Tower Research Capital, the high-frequency trading firm, has agreed to pay $67m to settle criminal and civil fraud charges linked to alleged spoofing by three of its former commodities traders.
The settlement with the Department of Justice and the Commodity Futures Trading Commission is the largest penalty ever imposed in a spoofing case, according to the CFTC.
The case is the latest in an ongoing US crackdown on market manipulation — in which traders issue buy and sell orders they do not intend to fulfil in order to push prices up and down.
“This misconduct undermines the integrity of the price discovery process and can result, as it did here, in harm to law-abiding market participants,” said James McDonald, the CFTC’s director of enforcement.
Dan Berkovitz, a commissioner for the CFTC, dissented from the agency’s decision to grant Tower a waiver from being designated a “bad actor” and thereby limiting its ability to raise capital.
Three former Tower Research traders were indicted last year on spoofing charges. Two pleaded guilty and the third is still at large, according to court records.
On thousands of occasions in 2012 and 2013, the trio allegedly manipulated futures contracts on the Chicago Mercantile Exchange and the Chicago Board of Trade. The activities caused $33m in market losses, according to the settlements.
“This agreement includes monetary penalties, the return of unjust profits, and compensation of victims to protect our nation’s commodities markets from manipulation,” said Brian Benczkowski, chief of the DOJ’s criminal division.
Tower said it was “deeply disappointed by the conduct of the three former employees named in this case, each of whom left the firm nearly six years ago”.
It added: “Since this matter came to light, Tower has co-operated with the government’s investigation and substantially improved its compliance and control functions.”
The firm struck a deferred prosecution agreement with the justice department in which it admitted the facts of the case.
It received credit for its “extensive remedial efforts,” which included terminating the traders’ contracts, changing its senior management and making investments in trade surveillance tools, the DOJ said.
Additional reporting by Richard Henderson in New York
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