Feds: Trader made $1.5 million by manipulating prices
A high-frequency trader in New Jersey is facing charges for allegedly manipulating commodities prices by issuing false signals to the market and then profiting off them while using software that executes trades within milliseconds, federal prosecutors in Chicago announced Thursday.
Michael Coscia, 52, of Rumson, New Jersey, is accused of making around $1.5 million by illegally placing orders through the Chicago-based CME Group — the world's largest operator of futures exchanges — and European futures markets in 2011. The case is the first of its kind under major changes to federal commodities law in 2010, according to the U.S. attorney's office in Chicago.
Brokerage firms use high-frequency trading to get a jump on their competitors. Powerful computers analyze market information and then execute buy and sell orders for stocks within a fraction of a second. The practice has come under increasing scrutiny, with the FBI confirming earlier this year that is had been investigating such firms.
“Traders and investors deserve a level playing field, and when the field is tilted by market manipulators, regardless of their speed or sophistication, we will prosecute criminal violations to help ensure fairness and restore market integrity,” U.S. Attorney for Northern Illinois Zachary Fardon said in a statement.
Coscia is facing six counts each of commodities fraud and “spoofing,” which refers to signaling that an order is being placed without intending to follow through. If convicted, he could face decades in prison.
His attorney, Richard T. Reibman, told The Associated Press that he is “discussing the matter” with prosecutors. He declined further comment.
Coscia has come under scrutiny before. The Commodity Futures Trading Commission last year accused him and his New Jersey-based trading firm, Panther Energy Trading, of manipulating markets through allegedly placing orders that it never planned on executing. The federal regulator fined the company $2.8 million for “spoofing” trades and banned the firm from trading for one year. Panther Energy Trading settled with the CFTC without admitting or denying the allegations.
High-frequency trading now accounts for a large percentage of U.S. stock trading. But the practice began to come under intense public scrutiny following the “flash crash” of May 6, 2010, when a glitch erased 600 points from the Dow Jones industrial average in five minutes.
The CME Group owns the Chicago Mercantile Exchange, the Chicago Board of Trade, the New York Mercantile Exchange and exchanges that trade futures on gold and other metals, as well as agricultural products including cocoa, soybeans and corn.