United States: Will 'Aiding And Abetting' Claims Extend The Net Of Spoofing Liability?

Since the first criminal conviction for spoofing in 2015, and the many cases brought thereafter by the U.S. Commodity Futures Trading Commission ("Commission") charging spoofing, there has been widespread recognition in the derivatives industry that traders who engage in spoofing and the firms who employ them may be liable for such misconduct. What has not been understood is that the net of spoofing liability might extend beyond trading—and even beyond market participants. That changed when the Commission brought an enforcement action against Jitesh Thakkar and his company, Edge Financial Technologies—not for unlawful trading but instead for alleged aiding and abetting by developing software programs that were used in a trader's spoofing.¹ The U.S. Department of Justice ("DoJ") brought similar criminal charges against Thakkar around the same time.² This marks the first time that aiding and abetting laws have been used in the context of spoofing—but the extent of Government reach remains to be seen, especially in light of the Justice Department's lack of success at trial earlier this year against Thakkar. Considering the evidence introduced at trial and the factors required for an aiding and abetting charge, the net may not widen as far as the Government is attempting to stretch it.

This article begins with a discussion of the cases brought against Mr. Thakkar, and then considers issues raised by these efforts to extend liability, including (1) whether the allegations meet the strict standards for aiding and abetting established by the Supreme Court and Seventh Circuit Court of Appeals and (2) whether non-traders will be held liable for manipulative trading activity.

THE CASE AGAINST THAKKAR

The Commission alleges that Thakkar aided and abetted spoofing by Navinder Sarao. Comm'n Complaint at ¶ ¶ 1-4.³ According to the Commission, Thakkar worked with Sarao over the course of four years to develop and support software functionality that enabled Sarao to enter bids or offers to avoid execution, and thus commit spoofing. Id. at ¶ 2. Sarao is notorious for having earlier been charged with spoofing over several years, including as a cause of the Flash Crash in May 2010. He pled guilty to a few instances of spoofing (not including those involving the Flash Crash) and settled civil charges brought by the Commission for the same; his senReprinted with permission from Futures and Derivatives Law Report, Volume 39, Issue 7, K2019 Thomson Reuters. Further reproduction without permission of the publisher is prohibited. For additional information about this publication, please visit https://legal.thomsonreuters.com/. REPORT The Journal on the Law of Investment & Risk Management Products Futures & Derivatives Law July 2019 ▪ Volume 39 ▪ Issue 7 42481173 tencing was postponed pending his cooperation with governmental authorities.⁴ Sarao testified at the criminal trial against Thakkar as part of Sarao's cooperation agreement. Notwithstanding Sarao's testimony against Thakkar, however, the Justice Department was unable to secure a guilty verdict against Thakkar, instead facing an acquittal on the conspiracy to commit spoofing charge and a deadlocked jury on the aiding and abetting count.⁵ DoJ decided to dismiss its complaint and not pursue its remaining charge against Thakkar.⁶ Undeterred, the Commission has determined to pursue its civil complaint against Thakkar.⁷

REQUIREMENTS FOR AIDING AND ABETTING CLAIMS

The requirements to establish aiding and abetting under § 13(a) of the Commodity Exchange Act (CEA), 7 U.S.C.A. § 13c(a), are the same as that for the general criminal aiding and abetting statute, 18 U.S.C.A. § 2. See Damato v. Hermanson, 153 F.3d 464, 472-73, Comm. Fut. L. Rep. (CCH) P 27378 (7th Cir. 1998); see also Bosco v. Serhant, 836 F.2d 271, 279 (7th Cir. 1987) (noting that the CEA's § 13c(a) legislative history shows that "the aiding and abetting provision was modeled on, and was intended to be interpreted consistently with," 18 U.S.C.A. § 2). The federal aiding and abetting statute states that a person who "aids, abets, counsels, commands, induces or procures" the commission of a federal offense "is punishable as a principal." 18 U. S. C.A. § 2. As the Supreme Court has interpreted the statute, a person is liable for aiding and abetting a crime "if (and only if) he (1) takes an affirmative act in furtherance of that offense, (2) with the intent of facilitating the offense's commission." Rosemond v. U.S., 572 U.S. 65, 71, 134 S. Ct. 1240, 188 L. Ed. 2d 248 (2014).

