of wire fraud after a two-week trial over their trading of gold and silver on futures exchanges operated by

CME Group Inc.

CME -1.12%

Prosecutors alleged the pair engaged in spoofing, a type of rapid-fire market manipulation that traders and regulators say was once rampant in futures markets.

The Justice Department has made spoofing a centerpiece of its white-collar crime program; more than 20 people, many of them former employees of global banks, have been charged with spoofing-related crimes since 2014. But last year’s verdict was just the second trial conviction of a futures trader for spoofing. Eight traders have pleaded guilty and one was acquitted, while one other trial ended in a hung jury.

The government said in a court filing late last week that it “opposes, in the strongest possible terms,” the U.S. Probation Office’s recommendation that the two men not be imprisoned. The government urged a sentence of between 57 and 71 months. Messrs. Vorley and Chanu are due to be sentenced in late June.

“If hard-won trial convictions are not met with serious sentences, there is a real risk that market manipulation crimes will not be prosecuted,” prosecutors wrote in their sentencing memorandum.

The Justice Department and a lawyer for Mr. Vorley declined to comment. A lawyer for Mr. Chanu didn’t respond to a request for comment.

Federal probation officers work for U.S. district courts and advise judges on how to calculate sentences. They sometimes disagree with prosecutors when the two sides differ over which factors should apply to sentencing guidelines, said

Douglas Berman,

a professor at The Ohio State University Moritz College of Law.

The recent trading volatility of GameStop and other stocks has prompted scrutiny of key players in the saga. Probes into potential wrongdoing are centered on actions taken by both brokerages and users on social media forums. WSJ explains what regulators are looking into and why this situation is so unique. Illustration: Jacob Reynolds

Messrs. Vorley’s and Chanu’s spoofing created losses for other market participants of between $1.1 million and $1.4 million, according to prosecutors. Prosecutors tallied that figure by including many trades—characterized as manipulative—that weren’t included in the counts on which the traders were convicted.

Probation officers, in contrast, recommended against increasing the amount of financial loss for sentencing purposes, according to court filings. The Probation Office’s report is confidential but its recommendations were discussed in the prosecutors’ sentencing memorandum.

Judges may consider other acts when deciding how to sentence someone, even if the defendant wasn’t convicted of that conduct, Mr. Berman said.

“So much of the severity of the sentence hinges on the magnitude of loss,” Mr. Berman said. “The basic logic there is sound, but what happens in these hard cases makes the guidelines turn so much on this definitional question of ‘what is loss?’.”

The defendants’ attorneys told the court that prison would be excessive, partly because bank policies about spoofing were vague or nonexistent during many of the years they traded. The Chicago jury convicted them of illegal trading that occurred between 2010 and 2012. An anti-spoofing law took effect in 2011, and Deutsche Bank first trained its traders to avoid spoofing in 2012, according to trial testimony.

Both men lost lucrative trading careers after being charged with crimes in 2018, their attorneys wrote in sentencing submissions. Mr. Chanu, a French citizen who lives in Dubai, “is virtually penniless” after years of paying lawyers to defend him.

The financial loss attributed solely to the trading on which Mr. Vorley, a U.K. citizen, was convicted “would be well under $6,500,” his attorneys wrote. Federal sentencing guidelines don’t increase the severity of a financial crime if the loss is under $6,500.

Probation, including a term of home confinement, would be a reasonable alternative, his lawyers argued.

More on Spoofing

WSJ articles about the once-obscure trading practice, selected by the editors.

Write to Dave Michaels at [email protected]

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