Though it is not the first of its kind, the current FBI case against traders who tried to manipulate the precious metals markets is noteworthy for its focus on the guilty individuals rather than the institutions as a whole. (To date, most of these major banks have been fined billions of dollars already for their role in the fraud.)
The latest person to be charged in this matter is a Swiss trader, formerly employed by UBS, named Andre Flotron. (No, to our disappointment, he is not a Transformer.) He has been added to the FBI case for conspiracy and fraud in the precious metals trade. This makes him only the second individual to be publicly named in the FBI case. He is scheduled to appear in court in less than a week.
Among these other charges, the main accusation is that Flotron engaged in spoofing. Although that may sound innocent enough compared to more familiar crimes like fraud, it can hardly be taken lightly in the context of financial scams.
Bloomberg News reports that broader probes into forex (foreign exchange, or currency trading) manipulation and the Libor scandal "led prosecutors to begin investigating whether metals traders placed orders without intending to execute them to try to move prices in their favor, a tactic known as spoofing."
In other words, a spoofer places (and cancels) a very large order that he or she has no intention of honoring just to get a gauge of how the market reacts, and then they can take advantage of the resulting price movements by trading on that information. This is all done electronically for the maximum effect.
Interestingly, the only reason the authorities were able to apprehend Mr. Flotron is because he traveled from Switzerland to New Jersey in order to visit his girlfriend. If convicted, he could face a 25-year prison sentence.
The larger issue here is obviously that big banks and their employees have long been engaged in spoofing and manipulating the prices of gold and silver. As it stands, it does not appear that Flotron or his attorneys are ready or willing to reach a deal to provide greater details about the scheme—and, importantly, if any of his superiors directed him to do it—in the event that any such offer from prosecutors is on the table.
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.