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It took jurors less than an hour of deliberations to find Michael Coscia guilty of illegal "spoofing" and commodities fraud last November. Coscia was the first person convicted under the Dodd-Frank Act's anti-spoofing laws, for making $1.4 million off a bait-and-switch scheme.
His prosecution was widely watched and the ease the jury had in convicting him was taken as a sign of greater prosecutions to come. Last week, a little over eight months since his conviction, Coscia was sentenced to three years in federal prison and two years of supervised release.
The Poster Boy for Spoofing Prosecutions?
In finance, spoofing is the use of a computer algorithm to manipulate the markets. Spoofing programs work by making bids or offers with the intent of canceling them before the orders are filled, creating a false sense of market demand, or lack there of. In 2010, the Dodd-Frank Act banned spoofing, along with other "disruptive practices."
In Coscia's case, he was accused of using spoofing algorithms to rig markets while heading Panther Energy Trading. Prosecutors presented evidence that large orders were placed by Coscia, then frequently cancelled, while his smaller orders would be completed much more frequently. Those large, cancelled orders were made to manipulate the market, the government argued, allowing Coscia to make $1.4 million in illegal profits in just over a three-month period.
The jurors agreed, finding Coscia guilty of six counties of spoofing and six counts of commodities fraud.
Following his conviction, Coscia's lawyers argued for leniency. Having paid $4.5 million in fines, having returned ill-gotten profits, and having been banned from trading on many exchanges, Coscia deserved only probation, they argued.
Coscia's fraud convictions come with a maximum 25-year sentence; spoofing convictions top out at 10 years. The government had requested a sentence of 57 to 69 months, or 4.75 to 5.75 years.
In the end, the judge settled on a bit less than prosecutors were seeking. Sentencing Coscia to three years, plus probation, U.S. District Judge Harry Leinenweber noted that "this is a very serious crime and it has serious consequences," but that Coscia had also "helped a lot of people over the years, not only family and friends, but also fellow traders."
"Deceit Is Deceit"
Despite a sentence shorter than requested, prosecutors viewed the punishment as vindication. U.S. Attorney Zachary Fardon declared:
There was and has been this sort of suggestion throughout the course of this prosecution that this criminal case is somehow murky or unclear because of technology, because of the use of algorithms. Well, guess what? A lie is a lie. Deceit is deceit. ... The defendant cheated faceless victims out of money through deceit over the internet. Today's result and sentence, I think, is a reflection of that.