New Canaan Man Arrested In Federal 'Deceptive Trading' Case

NEW CANAAN, CT — A 55-year-old New Canaan man, and a 53-year-old Southport man, were among eight suspects arrested by federal authorities Monday in connection with "various deceptive trading practices on commodities markets in the United States," the U.S. Justice Department announced.

New Canaan resident Edward Bases and Southport resident John Pacilio are among the suspects "charged with the crime of spoofing, an illegal trading practice that can be used to manipulate the commodities markets." Both Bases and Pacilio were employed as precious metals traders at unnamed global financial institutions, and are among only about a half-dozen people to ever be charged with spoofing.

"As alleged, the defendants in these cases engaged in sophisticated schemes or trading practices aimed at defrauding individuals and entities trading on U.S. futures exchanges," said Acting Assistant Attorney General John P. Cronan in a statement. "Conduct like this poses significant risk of eroding confidence in U.S. markets and creates an uneven playing field for legitimate traders and investors. The Department and our law enforcement partners will use all of the tools at our disposal, including cutting-edge data analysis, to detect these types of schemes and to bring those who engage in them to justice. Protecting the integrity of our markets remains a significant priority in our fight against economic crime."

The practice of spoofing was "allegedly employed in various forms by the defendants and/or their co-conspirators to manipulate the market for futures contracts traded on the Chicago Mercantile Exchange (CME), the Chicago Board of Trade (CBOT), and the Commodity Exchange Inc. (COMEX)."

They allegedly defrauded market participants and manipulated these markets by placing hundreds, and in some cases, thousands of orders that they did not intend to trade, or "spoof orders," to create the "appearance of substantial false supply and demand and to induce other market participants to trade at prices, quantities, and times that they otherwise would not have traded." According to prosecutors, the spoof orders often had the effect of "artificially depressing or artificially inflating the prices of futures contracts traded on CME, CBOT, and COMEX." To take advantage of the artificial price levels created by the spoof orders, the suspects and others allegedly executed real, genuine orders to buy (at the artificially low prices) or to sell (at the artificially high prices) in order "to generate trading profits or to illicitly mitigate other trading losses."

Added Deputy Assistant Director Chris Hacker, "The FBI has taken enforcement action against multiple commodities traders who, for their own personal gain, were spoofing trades through electronic trading platforms. Their deceptive trading artificially affected the perception of supply and demand in the market and took away a level playing field for investors. We ask for those who observe indicators of this type of fraud to come forward to law enforcement so that we can stop those who attempt to exploit our financial system."

"Spoofing is a particularly pernicious example of bad actors seeking to manipulate the market through the abuse of technology," said Director James McDonald of the U.S. Commodity Futures Trading Commission’s (CFTC) Division of Enforcement in a statement. "The technological developments that enabled electronic and algorithmic trading have created new opportunities in our markets. At the CFTC, we are committed to facilitating these market-enhancing developments. But at the same time, we recognize that these new developments also present new opportunities for bad actors. We are equally committed to identifying and punishing these bad actors. The CFTC’s enforcement program is built around the twin goals of holding wrongdoers accountable and deterring future misconduct. We believe these goals are best achieved when we hold accountable not just companies, but also the individuals involved. As these cases show, we will work hard to identify and prosecute the individual traders who engage in spoofing, but we will also seek to find and hold accountable those who teach others how to spoof, who build the tools designed to spoof, or who otherwise aid and abet the wrongdoing. These cases should send a strong signal that we at the CFTC are committed to identifying individuals responsible for unlawful activity and holding them accountable."

Below are the eight suspects and their charges:

Northern District of Illinois

Six individuals have been charged in four cases with spoofing and/or manipulative conduct charged in the Northern District of Illinois including:

• James Vorley, 37, of the United Kingdom, and Cedric Chanu, 39, a French citizen, are charged in a criminal complaint with conspiracy, wire fraud, commodities fraud, and spoofing offenses in connection with executing a scheme to defraud involving both solo and coordinated spoofing on the COMEX while they were employed as precious metals traders at a leading global financial institution. Vorley was based in London, United Kingdom and Chanu was based in London, and the Republic of Singapore.
• Edward Bases, 55, of New Canaan, Connecticut, and John Pacilio, 53, of Southport, Connecticut, are charged in a criminal complaint with commodities fraud in connection with an alleged scheme to engage in both solo and coordinated spoofing on the COMEX when they were employed as precious metals traders at a leading global financial institution. Bases is also charged with spoofing offenses. Bases and Pacilio were based in New York City.
• Jitesh Thakkar, 41, of Naperville, Illinois, is charged in a criminal complaint with conspiracy and spoofing offenses alleging that Thakkar developed a software program that was used by Thakkar’s co-conspirator to engage in spoofing through the placement of thousands of orders on the CME when Thakkar was the founder and principal of Edge Financial Technologies Inc. (“Edge”), an information technology consulting firm located in Chicago, Illinois.
• Jiongsheng (“Jim”) Zhao, 30, of Australia, is charged in a criminal complaint with wire fraud, commodities fraud, making false statements to the CME, and spoofing offenses when he was a trader at a proprietary trading firm located in Sydney, Australia. According to the complaint, data analysis identified hundreds of instances of spoofing by Zhao on the CME between approximately July 2012 and March 2016. Additionally, the complaint alleges that Zhao made false written statements to the CME after being confronted with allegations of his disruptive trading practices.

District of Connecticut

• Andre Flotron, 53, a Swiss national currently residing in Wayne, New Jersey, has been charged in an indictment in the District of Connecticut with conspiracy to commit spoofing, wire fraud, and commodities fraud when he was a UBS AG precious metals trader at UBS’s trading desks in Stamford, Connecticut and Zurich, Switzerland. The indictment also alleges that Flotron trained and instructed another UBS trader in the practice of using spoof orders.

Southern District of Texas

• Krishna Mohan, 33, of New York, New York, is charged in a criminal complaint filed in the Southern District of Texas with commodities fraud and spoofing offenses when he was employed as a programmer and trader at a proprietary trading firm in Chicago, Illinois. According to the complaint, data analysis identified that Mohan engaged in a pattern of spoofing over a thousand times in a two-month period.

The cases were investigated and coordinated by the Criminal Division Fraud Section’s Securities and Financial Fraud Unit and the U.S. Attorney’s Office for the District of Connecticut, in conjunction with special agents from FBI Offices in New York, Chicago, Connecticut, and Houston, and with invaluable assistance from the Fraud Section’s partners at the U.S. Attorney’s Office for the Northern District of Illinois, the U.S. Attorney’s Office for the Southern District of Texas, the U.S. Postal Inspection Service and the CFTC’s Division of Enforcement. The cases are being prosecuted by Assistant Chiefs Nicholas Surmacz and Carol Sipperly and Trial Attorneys Michael O’Neill, Matthew Sullivan, Jeffrey Le Riche, Michael Rinaldi, Corey Jacobs, and Mark Cipolletti of the Fraud Section’s Securities and Financial Fraud Unit, along with Assistant U.S. Attorney Avi Perry of the U.S. Attorney’s Office for the District of Connecticut.

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