U.S. Spoofing Crackdown Nets Guilty Plea by Former Trader
Regulators and prosecutors have grown increasingly worried about spoofing -- the creation of false demand.
(Bloomberg) -- A former trader at Bear Stearns and Bank of Nova Scotia pleaded guilty to trying to manipulate prices in the precious-metals market, as the U.S. continues to crack down on spoofing.
Corey Flaum, 41, admitted placing thousands of orders for futures contracts in a nine-year scheme starting around June 2007 while working at the two banks. His crime carries a maximum sentence of 10 years in prison.
Regulators and prosecutors have grown increasingly worried about spoofing -- the creation of false demand that pushes a security’s price up or down to generate profits -- as a threat to financial markets in the era of computerized trading. Last year, former JPMorgan Chase & Co. trader John Edmonds also pleaded guilty to spoofing.
In his plea Thursday in federal court in Brooklyn, Flaum admitted he “routinely” sought to game the prices of gold, silver, platinum and palladium futures contracts. He placed orders and then canceled them before they were executed “to deceive other market participants about the existence of supply and demand, and to artificially move the price of precious metals futures contracts in a direction that was favorable to Flaum and the two banks for which he worked,” according to prosecutors.
Flaum’s lawyer, Nicholas Lewin, didn’t immediately respond to a call seeking comment. JPMorgan and Scotiabank declined to comment.
Also on Thursday, the U.S. Commodity Futures Trading Commission announced that it had settled civil charges against Flaum and Edmonds for spoofing.
Flaum, of Mount Kisco, New York, was suspended and fined $35,000 by the Chicago Mercantile Exchange on similar grounds last year. His sentencing on the criminal conviction is scheduled for Oct. 29.
JPMorgan acquired Bear Stearns during the financial crisis.
The case is U.S. v. Flaum, 19-cr-338, U.S. District Court, Eastern District of New York (Brooklyn).
--With assistance from Chris Dolmetsch.
To contact the reporter on this story: Gerald Porter Jr. in New York at gporter30@bloomberg.net
To contact the editors responsible for this story: Jonathan Roeder at jroeder@bloomberg.net, Peter Jeffrey, Joe Schneider
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