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From Securities Regulation Daily, October 12, 2018

CFTC settles with spoofer who pleaded guilty to federal criminal charges

By Mark S. Nelson, J.D.

The CFTC announced that it brought a settled administrative proceeding against Kamaldeep Gandhi who admitted to participating in a scheme to place spoofed orders in numerous futures contracts. Gandhi also has pleaded guilty to related federal criminal charges. In addition to admitting the CFTC’s findings, Gandhi must cease and desist from further commodities violations and he is subject to a trading ban. But the Commission said it was still mulling whether to impose a monetary sanction in light of Gandhi’s cooperation (In the Matter of Kamaldeep GandhiCFTC Docket No. 19-01, October 11, 2018).

Icebergs and order splitters. According to the CFTC and federal prosecutors in Houston, Gandhi conspired with others to engage in spoofing and other unlawful activities while he was employed at two trading firms. The scheme targeted numerous futures contracts, including the E-Mini S&P 500, E-Mini NASDAQ 100, and the E-Mini Dow. Prosecutors put the total dollar value of the fraud and spoofing scheme at $60 million.

The CFTC’s order described how Gandhi used a small number of genuine "iceberg" orders on one side of the market while also placing on the opposite side of the market orders he never intended to execute, or in other words, spoofed orders. The CFTC further explained that Gandhi used an order splitter to break up his orders into varying sizes in order to hide the scheme.

The Gandhi plea deal and settlement with the CFTC were an outgrowth of a larger investigation that resulted in a raft of civil and criminal charges earlier this year. Krishna Mohan, also charged in the spoofing case, likewise agreed to plead guilty to federal criminal charges. However, Yuchun "Bruce" Mao, who was indicted, apparently has not pleaded guilty.

CFTC official links cooperation and monetary sanctions. Federal prosecutors indicated they will continue to pursue spoofing cases because of their market-distorting effects and that prosecutors in the Gandhi case worked closely with officials from the CFTC’s division of Enforcement.

"The Southern District of Texas aggressively prosecutes white collar crime," said U.S. Attorney Ryan K. Patrick. "Home to the second most Fortune 500 companies in the nation, our Houston division is uniquely suited to prosecute white collar fraud in whatever form it comes, and we enjoy terrific relationships with law enforcement partners around the country and from around the world."

CFTC Enforcement Director James McDonald emphasized the many tools available to the agency. "This includes the fact that, in certain cases under the Division’s enhanced cooperation program, the Commission may elect to postpone the evaluation and assessment of monetary sanctions until cooperation is substantially complete."

The release is CFTC Docket No. 19-01.

MainStory: TopStory CFTCNews CommodityFutures Enforcement FraudManipulation

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