The Securities and Exchange Commission (SEC) recently announced the resolution of charges against a trader accused of engaging in spoofing, a deceptive trading tactic designed to manipulate market prices for personal gain. The individual, a California resident, was charged after allegedly generating nearly $234,000 from this illicit activity while employed by a financial firm.
According to the complaint, the trader executed spoof orders—false trade orders intended to mislead other market participants about supply and demand. By placing these deceptive orders for thinly traded options, the trader manipulated prices before executing legitimate trades at the inflated prices. The scheme reportedly involved placing several spoof orders across related options series to create the desired pricing effect.
To enhance the effectiveness of his trading strategy, the individual utilized complex order types such as multi-leg immediate-or-cancel orders. Following the execution of his legitimate orders, he would promptly cancel the spoof orders, thereby obscuring his manipulative tactics.
Additionally, the SEC alleges that the trader attempted to hide his activities from his employer by providing misleading answers to inquiries regarding his trading practices. Eventually, this manipulation resulted in his termination from the firm.
The allegations included violations of important antifraud provisions within various sections of U.S. securities laws. Specifically, the trader was accused of breaching the antifraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934, along with related rules.
As part of the resolution, the trader has agreed to a final judgment, which is pending court approval. This judgment entails both permanent prohibitions against engaging in further violations of securities laws and the payment of substantial financial penalties. In total, he will pay $234,803 in disgorgement, which represents the profits gained from the spoofing activities, in addition to $52,656 in prejudgment interest and a civil penalty amounting to $70,441.
Moreover, the judgment imposes a five-year prohibition preventing the trader from opening or maintaining any brokerage accounts in his name, or under the names of immediate family members, companies he controls, or third parties, without notifying the respective broker-dealer(s) of the SEC complaint and the judgment against him.
This case underscores the SEC’s commitment to combating market manipulation and maintaining the integrity of the financial markets. The enforcement action serves as a reminder of the serious consequences that traders can face when engaging in fraudulent activities, emphasizing the importance of compliance with securities regulations.