(Bloomberg) -- If anything is more precious than gold, it might be an acquittal.
A former UBS Group AG precious metals trader was found not guilty on Wednesday of scheming to manipulate futures markets through a practice known as spoofing.
Andre Flotron, 54, was cleared by a federal jury in New Haven, Connecticut, of a single count of conspiracy to engage in commodities fraud. It was the first acquittal in a spoofing-related case since the U.S. outlawed the practice in 2010. He could have faced as long as 25 years in prison if convicted.
“We’re extremely pleased with the jury’s verdict,” Flotron’s defense attorney Marc Mukasey said. “Justice has been done.”
After remaining expressionless throughout most of the trial, Flotron wept when the jury’s decision was read. Jurors reached their verdict after about five days of testimony and five hours of deliberations.
Justice Department lawyers alleged that shady dealings were rampant on the UBS precious-metals desk. Flotron led a conspiracy of "immense proportions" that "crossed the globe," prosecutor Robert Zink told jurors in his closing argument Tuesday. The government’s case relied on trading data and testimony from two of Flotron’s former subordinates, one of whom claimed the head of the precious-metals desk trained him how to spoof.
Spoofing was made illegal in the Dodd-Frank Act of 2010 in response to the growth of high-speed algorithms that could take advantage of other market participants by executing trades in less time than it takes to blink. In a twist, Flotron, a manual trader, was accused of tricking algorithms by spoofing, or placing and quickly canceling orders to give a false impression of supply or demand.
"The jury seemed unimpressed by statistical evidence, and apparently was persuaded by his explanations for the cancellations," Craig Pirrong, a finance professor at the University of Houston, said in an email. "This is something of a unique case in that it was meatware," or human traders, "not software or hardware involved."
Flotron, a citizen of Switzerland, worked at UBS in Stamford and then in Zurich. He was arrested in 2017 while visiting his girlfriend in New Jersey.
The former trader initially faced six additional charges of commodities fraud and substantive spoofing, but those counts were thrown out by U.S. District Judge Jeffrey Meyer, who found they should’ve been brought in Chicago where the alleged illegal trades were executed. A spokesman for Connecticut U.S. Attorney John H. Durham said that the government isn’t planning to pursue those charges.
Prosecutors said Flotron led a conspiracy at UBS that lasted for about five years starting in May 2009. Economic turmoil at the time led to historic rallies in the prices of precious metals, especially gold. Two former UBS traders, who were cooperating with the government in exchange for non-prosecution agreements, testified that spoofing was a common practice.
One of the witnesses, a former trainee of Flotron’s, Mike Chan, testified that he learned how to engage in the practice by watching over Flotron’s shoulder. The two worked together in 2008 at the Swiss bank’s Stamford, Connecticut office. The following year, Chan, 35, testified he left for the bank’s office in Singapore, where he struck up a friendship with a trader at Deutsche Bank AG and the two engaged in a separate conspiracy to manipulate markets.
The other cooperator, Sergio Soler, worked at the bank’s Zurich and London offices. Communications among the traders showed that spoofing "was just a regular thing" and "a way of doing business" at UBS, Zink told jurors on Tuesday.
"Is it really possible that the guy who’s the head of the desk didn’t know this?" Zink said. "It’s not."
Mukasey said in closing arguments that it was "prosecution by statistics" through charts and graphs and that testimony from the two former traders couldn’t be trusted, given their deals with the government.
"You can’t take their word for anything," Mukasey said, noting that neither cooperator told jurors they explicitly agreed to spoof with Flotron. "They’ve got a motive to tell the story the government wants."
Former U.S. Securities and Exchange economist Emre Carr testified that Flotron’s and Chan’s trading patterns were vastly different. Based on his analysis, Chan’s cancellation rate for large orders, a possible indication of spoofing, was twice as high as Flotron’s, Carr testified. Flotron was also much more successful at filling large orders than Chan, Carr said. The researcher was paid about $1 million for his work by the defense, he said.
Prosecutors said the analysis of Flotron’s broader trading patterns was a distraction.
"Those are the days you walk into a bank and don’t rob it," Assistant U.S. Attorney Avi Perry told the jury on Tuesday.
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