Prosecutors behind a sweeping US crackdown on market “spoofing” scored a big win on Friday when former Deutsche Bank traders Cedric Chanu and James Vorley were convicted of fraud for manipulating gold and silver prices.
A federal jury in Chicago, after three days of deliberations, concluded Mr Chanu and Mr Vorley made bogus trade orders between 2008 and 2013 to illegally influence precious metals prices. The week-long trial was the latest US prosecution of a “spoofing” case since the global market “flash crash” in 2010.
Mr Chanu and Mr Vorley engaged in a classic “bait and switch” by placing orders they never intended to execute and then cancelling them, which “weaponised” the forces of supply and demand to mislead other traders, prosecutor Brian Young told jurors in closing arguments on Tuesday.
Spoofing occurs when a trader enters buy or sell orders and then cancels them before they are executed, creating a false market indicator that can generate profit by taking the opposite position. While cancelling orders isn’t prohibited, the 2010 Dodd-Frank Act made it illegal to place orders with no intention of executing them.
Transcripts of messages the two traders sent show they knew what they were doing was wrong, Mr Young said. In one instance, Mr Vorley wrote: “This spoofing is annoying me. It’s illegal for a start”.
The star witness at the trial was their former Deutsche Bank coworker, David Liew, who told the jury he learned from Mr Chanu and Mr Vorley how to use spoof trades to manipulate prices. Mr Liew faces his own criminal charges and agreed to cooperate with the government.
Mr Chanu was convicted on seven fraud counts and Mr Vorley on three counts, while they were found not guilty of other charges, including conspiracy. Each count carries a maximum penalty of 30 years in prison, though US District Judge John Tharp said the government would seek about four or five years. Sentencing was set for January 21, and both men remain free on bail.
Mr Vorley’s attorney, Roger Burlingame, said he’ll appeal against the conviction. He called the prosecution “misguided” because his client’s trading was “well within the law”.
“It was a compromise verdict by a jury that three times declared it was deadlocked, deliberating in the face of a Covid scare,” Mr Burlingame said. The jury had been reduced to 11 after one juror complained of coronavirus-like symptoms and was dismissed. “The record is clear, there was no fraud. The compromise conviction will not stand.”
Mr Chanu’s attorney, Michael McGovern, said in an email that he was “gratified that the jury unanimously acquitted Cedric on the conspiracy and other charges, and we intend to continue the fight as to the remaining charges”.
The prosecutor declined to comment after the verdict.
Since anti-spoofing laws passed under the Dodd-Frank financial reforms a decade ago, the US has prosecuted about a dozen criminal cases, including Navinder Sarao, the British day trader linked to the 2010 “flash crash” that erased $1 trillion (Dh3.67tn) in market value.
The Commodity Futures Trading Commission also has stepped up civil complaints and reached many settlements, including a $30 million deal with Deutsche Bank in 2018. JPMorgan Chase is poised to pay close to $1 billion to resolve market manipulation investigations by US authorities into its trading of metals futures and Treasury securities, Bloomberg reported on Wednesday.
While prosecutors have secured several guilty pleas in spoofing cases – including Mr Liew, Mr Sarao and others – they’d had mixed results at trial.
In 2015, Michael Coscia was convicted in Chicago and sentenced to three years in prison. In 2018, Andre Flotron was acquitted after a federal judge in Connecticut threw out most of the charges on the grounds that the case should have been brought in Chicago, where the trading occurred. Last year, the case against Chicago programmer Jitesh Thakkar, the first non-trader prosecuted under anti-spoofing laws, ended in a mistrial and charges were dropped.
Defence lawyers for Mr Chanu and Mr Vorley didn’t present any witnesses at the trial. While questioning prosecution witnesses, they emphasised how difficult it is to determine criminal intent for “spoofing” in competitive global markets where traders keep strategies secret and try to outmanoeuvre rivals. The defence team cited several examples of legal trading practices that allow market players to hide their intentions from everyone else.
