Ex-UBS Trader Was Spoofing `Mentor' on Precious Metals Desk

(Bloomberg) -- Sometimes the student becomes the teacher -- or a cooperating witness.

A protege of former UBS Group AG precious metals trader Andre Flotron testified against his onetime mentor on Tuesday, telling jurors that his veteran colleague instructed him in the finer points of an illegal tactic known as "spoofing" in futures markets.

Mike Chan, 35, said he worked side-by-side with Flotron, 54, on a vast trading floor at UBS’s Stamford, Connecticut, office in 2008. Trying to make a leap from a more modest-paying job on the foreign-exchange desk into metals trading, Chan said he learned to spoof by "watching over his shoulder, and taking notes."

Under questioning by Assistant U.S. Attorney Avi Perry in New Haven federal court, Chan said he had misgivings, which eventually led him to leave the bank in 2012. Flotron is charged with conspiring with other traders including Chan to place bogus orders that led others, including high-speed trading algorithms, to raise or lower their price.

"You’re tricking people, you’re trying to get an advantage," said Chan, who isn’t being prosecuted as part of his cooperation deal with the government. "You’re fooling the market to their detriment."

The trial will resume Thursday and is expected to continue through next week.

Prosecutors allege the shady dealings were rampant on the UBS precious-metals desk. Spoofing was outlawed by the 2010 Dodd-Frank Act. Only a handful of people have faced criminal charges related to that practice. Among them are Panther Energy Trading LLC owner Michael Coscia, convicted in 2015, and "Flash Crash" trader Navinder Singh Sarao and former Deutsche Bank AG trader David Liew who pleaded guilty.

Chan began his training on the metals desk in June 2008, and continued trading after he was transferred to Singapore in 2009. He later returned to Stamford, initially working through the night during Singapore trading hours, because of a disagreement with another employee, and consulted with Flotron about the issue, he said.

"I saw him as my mentor, my manager, and someone who could give me advice in a difficult situation," Chan said, locking eyes with his former boss, who was seated next to defense lawyers.

While working in Singapore, Chan befriended Liew and the two forged a separate conspiracy in which they coordinated trades, and engaged in spoofing and front-running, another illegal practice, Chan said under cross-examination by defense lawyer Marc Mukasey.

"I thought the relationship was beneficial," Chan told Mukasey.

"You and David Liew referred to each other as ‘bandits’?" the defense lawyer asked.

"That’s something David referred to us as," Chan replied.

Real Role

At Mukasey’s request, Chan read from a June 2011 chat he had with Liew in which the former Deutsche Bank trader teased Chan about being a "gambler."

"You bring it out in me," Chan told Liew in the chat. "I never thought I had it in me."

Flotron was a conservative trader, Chan told the jury.

Chan said his salary reached about $150,000, with the potential of that amount being doubled by incentive pay, before he left in 2012. He said he engaged in spoofing to improve the team’s performance, and in hope of receiving a bigger bonus and a promotion.

"There was a small voice inside of me that believed that something was not right here," he told the prosecutor, referring to spoofing. "But because of everything else that was going on around me, I blocked that voice out."

The former junior trader said he now works as a medical translator in a hospital.

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