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Feds’ first-of-its-kind ‘spoofing’ case goes to trial

It takes about 300 milliseconds to blink an eye.

And that’s roughly how long high-frequency commodities trader Michael Coscia let his orders linger in CME Group markets.

Now, the 53-year-old Brooklyn native is on trial at the Dirksen Federal Courthouse for allegedly disrupting the financial markets with fast, fraudulent orders. A federal prosecutor told a jury Monday that Coscia’s orders disappeared in a “flash.” But defense attorney Steven Peikin said hundreds of milliseconds is “plenty of time” in the supercomputer world of high-frequency trading.

“Michael (Coscia) stood behind every trade he made,” Peikin said. “Every single one.”

The feds charged Coscia last fall with six counts of commodities fraud and six counts of “spoofing.” They billed the prosecution as a first under the anti-spoofing provision added by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. Coscia faces a maximum of 25 years in prison on each fraud count, and a maximum of 10 years for each spoofing count.

U.S. Attorney Zachary Fardon was among the spectators who packed U.S. District Judge Harry Leinenweber’s courtroom for opening statements in the trial expected to last more than a week. Assistant U.S. Attorney Renato Mariotti carefully walked the jury through the complicated world of commodities markets, reviewing the basic concepts of supply and demand.

Coscia, owner of Panther Energy Trading LLC, had computer programs designed to carry out his scheme, Mariotti said. Coscia, hoping to buy certain futures contracts, would allegedly flood the market with fraudulent orders to sell those contracts, and vice versa. The maneuver artificially affected the price, and the feds say Coscia designed his fraudulent orders to only last hundreds of milliseconds.

“He flashed them out there, and then quickly yanked them back,” Mariotti said.

Peikin acknowledged his client canceled orders 98 percent of the time but he called that “completely unremarkable” for a high-frequency trader. He also conceded Coscia placed more large orders than other high-frequency traders. But he said that’s because Coscia had a different strategy.

“Different doesn’t mean wrong,” Peikin said.