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From Securities Regulation Daily, October 8, 2015

Trading firm and owner settle 'spoofing' manipulation charges

By Kevin Kulling, J.D.

The SEC has fined a New York proprietary trading firm and one of its co-owners for engaging in a manipulative trading scheme known as “spoofing.” The illegal trading strategy involves the placing of sham buy or sell orders on the market to create the appearance of interest in certain stocks and then taking advantage of artificial changes in the price through bona fide orders placed on the opposite side of the market (In re Briargate Trading, LLC, October 8, 2015).

“Spoofing” scheme. Briargate Trading, LLC, and one of the firm’s co-owners, Eric Oscher, engaged in the illegal manipulative trading strategy between October 2011 and September 2012, primarily through Oscher’s Briargate account, according to the SEC’s order instituting proceedings.

In a spoofing scheme, a trader places non-bona-fide orders, or spoofs, that the trader does not intend to have executed, on one side of the market, according to the SEC. The non-bona fide buy or sell orders create a false appearance of buy or sell interest in the security, which often results in a price change. The trader who placed the non-bona-fide orders then places bona fide orders on the opposite side of the market for the same stock, in an attempt to take advantage of any price change resulting from the false appearance of buy or sell interest. Immediately after the bona fide orders are executed, the trader cancels the open, non-bona fide orders.

Briargate and Oscher placed a series of large, non-bona fide orders on the New York Stock Exchange prior to the opening of trading at 9 a.m. ET, according to the order. As news of Briargate’s non-bona fide orders was disseminated to the market, the information impacted the market’s perception of the demand for the stock and often the price of the stock. Oscher and Briargate also sent orders in the same security, but on the opposite side of the market, to other exchanges that opened before the NYSE. Then, still prior to the NYSE opening, Oscher cancelled the non-bona-fide NYSE orders and Briargate profitably unwound the positions it had acquired on other exchanges, according to the order.

Prior to co-founding Briargate in 2009, Oscher was employed as a specialist on the NYSE.

Sanctions. Pursuant to the settlement, Oscher and Briargate agreed to disgorge $525,000 of gains that resulted from the spoofing scheme and pay prejudgment interest totaling $37,842.32. In addition, Briargate will pay a civil penalty of $350,000 and Oscher will pay a $150,000 penalty. Both Oscher and Briargate are required to cease and desist from committing or causing any future violations of the securities laws. In settling, Oscher and Briargate consented to the entry of the order but did not admit or deny the findings.

The release is No. 33-9959.

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