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Spoofing Lands Trader 3 Years In Prison



Michael Coscia was recently sentenced to three years in prison. 

This sentence occurred after he became the first trader, ever, to face a conviction of spoofing. 

The Dodd-Frank Act made spoofing a crime.

The federal prosecutors set out to land Coscia over twice this length of time in prison. 

Coscia is fifty-four years old and had tried to get on probation. 

Harry Leinenweber was the U.S district judge that found him guilty on Wednesday in Chicago.    

The Conviction

Coscia already had a net worth of $15 million, and yet was still making $150,000 a month through his fraudulent activities. 

The judge says that the only explanation for this fraud was greed. 

Leinenweber handed down the three-year prison sentence after telling the court that fraud was a serious crime, and it came with consequences that were just as severe. 

The judge also acknowledged that spoofing is not a new thing. 

He admitted that the offense has been taking place for many years. 

The Dodd-Frank act made spoofing an illegal activity. 

The maximum sentence for this crime is ten years in prison. 

 Spoofing usually consists of tricking the market into thinking that interest in buying or selling is present when it is not there at all.

This is done through placing orders systematically and not carrying them out.

Coscia was also convicted in November by a jury.

He was found guilty of the manipulation of futures markets because he would place orders that were outlandishly large but never intended to carry through with the order. 

After placing these orders, he would go to the opposite side and fill smaller trades.

Prosecutors referred to Coscia’s actions as a bait and switch process. 

Coscia made over one million dollars in 2011 over nearly a twenty-two-month period using this process. 

Coscia was employed as the head of Panther Energy Trading LLC. 

High-frequency trading houses that happened to be placing an order and executing them as Coscia spoofed the market experienced losses as a result of Coscia’s actions. 

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Spoofing takes place in the following three stages:

Stage 1: Build Up

The buildup is when the spoofer places fake orders that they wish to sell. 

The spoofer does not plan to follow through with these orders. 

The act tricks other traders into entering orders to sell thinking that prices are going to fall, and they will make a profit.

Stage 2: Cancel

Once the buildup has occurred, the spoofer then removes their fake order from the books.

Stage 3: Sweep

During this stage, the spoofer enters in a huge order to buy. 

The spoofer then takes advantage of the fact prices begin to rise instead of fall and sells contracts to those frantically trying to reverse their trades and makes a profit from it.

If you need a visual, it looks something like the following:

What was Sought and What Will Happen

Prosecutors wanted Coscia to spend between five to seven years in prison.

Coscia’s lawyers, however, reported that the guidelines for sentencing did not allow for this. 

They stated that the guidelines authorized only a prison term from four to ten months.

Coscia is not free once he finishes his three years in jail. 

He will have to serve two years of probation after he is released from prison. 

Coscia’s lawyer, Stephen Senderowitz, reported that he plans to appeal the case. 

He is hoping that he can stay out of prison on bond while waiting for the appeal to take place. 

Coscia will have to turn himself in on September 30 if his appeal is denied.

Senderowitz informed the judge that Coscia had paid back $1.4 million of the money that he earned through the trades in question. 

He also told the judge that Coscia fully cooperated with the investigation conducted by the Commodity Futures Trading Commission.

Coscia also paid $3 million in fines associated with the regulatory action that was taken against him. 

If he did this activity for nearly 22 months, the following graph shows how much he made vs. how much was paid back:


Coscia’s Not a Bad Man

Senderowitz described his client as a family man who was currently taking care of and supporting his sick mother. 

The Commodity Futures Trading Commission filed a spoofing lawsuit on a different individual. 

A ruling Tuesday allowed this defendant to continue trading up until their January trial takes place. 

The individual is Igor Oystacher.

Oystacher works for 3Red Trading LLC. 

The Commodity Futures Trading Commission accused Oystacher of conducting illegal trading activity even after he was sued for such in an act.

Here are some facts surrounding Coscia’s Trials:

  • It took a jury an hour to come to a decision.
  • Coscia was found guilty on six counts of spoofing.
  • Coscia was found guilty on six counts of fraud.
  • Coscia was the first person ever to be tried under the 2010 Dodd-Frank Act

Bye, bye Skeptics

A man by the name of Renato Mariotti acted as a prosecutor in the case up until he made the decision to go into private practice. 

Mariotti reported that after the hearing had taken place, there was a lot of skepticism. 

He said that skeptics wondered whether or not the charges could be proven by the government.

Mariotti stated that he is pretty sure the skepticism has left the building. 

He said that any trader who hears about the results of the Coscia case must be thinking to themselves that they do not want to end up in jail.

It was shown through testimonies during the trial that Coscia was using an algorithm to place, cancel, and carry out orders. 

Coscia testified that when he placed the orders, he intended to carry through with them.

He said that he didn’t know about the Dodd-Frank law. 

Senderowitz argued that filings under the Dodd-Frank law were unconstitutional.

It was shown through data presented by prosecutors that Coscia was placing order significantly larger than other orders placed by other traders during the same time. 

This data came from the ICE Futures Europe Exchange and the Chicago Mercantile Exchange. 

It was also shown that Coscia canceled order frequently.

What Were the Transactions?

Prosecutors put their attention on six transactions throughout the trial. 

These operations were:

  • Soybean meal
  • British Pound
  • Gold
  • Soybean Oil
  • Euro
  • Copper Futures Markets

Testimony showed that these trades totaled a profit of $1,070. 

Prosecutors informed the jury that thousands of similar trades were conducted by Coscia. 

The Take Away

Chicago’s Zachary Fardon, a U.S. Attorney, stated that it has been suggesting crimes of this nature are foggy after the hearing had taken place. 

He says this uncertainty comes from both technology and how fast trading is conducted. 

The Securities and Commodities Fraud Section for the office will bring charges any time there is damage done to the market. 

This is regardless of whether or not the person used algorithms to trade or used manual trading methods instead.

The following shows the percentage of the market involved in algorithmic trading practices between 2003 and 2012:


Fardon stated that it’s the principle of if someone commits fraud they will be found and punished accordingly. 

He said that what should be taken away from this case is that the Government won’t allow technology to get in the way of this principle.

Peter Henning, a professor, employed at the Law School of Wayne State University, stated that three years was a significant sentence for committing an act that was hard to separate from the natural act of just canceling an order. 

He also said that the case would ensure trading firms that engage in high frequency trading are paying attention.

Henning stated that this should jolt them and ensure they are cautious. 

He said that they need to find the line that exists between legal strategies for trading and illegal spoofing.



  • Andrew Brown says:

    Good research. Maybe someone can ask him why/how the gap on Jan 30th was hidden (S&P 500)?

    Trades shows on the daily, but not on the hourly. Where did those trades come from on the daily? Looks like someone at NYSE spoofed actual trades.

  • Jarhead says:

    Short prison terms means many others will attempt to Spoof……..put an end to the corruption………at least 20 years when found guilty & a minimum fine of $50,000,000.00.

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