A Japan-based banking corporation settled charges with the CFTC (the "Division") that it engaged in multiple acts of spoofing. According to the CFTC Order, the spoofing occurred in a variety of futures contracts on the Chicago Mercantile Exchange and the Chicago Board of Trade, including contracts based on U.S. treasury notes and Euros.

The Order found that the Bank of Tokyo-Mitsubishi UFJ, Ltd. ("BTMU") engaged in spoofing through one of its traders who utilized a trading platform in one of BTMU's Tokyo offices. According to the CFTC, from 2009 until 2014, the trader "submitt[ed] orders on opposite sides of the same market at nearly the same time" in order to move the market in a direction that favored his orders. Once aware of the misconduct, BTMU suspended the trader and reported the spoofing activities voluntarily to the CFTC Division of Enforcement.

BTMU responded by conducting an internal review, assisting the CFTC with its investigation, updating its policies and training, and revising its systems and controls significantly in order to identify and prevent future misconduct.

CFTC Enforcement Director James McDonald stated that the case demonstrates "the benefits of self-reporting and cooperation." He added that the Bank of Tokyo "benefitted from its self-reporting and cooperation in the form of a substantially reduced penalty."

BTMU will pay a $600,000 civil monetary penalty.

Commentary / Bob Zwirb

In this case we have alleged wrongdoing by an individual who traded on behalf of his employer (BTMU). But it appears that it is the employer, not the individual, who is being held accountable. Moreover, this is not a failure to supervise the case, as one might expect in these circumstances; rather, it is the employer that is being held strictly liable for the wrongdoing of the trader.

While all this is kosher with the law (see CEA Section 2(a)(l)(B) of the Act, which holds principals strictly liable for the acts, omissions and failures of their agents), one wonders why the Division of Enforcement is so eager to exercise its authority here and, in effect, extract a pound of flesh against a firm that did so much right, as the Division acknowledges. For example, once BTMU became aware of the trader's misconduct, according to the CFTC, it "promptly" took a series of steps to remedy the situation, including:

  • suspending the trader and reporting the conduct to the Division;
  • commencing an "expansive internal review" and assisting the Division's investigation of the conduct, which, according to the Order, expedited the Division's investigation;
  • launching an overhaul of its systems and controls and implementing a variety of enhancements to detect and prevent similar misconduct;
  • revising its policies, updating its training, and implementing electronic systems to identify spoofing; and
  • automating anti-spoofing measures to review trading data and communications for suspicious activity.

The reward for all these good deeds? BTMU was put on the wrong end of a press release with a misleading headline accusing the firm, rather than the individual trader, of engaging in spoofing. To add insult to injury, it has to pay a $600,000 civil penalty, with no explanation for how this penalty was calculated other than an implicit reference that it somehow benefited from self-reporting and cooperation.

Well, as the little child's book says, "it could have been worse," and maybe that's all the government wants us to know here.

The CFTC Enforcement Director states that he seeks to "incentivize" firms to voluntarily report misconduct and cooperate with the Division, "as BTMU did here." One wonders, however, what incentives (if any) there are for the individuals directly responsible for such wrongdoing to refrain from such misconduct if it is their employer, rather than themselves, that has to pay the piper.

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