SEC Hits Day Trader with $205K Fine in Spoofing Case

The SEC action centered on spoofing activity carried out by Nicholas Mejia Scrivener, a Florida resident.

The Securities and Exchange Commission today settled spoofing charges against a day trader who the agency says had manipulated securities markets in a fraudulent trading scheme that netted him $140,000 in profits.

The SEC action is focused on a spoofing activity carried out by Nicholas Mejia Scrivener, a Florida resident. This activity occurred in a scheme that ran from February 2015 through September 2016 and involved dozens of fraudulent orders that were canceled before execution, a practice known as spoofing.

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While there is nothing wrong with canceling orders, the regulator said the trader capitalized on the increased buying or selling interest that spoof orders created. He placed the genuine order, which he intended to execute, on the opposite side of the market. Then, the spoof orders were canceled within seconds of the genuine order being filled and only after prices moved in the direction the spoofer wanted.

Scrivener engaged in this strategy in multiple brokerage accounts that he controlled, held both in his own and in his wife’s names, sometimes simultaneously trading in the same security on multiple accounts.

In settling the CFTC case, Scrivener has been ordered to pay $205,000 in fines, disgorgement and prejudgment interests.

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The court papers described a few examples of the alleged plot, explaining that a broker dealer where Scrivener had held his account spotted his manipulative trades, and then he closed his account in June 2015. However, Scrivener opened another account with the same broker a few months later in his wife’s name and continued his manipulative trading until March 2016, when the broker-dealer closed that account as well.

The SEC’s Document Further Reads:

“For example, after establishing a long position in a stock, Scrivener would place multiple orders to buy that stock, at multiple price levels, often at then-prevailing market prices, without an intent to execute those orders, but rather to create a false appearance of buy interest for the stock at those price levels. Once his non-bona fide buy orders had the desired effect and led to an increase in the market price of the stock, Scrivener entered bona fide sell orders to benefit from the artificially created price increase.”

The case is the latest in a series of prosecutions brought by US regulators as they have cracked down on spoofing.

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 amid gamers in markets. Earlier in January, regulators also ordered Citigroup to settle charges of $25 million. This spoofed the Treasury futures market, which was the biggest settlement to date.

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. This is 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 have only began clamping down on the practice in the last few years.

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