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In Rosemond, the Court clarified the intent requirement, holding that criminal aiding and abetting can be established only "when a person actively participates in a criminal venture with full knowledge of the circumstances" constituting the charged offense. Id. at 77. Rosemond had been charged with aiding and abetting a drug trafficking operation while carrying a gun. He argued that the jury instruction stating that he need only know that his accomplice used a firearm did not satisfy the intent requirement for aiding and abetting the drug trafficking. Id. at 69-70. The Supreme Court agreed, finding that "the intent must go to the specific and entire crime charged" and holding that full knowledge requires the defendant to know the extent and character of the scheme which he was allegedly aiding and abetting. Id. at 76-77. Thus, in Rosemond, the intent element required that defendant knew of the drug trafficking scheme and that the principal's use of the firearm was in furtherance of the drug trafficking. The Court further held that the intent requirement necessitates that such knowledge be in advance of the crime—so that the defendant had a chance to "make the relevant legal (and indeed, moral) choice" and "do something with it—most notably, opt to walk away." Id. at 78. The Seventh Circuit's pattern jury instruction for an aiding and abetting claim has incorporated Rosemond and boiled it down to the definition that defendant "knowingly participated in the criminal activity and tried to make it succeed." Seventh Circuit Pattern Criminal Jury Instruction 5.06.

In addition to this authority, there are several cases addressing the elements of aiding and abetting under § 13 (a) of the CEA which are similar in scope and which the court deciding the Commission's case will undoubtedly consider. In the July 2019 | Volume 39 | Issue 7 Futures and Derivatives Law Report 2 K 2019 Thomson Reuters Seventh Circuit, aiding and abetting claims specifically under the CEA requires (in addition to proof of the underlying violation by the principal) that the aiding and abetting defendant (1) have known that the principal intended to commit the acts which violate the CEA, (2) have intended to further the principal's CEA violation, and (3) have committed some act in furtherance of the principal's scheme. See In re Dairy Farmers of America, Inc. Cheese Antitrust Litigation, 801 F.3d 758, 765, Comm. Fut. L. Rep. (CCH) P 33533, 2015-2 Trade Cas. (CCH) ¶ 79278 (7th Cir. 2015). These elements are consistent with the caselaw defining the requirements for a criminal aiding and abetting claim, supra at 3, albeit without yet referring to Rosemond's refinement as to the intent requirement.

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Footnotes

1. Complaint, Commodity Futures Trading Comm'n v. Jitesh Thakkar and Edge Fin. Techs., Inc., No. 1:18-cv-00619 (N.D. Ill. Jan. 28, 2018) ("Comm'n Complaint"), Dkt. No. 1. Defendants have denied the Commission's claims in their Answer. Id., Answer and Affirmative Defenses to Complaint for Injunctive Relief, Civil Monetary Penalties, and Other Equitable Relief (Aug. 7, 2019), Dkt. No. 26.

2. United States v. Jitesh Thakkar, No. l:18-cr00036 (N.D. Ill. Jan. 19, 2018). The Justice Department also included a charge for conspiracy to commit spoofing.

3. The Commission in its complaint refers to Sarao as "Trader A." Comm'n Complaint, 1.

4. Order, United States of America, v. Navinder Singh SARAO., 2016 WL 8792307 (N.D. Ill. 2016), Dkt. No. 58. Sarao is scheduled to be sentenced on September 26, 2019.

5. CFTC v. Thakkar et ano., supra n.1, Minute Entry on Apr. 4, 2019, Dkt No. 10 and Order entered Apr. 19, 2019, Dkt. No. 119.

6. United States' Motion To Dismiss Indictment With Prejudice, U.S. v. Thakkar, supra n. 2, Dkt. No. 132 (Apr. 23, 2019).

7. The docket reflects that the parties discussed settlement, and further that, most recently, the discussions were not successful and the case is proceeding. CFTC v. Thakkar et ano., supra n.1, Minute Order entered July 17, 2019, Dkt No. 25.

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