One of the most common white-collar crimes plaguing the financial markets is known as spoofing. In this context, spoofers place fake orders (in other words, place large orders with the intention of quickly cancelling them) in order to influence market prices and market activity. This form of manipulation is especially rampant in the futures market.
According to a Bloomberg report from last summer, "Heet Khara and Nasim Salim, [traders who were] suspended for 60 days by CME Group . . . should be permanently barred from trading and fined from their illegal profits, the U.S. Commodity Futures Trading Commission [CFTC] said . . . in a complaint in Manhattan federal court."
Khara and Salim supposedly coordinated their trades to take maximum advantage of the spoofing tactic. By fraudulently uncovering the positions of other traders and unduly influencing the direction of the gold price, the two men could subsequently position themselves to capitalize on this inside information.
The CFTC alleged that the men placed "larger aggregate orders for gold and silver contracts on the Commodity Exchange, Inc." with the "intent to cancel them before execution." The commission further alleged that Khara and Salim colluded to place disproportionately large orders in the opposite position of smaller orders (placed by regular traders) only to cancel them after the smaller orders executed. This was similar to the computer-based scheme used by Navinder Sarao, the spoofer of 2010 "Flash Crash" fame.
As investigation into the pair of traders began, their accounts were frozen and they were instructed not to withdraw any funds or destroy any documents. Criminals are rarely cooperative, of course. Khara apparently still sought to close his accounts and withdraw all of his ill-gotten money even after the initial 60-day suspension was in place. He even lied to a trading merchant, claiming he had received authorization from the Chicago Mercantile Exchange (CME) to return the funds and shut down his trading accounts.
The CFTC felt that the CME was dragging its feet in pursuing the case, so it began to look more closely into the matter. The complaint filed by the commission alleges that Salim and Khara's trading activity was "disruptive" and intended to misrepresent market prices for gold. By placing these extremely large orders and then cancelling them prior to execution, the spoofers could cause prices to move considerably whichever the way they wanted. They could then profit off of the natural return to the normal price.
Now, the two men have been assessed fines totaling nearly $2.7 million. The penalties are split almost evenly: Khara, the main defendant in the case, will pay $1.38 million, while Salim was slapped with a $1.31 million fine. Additionally, they were indeed hit with a permanent (lifetime) ban from trading on the U.S. futures markets, which are regulated by the CFTC. Both men hail from the United Arab Emirates (UAE), located on the Arabian Peninsula.
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