The Commodity Futures Trading Commission (CFTC) has ordered two New Jersey futures traders to pay a total of $2.8 million for engaging in the illegal practice of “spoofing” and banned them from trading for one year.

Panther Energy Trading LLC of Red Bank, NJ, and Michael J. Coscia of Rumson, NJ, were accused of “spoofing” by utilizing a computer algorithm that was designed to illegally place and quickly cancel bids and offers in futures contracts, including natural gas and light sweet crude oil. The CFTC concluded that the unlawful activity occurred between Aug. 8, 2011 and Oct. 18, 2011, and involved a broad spectrum of commodities.

The order requires Panther and Coscia to pay a $1.4 million civil penalty and to disgorge $1.4 in in trading profits. It is the first fine issued under Dodd-Frank’s prohibition against “spoofing,” which involves the practice of bidding or offering with the intent to cancel before execution.

According to the order, Coscia and Panther made money by using a computer algorithm that was designed to unlawfully place and quickly cancel orders in exchange-traded futures contracts. For example, Coscia and Panther would place a relatively small order to sell futures that they did want to execute, which they quickly followed with several large buy orders at successively higher prices that they intended to cancel.

“By placing the large buy orders, Coscia and Panther sought to give the market the impression that there was significant buying interest, which suggested that prices would soon rise, raising the likelihood that other market participants would buy from the small order Coscia and Panther were then offering to sell.

“Although Coscia and Panther wanted to give the impression of buy-side interest, they entered the large buy orders with the intent that they be canceled before these orders were actually executed. Once the small sell order was filled according to the plan, the buy orders were canceled, and the sequence would quickly repeat but in reverse — a small buy order followed by several large sell orders,” the CFTC said.

The CFTC found that Panther and Coscia engaged in the illegal activity in 18 futures contracts traded on four exchanges owned by CME Group. The futures contracts included the widely traded light sweet crude oil contract as well as natural gas, corn, soybean, soybean oil, soybean meal and wheat contracts.

In a related matter, the United Kingdom’s Financial Conduct Authority has fined Coscia $900,000 for his market abuse activities on the ICE Futures Europe exchange. And CME Group, by virtue of disciplinary actions taken by four of its exchanges, has imposed a fine of $800,000 and ordered disgorgement of approximately $1.3 million against Coscia and Panther, and has issued a six-month trading ban on its exchanges against Coscia.

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