Traders Shouldn't Get Prison Time in Spoofing Case, Probation Office Says
May 25 2021 - 3:45PM
Dow Jones News
By Dave Michaels
WASHINGTON--Two former Deutsche Bank 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 and 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.
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.
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.
Write to Dave Michaels at dave.michaels@wsj.com
(END) Dow Jones Newswires
May 25, 2021 15:45 ET (19:45 GMT)
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