Tower Research Capital LLC has faced the wrath of the US Commodity Futures Trading Commission (CFTC) as the regulator issued an order for the firm to pay $67.4 million. The reason given for this record amount of fines is because the company partook in a sophisticated spoofing scheme.
Bringing the Hammer Down
The CFTC accused the firm of partaking in a deceptive and manipulative scheme that spanned almost two years. The scheme involved spoofing of futures products on the equity index that was traded on the Chicago Mercantile Exchange (CME) as well as the Chicago Board of Trade (CBOT). Three traders, all of which working for Tower Research Capital, engaged in spoofing through Tower’s accounts, specifically while trading in futures contracts. Tower gained financial benefit from this while the company caused market losses worth over $32.5 million.
The order mandates the firm to cough up $67.4 million in fines for various facets of their illicit activity. Of the sum, $10.5 million is dedicated to disgorgement, $24.4 million for civil monetary penalties, and $32 593 849 dedicated to restitution. This surpasses the previous record for the most substantial sum of financial relief ever mandated to a company for a spoofing case, and the company will definitely remember paying it.
The order stipulates that Tower must Cease and Desist from further violation of the Commodity Exchange Act’s segment barring the use of deception and manipulation such as Spoofing.
A Crime For Profit
The CFTC’s order concludes that the traders partaking in Tower’s deceptive practices placed large orders to buy or sell futures contracts with full intention to cancel those orders at the last minute in order to manipulate the market. The order states that they have been doing it from at least March 2012 until December 2013.
A Spoofing scheme works by creating a false sense of supply or demand in some sort of market. The traders put in a large enough order that the market gains a false impression of how the trends are going at the time. This, in turn, makes traders buy or sell differently than they would have previously, playing into the deceiving firm’s goals in some way. Usually, it’s to gain a profit for a higher asset price, or buying for cheaper than they would have. It’s deceptive and causes many traders to lose money where they would have ultimately gained a profit.
Abstaining From Double-Prosecution
In other news still related to Tower, the Department of Justice’s Fraud Section announced a Deferred Prosecution Agreement entry with Tower. This is due to the same criminal activity they did in the same period, but the Department of Justice deferred prosecution to the CFTC instead of piling up on the company as well.
Regardless, this will be a high price to pay for the firm. Whether they go under because of it or come out of it as a legitimized firm ready to clear its name is all up for a coin flip. Criminals tend to be rather lazy, though, so it will probably be the latter.