The rise of algorithmic and high-frequency trading has brought new risks. One of those risks—which existed before, but is now easier to accomplish—is “spoofing,” a form of unlawful market manipulation. Spoofing was expressly outlawed in the commodities market by the Dodd-Frank financial reform law of 2010. However, spoofing in other markets was already, and still is, forbidden by general anti-fraud and anti-manipulation language in the Exchange Act and the Securities Act.
Dodd-Frank also contains a whistleblower provision, permitting people with non-public knowledge of spoofing to bring it forward confidentially. Under the whistleblower program maintained by the U.S. Securities and Exchange Commission, whistleblowers whose information leads to a large penalty can even earn a percentage of the penalty as an incentive for speaking up. The Silver Law Group and the Law Firm of David R. Chase help whistleblowers through this process, protecting their privacy and ensuring that they are well positioned to eventually claim compensation.
Insider Information Is KeyIn spoofing, traders place multiple orders on one side of the market with no intention of seeing them through. Once the slew of orders has influenced the price of the security, the traders place an order on the other side in order to take advantage of the better price. They then cancel the original set of orders. With computers, all of this can be done in moments.
Because there are plenty of legitimate reasons to cancel an order, insider information can be very helpful to regulators who are trying to investigate and penalize spoofing. Written records that demonstrate the trader’s intent can help make the case. For example, in a 2020 spoofing action against JP Morgan Chase, text messages from one trader described the strategy as “a little razzle dazzle to juice the algos.”
That’s where whistleblowers come in. The SEC whistleblower program grants confidentiality to market participants who come forward with original evidence of securities law violations. If the SEC’s action eventually leads to a financial penalty of more than $1 million, the whistleblower can be awarded 10% to 30% of that penalty (a minimum of $100,000). Because this law intended to incentivize people with insider information to cooperate, it guarantees confidentiality to the best of the SEC’s ability, and even makes allowances for the whistleblower to stay anonymous.
Expert Guidance for WhistleblowersA securities whistleblower lawyer can be extremely helpful to would-be whistleblowers participating in this program. It’s required for people who wish to stay anonymous but still cooperate and eventually claim an award. And, an SEC whistleblower attorney can help frame the information in a way that gets regulators’ attention; advise you on cooperation; protect you from prosecution if you seem to be part of the scheme; and help you apply for compensation within the timeline and rules required by law.
If you’re considering coming forward with information on spoofing, the Law Firm of David R. Chase and the Silver Law Group can help. David Chase is a former SEC enforcement attorney who understands how regulators build their cases; Scott Silver wrote a definitive primer on the SEC whistleblower process, which he makes available for free on request. And we offer free, confidential consultations, so there’s no risk to you from speaking to us about your situation and your options. To set up this kind of meeting, call us today at 800.975.4345 or send us a message online.