DOJ seeks to exclude former CME Group CEO letter from trial of JPMorgan traders
As the trial of former JPMorgan traders accused of spoofing approaches, the disagreements about witnesses and testimony are on the rise. This is indicated by a raft of documents submitted by the Department of Justice (DOJ) and the traders on June 21, 2022 at the Illinois Northern District Court.
Let’s recall that this prosecution arises out of an alleged commodities-spoofing conspiracy perpetrated by precious-metals traders. The superseding indictment charges a conspiracy to commit racketeering activity, as well as substantive counts of fraud, spoofing, and attempted price manipulation. The defendants list includes former JPMorgan traders Gregg Smith, Michael Nowak, Christopher Jordan, and Jeffrey Ruffo.
The DOJ is arguing against the use of a comment letter from Craig Donohue, who at the time was the Chief Executive Officer of the CME Group (CME) to the Commodity Futures Trading Commission (CFTC), concerning the CFTC’s Proposed Interpretive Order on Antidisruptive Practices, which proposed to offer guidance on the anti-spoofing provision of Section 747.
The letter was written in response to the CFTC’s request for comments on its proposed interpretive guidance, and it sets forth the view that the anti-spoofing law (and indeed, Section 747 in its entirety) “is vague and susceptible to constitutional challenge because due process precludes the government from penalizing a private party for violating a rule without first providing adequate notice that his contemplated conduct is forbidden by the rule.”
Presumably, the defendants seek to cross-examine Robert Sniegowski on Mr. Donohue’s statement that “bids and offers on the electronic platform do not create an appearance of ‘false market depth’ as all bids and offers represent true and actionable market depth and liquidity until such time that they are withdrawn”, in an effort to show that the CME’s position is (or was) that there is nothing “false” about spoof orders.
According to the DOJ, the letter is internally inconsistent. While suggesting that there can be nothing “false” about market depth, it takes the position that spoofing “involves the intent to enter non bona fide orders for the purpose of misleading market participants and exploiting that deception for the spoofing entity’s benefit.”. To cross-examine Mr. Sniegowski about Mr. Donohue’s apparent view that spoofing can be misleading and deceptive but somehow not false is unfair, the DOJ says.
According to the DOJ, it is unduly prejudicial to the United States to expect Mr. Sniegowski to explain the context for Mr. Donohue’s letter. The undue prejudice to the United States is further underscored by the fact that Mr. Donohue’s letter reflected an interim advocacy position (not a final view) that was rejected by the CFTC and later abandoned by the CME.
In short, the DOJ says, the letter represents, at most, a position the CME advocated for at a particular point in time. But it relates to a regulatory notice-and-comment process that is irrelevant in this criminal prosecution, and it is not what the CME communicated to traders in its published rules and enforcement actions. The letter is inherently confusing, starts from a faulty premise about the vagueness of the law and is impossible to divorce from that premise, and is internally inconsistent (or at least, difficult to reconcile without explanation from its author).
As such, the Court not only should exclude the letter from evidence but should decline to permit the defendants to use the letter for cross-examination purposes, the DOJ concludes.