Futures and Derivatives Law Report May 2022 | Volume 42 | Issue 5
CFTC Enforcement brought two actions citing disruptive trading practices under Section 4c ( a )( 1 ) and ( 2 ), and 7 U . S . C . A . § 6 ( a )( 1 ) and ( 2 ), including the case which , as noted above , was also charged as manipulative conduct . 58 As for spoofing cases , the CFTC settled two pending cases that reflect a shift in the types of cases being pursued by the CFTC from open and obvious spoofing to more nuanced and sophisticated schemes . For example , earlier enforcement cases charged spoofing in one market , where the alleged actor took a large spoofed position on one side of the market with the intent to cancel the position to benefit a smaller position on the opposite side of the market . 59 A recently settled case charged conduct that involves layering of orders , where the spoofed orders on one side of the market are entered rapidly at various prices that are intended to be canceled as soon as a real order is entered on the opposite side of the market . 60
Because of the importance of market evidence in proving spoofing violations , this is one area in which the Division ’ s advances in data analytics will continue to be of significant importance , particularly with the increasing finesse exercised by violators in this space . Spoofing charges generally require strong evidence of intent , such as emails or other communications , to show that the related murky market data is suggestive of a spoofing scheme . However , as the agency ’ s data analytics improve , so too will the quality of trading-based evidence that the CFTC is able to glean , which may increase the ability of the CFTC to investigate and potentially bring matters based on the circumstantial evidence of the trading data . This clarity of trading evidence may gradually obviate the need for clear communications to prove intent in charging spoofing .
2 . RETAIL FRAUD
The Division of Enforcement brought a combined 22 actions involving allegations of retail fraud in FY 2021 . Fraudulent schemes at the heart of these actions involved a variety of commodities , including digital assets , 61 binary options , 62 foreign exchange transactions , 63 and precious metals . 64 These cases have long been a mainstay of CFTC enforcement , which underscores the Commission ’ s persistent focus on investor protection and maintenance of market integrity . As discussed above , Chairman Behnam has been and will continue to be vocal about these fundamental tenets . The digital asset space is of increasingly urgent concern in this regard because its novelty as a commodity and its ambiguous regulatory position has resulted in a wave of new fraud cases . The Chairman , in his public remarks regarding the CFTC ’ s role with respect to the emerging digital asset marketplace , has emphasized the danger posed by fraudsters as a top enforcement priority and as something that is unquestionably within the CFTC ’ s jurisdiction , whether or not Congress ultimately bestows on the agency the authority to directly regulate digital assets as a commodities market . 65
B . DIGITAL ASSETS AND CRYPTOCURRENCY
Even without congressional authority to directly regulate digital asset markets , the CFTC continued to use its enforcement authority to police cryptocurrency markets for fraud and manipulation . In addition to the numerous actions related to retail fraud involving digital assets , the Commission also brought cases targeting illegal off-exchange transactions in digital assets and actions targeting registration failures by entities
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