On March 4, the Commodity Futures Trading Commission (CFTC) Whistleblower Program posted a Notice of Covered Action (NCA) for enforcement actions charging an Australian-based proprietary trading firm, Propex Derivatives Pty Ltd, and trader, Jiongsheng Zhao, with spoofing in the Chicago Mercantile Exchange E-mini S&P 500 futures market.
According to the CFTC, from at least July 2012 through at least March 2017, Zhao “repeatedly engaged in manipulative or deceptive acts and practices by ‘spoofing’” on behalf of Propex. Spoofing is the act of placing an order in a futures market with the intention to cancel the order prior to execution.
The CFTC alleges that “[o]n thousands of occasions, Zhao placed an order that he wanted to execute and thereafter entered a larger order on the opposite side of the market that he intended to cancel before execution. In placing these larger spoof orders, Zhao intentionally or recklessly sent false signals of increased supply or demand designed to trick market participants into executing against the orders he wanted filled.”
The CFTC’s order filing and settling the charges against Propex includes a total of $1 million in sanctions. Propex will pay $464,300 in restitution, $73,429 in disgorgement, and a $462,271 civil monetary penalty. Zhao will pay an additional $21,000 in disgorgement.
“This enforcement action demonstrates, once again, the continued parallel efforts between the CFTC and our law enforcement partners to preserve market integrity and protect market participants,” said CFTC Director of Enforcement James McDonald. “This action also shows the CFTC’s commitment to holding wrongdoers accountable wherever they may be located, including halfway around the globe.”
In January 2020, the CFTC issued a whistleblower alert calling on individuals to report instances of spoofing. The alert notes that “individuals can become eligible for both financial awards and certain protections by identifying Commodity Exchange Act (CEA) violations connected to spoofing.”
Through the CFTC Whistleblower Program, qualified whistleblowers, individuals who voluntarily provide original information which leads to a successful enforcement action, are entitled to a monetary award of 10-30% of funds recovered by the government in the action.
The NCA posted for the recent spoofing actions is a signal that the CFTC is now accepting whistleblower award applications in connection with the case. Whistleblowers have until June 2, 2022 to file a Form WB-APP claiming an award for the case.
In October 2021, the CFTC issued a record $200 million whistleblower award. Other whistleblower awards issued by the agency in 2021 include a $3 million award from April and a $1 million award from November.