“If you fake a pass and run the ball, that’s competition, not fraud,” Mr Burlingame told the jurors during closing arguments on Tuesday. Every order placed by Vorley was “100 per cent real”, he said.
What drives subscription retailing?
Once the domain of newspaper home deliveries, subscription model retailing has combined with e-commerce to permeate myriad products and services.
The concept has grown tremendously around the world and is forecast to thrive further, according to UnivDatos Market Insights’ report on recent and predicted trends in the sector.
The global subscription e-commerce market was valued at $13.2 billion (Dh48.5bn) in 2018. It is forecast to touch $478.2bn in 2025, and include the entertainment, fitness, food, cosmetics, baby care and fashion sectors.
The report says subscription-based services currently constitute “a small trend within e-commerce”. The US hosts almost 70 per cent of recurring plan firms, including leaders Dollar Shave Club, Hello Fresh and Netflix. Walmart and Sephora are among longer established retailers entering the space.
UnivDatos cites younger and affluent urbanites as prime subscription targets, with women currently the largest share of end-users.
That’s expected to remain unchanged until 2025, when women will represent a $246.6bn market share, owing to increasing numbers of start-ups targeting women.
Personal care and beauty occupy the largest chunk of the worldwide subscription e-commerce market, with changing lifestyles, work schedules, customisation and convenience among the chief future drivers.
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
Killing of Qassem Suleimani
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Name: Yousef Al Bahar
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Education: Mr Al Bahar was born in 1979 and graduated in 2008 from the Judicial Institute. He took after his father, who was one of the first Emirati lawyers
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Ten tax points to be aware of in 2026
1. Domestic VAT refund amendments: request your refund within five years
If a business does not apply for the refund on time, they lose their credit.
2. E-invoicing in the UAE
Businesses should continue preparing for the implementation of e-invoicing in the UAE, with 2026 a preparation and transition period ahead of phased mandatory adoption.
3. More tax audits
Tax authorities are increasingly using data already available across multiple filings to identify audit risks.
4. More beneficial VAT and excise tax penalty regime
Tax disputes are expected to become more frequent and more structured, with clearer administrative objection and appeal processes. The UAE has adopted a new penalty regime for VAT and excise disputes, which now mirrors the penalty regime for corporate tax.
5. Greater emphasis on statutory audit
There is a greater need for the accuracy of financial statements. The International Financial Reporting Standards standards need to be strictly adhered to and, as a result, the quality of the audits will need to increase.
6. Further transfer pricing enforcement
Transfer pricing enforcement, which refers to the practice of establishing prices for internal transactions between related entities, is expected to broaden in scope. The UAE will shortly open the possibility to negotiate advance pricing agreements, or essentially rulings for transfer pricing purposes.
7. Limited time periods for audits
Recent amendments also introduce a default five-year limitation period for tax audits and assessments, subject to specific statutory exceptions. While the standard audit and assessment period is five years, this may be extended to up to 15 years in cases involving fraud or tax evasion.
8. Pillar 2 implementation
Many multinational groups will begin to feel the practical effect of the Domestic Minimum Top-Up Tax (DMTT), the UAE's implementation of the OECD’s global minimum tax under Pillar 2. While the rules apply for financial years starting on or after January 1, 2025, it is 2026 that marks the transition to an operational phase.
9. Reduced compliance obligations for imported goods and services
Businesses that apply the reverse-charge mechanism for VAT purposes in the UAE may benefit from reduced compliance obligations.
10. Substance and CbC reporting focus
Tax authorities are expected to continue strengthening the enforcement of economic substance and Country-by-Country (CbC) reporting frameworks. In the UAE, these regimes are increasingly being used as risk-assessment tools, providing tax authorities with a comprehensive view of multinational groups’ global footprints and enabling them to assess whether profits are aligned with real economic activity.
Contributed by Thomas Vanhee and Hend Rashwan, Aurifer
