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Vorley Wire Fraud Ruling Inconsistent with Precedent and the Commodity Exchange Act

January 28, 2020

By Michael L. Spafford, Daren F. Stanaway, Katherine J. Berris

On October 21, 2019, an Illinois federal district court denied defendants’ motion to dismiss a criminal indictment accusing two former precious metals traders, James Vorley and Cedric Chanu, of engaging in criminal wire fraud. Although its charges plainly sounded in spoofing, which the Commodity Exchange Act (“CEA”) specifically prohibits, the government chose not to charge the traders with spoofing and instead charged only wire fraud and conspiracy to commit wire fraud involving a financial institution, which carry significantly longer limitations periods. Accordingly, the case presented an issue of first impression for the court: “whether a scheme to defraud commodities traders by placing ‘spoofing’ orders—orders that the trader intends to withdraw before they can be filled—can constitute wire fraud.” The court ruled in the affirmative, holding that the “spoofing scheme alleged in the indictment adequately charges violations of the wire fraud statute.” However, in so holding, the court did what the Seventh Circuit has cautioned against when interpreting the wire fraud statute: it “put together broad language from courts’ opinions on several different points so as to stretch the reach of the mail and wire fraud statutes far beyond where they should go.” The Vorley court’s ruling holds serious implications for commodities market participants; not only does it find that wire fraud exists absent an affirmative misrepresentation or a duty to disclose, it also undercuts and arguably renders superfluous the CFTC’s anti-manipulation regulations.

This article was originally presented at the 2020 ABA Derivatives & Futures Law Committee Winter Meeting.

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Investigations and White Collar Defense

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Michael L. Spafford

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