EX-Commodities Trader at Two Banks Pleads Guilty to Metals Fraud

Flaum, 41, agreed to meet with investigators and has been cooperating against unnamed co-conspirators.

A former commodities trader charged with participating in a “spoofing” scheme to maximize profits on the precious metals market pled guilty in a US federal court on Thursday.

From around 2007 through 2016, Corey Flaum conspired with other gold, silver, platinum and palladium traders to place hundreds of buy or sell orders that he intended to cancel and not to execute at the time he placed the orders, a practice known as spoofing.

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Flaum, 41, who pleaded guilty to two counts of conspiracy to commit wire fraud, agreed to meet with investigators and has been cooperating against unnamed co-conspirators, court records show. He is scheduled to be sentenced on October 29.

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The documents submitted to the court also paint a fairly concise picture of his overall tenure at the New York offices of a US bank and a Canadian bank, outlining his interaction and contact with more experienced members of his trading team. In particular, the documents cite his supervision and interaction with more senior traders at the banks, which resulted in him being taught how to spoof from other veteran traders.

Rigging Precious Metals Futures

Regulators and exchanges have stepped up their policing of spoofing in recent years. However, the people and firms they previously focused on were rather small-time avid gamers in markets.

This has changed recently as big banks such as Deutsche Bank, HSBC, and UBS were hit by penalties, the largest of which was a $30 million fine for Germany’s biggest bank. The Swiss bank UBS has also found itself facing similar accusations after some of its spot traders used phony trade orders to manipulate precious metals futures traded on the COMEX. The bank agreed to pay a penalty of $15 million to settle the ‘spoofing’ charges brought by the CFTC.

Spoofing, in general, is a practice in which a trader floods the market with fake orders by entering and quickly canceling large buy or sell orders on an exchange, to fool other traders into thinking the market is poised to rise or fall. Though the tactic has long been used by some traders, regulators began clamping down on the practice only a few years ago.

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