Layering, a ‘spoofing’ tactic, is a market manipulation scheme where a trader places orders to give a fake impression of an intention to buy or sell shares. This manipulates share prices, allowing traders to exploit the price moves to make profits and then cancel the remaining fake orders.
The following factors can affect the criminal defense of those accused of layering:
- Whether the market participant’s intent was to induce others to trade when they otherwise would not.
- Whether the market participant’s intent was to affect a price rather than to change his position.
- Whether the market participant’s intent was to create misleading market conditions.
- The ability of the market participant to manage the risk associated with the order(s) if fully executed.
- The change in the best offer price, best bid price, last sale price, or Indicative Opening Price that results from the entry of the order.
- The accused did not establish a safe harbor for the amount of time that an order must be exposed to the market to demonstrate that it was not a disruptive trade practice.
- The accused continued to permit market participants to modify or cancel orders, provided that there was an intent to enter a bona fide transaction at the time the order was submitted.
- Securities Crimes
- Wire Fraud
- Mail Fraud
Trillium Brokerage Services, through 9 proprietary traders, entered legitimate limit orders and numerous large, layered, non-bona fide orders to create a false appearance of buy- or sell-side pressure and to generate selling or buying interest in the stocks in question. This induced other market participants to enter orders that executed against the limit orders previously entered by the Trillium traders. Once their limit orders were filled, the Trillium traders would then immediately cancel the non-bona fide orders. As a result of this improper high frequency trading strategy, Trillium’s traders obtained advantageous prices that otherwise would not have been available to them on some 46,000 occasions. FINRA censured and fined Trillium $1 million and took action against the 9 traders and Trillium’s Director of Trading and its Chief Compliance Officer. The 11 individuals were suspended from the securities industry or as principals for periods ranging from six months to two years. FINRA levied a total of $802,500 in fines against the individuals, ranging from $12,500 to $220,000, and required the traders to pay out disgorgements totalling about $292,000.
If you have been accused of layering, spoofing or other white collar crimes (including securities crimes, wire fraud, & mail fraud), contact The Blanch Law Firm immediately at 212-736-3900.