by John F. Savarese, David B. Anders, and Louis J. Barash

Late last week, the government won a jury verdict in a major “spoofing” trial.  United States v. Vorley, No. 18 CR 00035 (N.D. Ill. Sept. 25, 2020).  The jury found that Vorley and his co-defendant violated the federal mail fraud statute by placing orders that they did not intend to execute, in the hope that such orders would move the market and enable them to execute other profitable orders. 

As noted in our annual memorandum summarizing key white-collar matters to watch in 2020, Vorley is the first spoofing conviction under the mail fraud statute, as opposed to the commodities law provisions of the Dodd-Frank law that expressly prohibit spoofing.  Unless reversed on appeal, this conviction – especially when coupled with the government’s other early successes in this area that we noted in our January 30 memorandum – will likely embolden prosecutors to aggressively pursue additional spoofing cases. 

Although these convictions were aimed at individual traders, these cases also pose risks for the financial institutions that had employed such traders.  To mitigate those risks, institutions should take care to ensure that they implement and enforce appropriate policies and procedures aimed at preventing spoofing, develop mandatory training for traders in relevant markets, and use computer-assisted surveillance to detect large withdrawn orders with nearly simultaneous executions on the contra side of such orders, with appropriate supervisory and compliance review of any such detected patterns.

John F. Savarese, David B. Anders, and Louis J. Barash are partners at Wachtell, Lipton, Rosen & Katz. 

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