Ex-Deutsche Bank Trader Pleads Guilty to Metals Spoofing, Wire Fraud

Deutsche Bank has found itself facing a new situation, after one of its former traders, David Liew, submitted a guilty plea to a US Federal Court today. Liew pled guilty to spoofing gold, silver, and other metals futures while working at the lender, as he conspired to manipulate market prices.

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Mr. Liew originally began working at Deutsche Bank back in 2009 and was eventually placed at the group’s metals trading deck, a role which includes working with both base and precious metals. His tenure with the bank saw him engage in spoofing for nearly two years, a practice which involves traders illegally placing orders that they do not intend to fill in a bid to manipulate the price of a given asset, in this case precious metals.

Solo Act or Group Effort?

Until February 2012, Mr. Liew was engaged in rigging precious metals futures by transmitting orders to the Chicago Mercantile Exchange Exchange An exchange is known as a marketplace that supports the trading of derivatives, commodities, securities, and other financial instruments.Generally, an exchange is accessible through a digital platform or sometimes at a tangible address where investors organize to perform trading. Among the chief responsibilities of an exchange would be to uphold honest and fair-trading practices. These are instrumental in making sure that the distribution of supported security rates on that exchange are effectiv An exchange is known as a marketplace that supports the trading of derivatives, commodities, securities, and other financial instruments.Generally, an exchange is accessible through a digital platform or sometimes at a tangible address where investors organize to perform trading. Among the chief responsibilities of an exchange would be to uphold honest and fair-trading practices. These are instrumental in making sure that the distribution of supported security rates on that exchange are effectiv Read this Term (CME), thereby fraudulently creating a false supply and demand in order to stimulate certain reactions and prices from market participants across precious metals futures contracts.

According to documents submitted to US regulators, Mr. Liew conspired and agreed with other precious metals traders (gold, silver, platinum, and palladium) to: "Execute a scheme and artifice to defraud, and for obtaining money and property by means of materially false and fraudulent pretenses, representations, and promises, and in furtherance of the scheme and artifice to defraud, knowingly transmit, and cause to be transmitted, in interstate and foreign commerce, by means of wire communications."

The documents submitted to the court also paint a fairly concise picture of his overall tenure at Deutsche Bank, outlining his interaction and contact with more experienced members of his trading team. In particular, the documents cite his supervision and interaction with the trading team in both the United States and United Kingdom, which resulting in him being taught how to spoof from other veteran traders at the bank.

Legal Headwinds

The development is arguably the last thing Deutsche Bank needs right now as it attempts to put its past legal plights in the rear view mirror. Having just seen upbeat Q1 2017 financial results, the group had managed to weather the worst of a multi-year recovery process that saw deep cost-cutting measures and settlements with several regulatory authorities. The latest testimony and guilty plea could cast a shadow on Deutsche Bank heading into H2.

While the documents do state that Mr. Liew was working on his own, the fact that he coordinated with other members of his trading team and more importantly, was taught how to spoof from other individuals at the lender, could complicate the matter. In light of his testimony and guilty plea, Mr. Liew is cooperating with the investigation and US authorities, though prosecutors have begun examining the metals market, which could ultimately result in action against other traders at Deutsche Bank.

CFTC CFTC The 1974 Commodity Exchange Act (CEA) in the United States created the Commodity Futures Trading Commission (CFTC). The Commission protects and regulates market activities against manipulation, fraud, and abuse trade practices and promotes fairness in futures contracts. The CEA also included the Sad-Johnson Agreement, which defined the authority and responsibilities for the monitoring of financial contracts between the Commodity Futures Trading Commission and the Securities and Exchange Commiss The 1974 Commodity Exchange Act (CEA) in the United States created the Commodity Futures Trading Commission (CFTC). The Commission protects and regulates market activities against manipulation, fraud, and abuse trade practices and promotes fairness in futures contracts. The CEA also included the Sad-Johnson Agreement, which defined the authority and responsibilities for the monitoring of financial contracts between the Commodity Futures Trading Commission and the Securities and Exchange Commiss Read this Term Enforcement

The US Commodity Futures Trading Commission (CFTC) also issued an order to settle charges against Mr. Liew for his spoofing and manipulation. The manifest cites his unlawful conduct during his employment at ‘Financial Institution 1’, which also references his collaboration with a trader at another large financial institution.

Subsequently, the CFTC order permanently bans Liew from trading commodity interest, while also preventing him from engaging in other commodity-interest related activities for life. The regulator also noted his settlement and cooperation with the agency, which ultimately led to his guilty plea to charges of conspiracy to commit wire fraud and spoofing earlier this week.

According to James McDonald, the CFTC’s Director of Enforcement, in a statement on the order: “Today’s enforcement action demonstrates that the Commission will aggressively pursue individuals who manipulate and spoof in our markets. Today’s action also shows that while holding individuals accountable for their conduct, the Commission will give meaningful cooperation credit to those who acknowledge their own wrongdoing, enter into a Cooperation Agreement and provide substantial assistance to the Division in its investigations and enforcement actions against others who have engaged in illegal conduct.”