February 01, 2019
by Katherine Cooper

            On January 31, 2019, the Commodity Futures Trading Commission issued a speaking order[1] simultaneously setting forth and settling allegations that Chicago resident, Kevin Crepeau, spoofed the Chicago Board of Trade’s soybean, soybean meal and soybean oil futures contracts from August 2013 through June 2016.   The case represents a continuation of a spate of spoofing cases that the CFTC has brought in increased frequency beginning with its joint “Spoofing Takedown” with the Department of Justice in late January 2018.  As summarized in our In-Depth Analysis of the CFTC’s Division of Enforcement Fiscal Year 2018 Report, the CFTC brought 15 spoofing cases in fiscal year 2018.  The Crepeau case demonstrates that rooting out, and bringing to justice, spoofing is a continuing priority for the CFTC’s Enforcement Division.  In addition, the CBOT simultaneously issued a Notice of Disciplinary Action[2] against Crepeau for the same conduct.

            In In re Crepeau, the CFTC alleges that Crepeau, as a trader for a proprietary trading firm, violated Section 4c(a)(5)(C) of the Commodity Exchange Act, 7 U.S.C. § 6c(a)(5)(C), by placing small (genuine orders) on one side of the market while placing large orders not meant to be filled (but designed to send a false signal to the market regarding supply and demand) on the opposite side of the market (spoofing orders). Although spoofing may be getting to be a bit old hat, Crepeau did appear to place his genuine orders in a novel way:

Crepeau used an automated spread trading function to place relatively small bids and offers on one side of the market . . . and manually placed relatively large bids or offer on the opposite side of the market . . . .[3]

Although the speaking order does not specify what “automated spread trading function” Crepeau used to place his genuine orders, the CBOT Notice of Disciplinary Action makes clear that Crepeau was using an automated calendar spread function (as opposed to an inter-commodity spread function).  The Crepeau matter represents the first time that a spoofing case involved the use of an auto spreading function to place genuine orders and apparently the spoofing of both legs of calendar spreads.[4]  It also represents the first case involving the spoofing of soybean oil futures.[5]

            In any event, one clear takeaway from In re Crepeau is that spoofing surveillance algorithms need to consider bids and offers resulting from implied orders as potentially being genuine orders as part of a spoofing attempt.

            The order mandates that Crepeau, among other things, cease and desist from further violations of Section 4c(a)(5)(C) of the CEA, pay a $120,000 civil monetary penalty and not trade on a CFTC regulated trading platform for four months.  The CBOT Notice of Disciplinary Action orders Crepeau to pay a fine of $30,000 and suspends his direct and indirect access to all electronic trading and clearing platforms owned or operated by CME Group for four months.

 

[1] CFTC Docket No. 19-05 (Jan. 31, 2019).

[2] CBOT-16-0466-BC (Jan. 31, 2019)

[3] In re Kevin Crepeau, Docket No. 19-05 at 2 (CFTC Jan. 31, 2019) Available at: https://www.cftc.gov/sites/default/files/2019-01/enfkevincrepeauorder013119.pdf

[4] See In-Depth Analysis of the CFTC’s Division of Enforcement Fiscal Year 2018 Report at 4.

[5] Id. at 3.

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