Former Deutsche Bank traders have their appeal in spoofing case nixed
Former Deutsche Bank traders James Vorley and Cedric Chanu were dealt a heavy blow on July 6, 2022, as the United States Court of Appeals for the Seventh Circuit tossed their appeal in a spoofing lawsuit.
As per documents, seen by FX News Group, the Appeals Court affirmed a judgment by the District Court.
Deutsche Bank employed Chanu and Vorley as precious metals traders. Vorley traded precious metals futures contracts from May 2007 through March 2015 while based in London. Chanu was similarly a precious metals futures contract trader from March 2008 through May 2011 in London and from May 2011 through December 2013 in Singapore.
Turning to the conduct underpinning the criminal case, Chanu and Vorley placed orders for precious metals futures contracts on one side of the market that, at the time the orders were placed, they intended to cancel prior to execution. The government alleged that Chanu and Vorley placed such orders with the intent “to create and communicate false and misleading information regarding supply or demand (i.e., orders they did not intend to execute) in order to deceive other traders” and entice them to react to the false and misleading increase in supply or demand.
At all times relevant to this case, CME rules prohibited such conduct. Specifically at issue was Chanu and Vorley’s manual “spoofing” conduct, which involved placing “fake bids and offers” to “trick other market participants.”
The traders communicated amongst themselves via electronic chat. These included Vorley saying “UBS and this spo[o]fing is annoying me … it[’]s illegal for a start” and Chanu applauding another trader for tricking the algorithm.
Defendants were charged with conspiracy to commit wire fraud affecting a financial institution under 18 U.S.C. § 1343; on appeal, however, they argued any trading conduct akin to “manual spoofing” was not criminal prior to the Dodd‐Frank Wall Street Reform and Consumer Protection Act.
Chanu and Vorley’s trial was held in September 2020.
The jury deliberated for four days and returned several deadlock notes before acquitting Chanu and Vorley on the conspiracy count. Vorley was convicted of three counts of wire fraud (Counts 2, 8, 10), and Chanu was found guilty of seven counts of wire fraud (Counts 3, 9, 11, 12, 14, 15, and 16).
The district court denied defendants’ motion for a judgment of acquittal and motion for a new trial. The district court sentenced Vorley and Chanu to one year and one day of imprisonment. Chanu and Vorley then appealed.
On appeal, Chanu and Vorley raised four issues:
- whether “spoofing” of readily tradeable, at‐risk orders that a trader is willing to honor if executed violates the wire fraud statute;
whether the district court correctly instructed the jury;
whether the district court abused its discretion in admitting Vorley’s chat message stating that a competitor bank’s “spo[o]fing is … illegal”; and
whether this case should be dismissed under the Speedy Trial Act.
The wire fraud statute, 18 U.S.C. § 1343, criminalizes the use of wire, radio, or television communications to effect “any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses .…” To convict on wire fraud, the government must prove three elements: (1) the defendant participated in a scheme to defraud; (2) the defendant intended to defraud; and (3) a use of an interstate wire in furtherance of the fraudulent scheme.
Defendants contest the applicability of the wire fraud statute in this case, claiming that the government charged them with wire fraud “in order to retroactively criminalize manual spoofing that pre‐dated the July 16, 2011 effective date of Dodd‐Frank using the 10‐year statute of limitations for wire fraud that affects a financial institution.”
By Chanu and Vorley’s formulation, acceptance of the government’s theory “would transform the federal wire fraud statute into an allpurpose law for criminalizing violations of exchange rules— or any trading tactics the government deems to be dishonest— because such violations or tactics could always be characterized as implied misrepresentations of good faith.”
To avoid this outcome, Chanu and Vorley raise two primary arguments. First, they contend that the wire fraud statute requires proof of an affirmative (rather than implied) misrepresentation. And second, even if an implied misrepresentation is enough, the defendants insist that their implied misrepresentations— i.e., the implied misrepresentation that Chanu and Vorley wanted to fill, not cancel, their spoofing orders— could not be material.
To answer whether this manual spoofing conduct violated the wire fraud statute, the Court asked two questions: Was there a scheme to defraud by means of false representations or omissions, and were such false representations or omissions material?
Answering both questions in the affirmative, the Appeals Court concluded Chanu and Vorley’s conduct was within the reach of the wire fraud statute.
The Court noted that the defendants argue that their readily tradeable bids and offers are not rendered “false” by their subjective intent to cancel.
The Court agreed that by simply placing an order, a trader is not certifying it will never be cancelled. Instead, the order placement signals a trader’s intent to buy or sell. By obscuring their intent to cancel, through an orchestrated approach, Chanu and Vorley advanced a quintessential “half‐truth” or implied misrepresentation—the public perception of an intent to trade and a private intent to cancel in the hopes of financial gain.
The Court remained unconvinced by defendants’ arguments to the contrary. Thus, it found Chanu and Vorley’s actions amounted to a scheme to defraud by means of false representations or omissions.