One Step too Far? The Chamber of Commerce Argues the DOJ Wrongly Used the Wire Fraud Statute to Combat Spoofing
V&E Government Investigations Update, February 20, 2019
Earlier this month, the U.S. Chamber of Commerce filed an amicus brief in an Illinois district court, arguing that the Department of Justice (“DOJ”) went too far in indicting two former Deutsche Bank employees with violations of the wire fraud statute, 18 U.S.C. § 1943. The amicus brief was filed in support of the defendants’ motion to dismiss the indictment. The Chamber filed the brief with two interest groups, the Bank Policy Institute and the Securities Industry and Financial Markets Association.
In its indictment, the DOJ alleged that the ex-Deutsche Bank traders engaged in “spoofing,” or entering orders the individuals intended to cancel before execution, in the commodities futures markets. The two traders purportedly engaged in a multi-year campaign to manipulate the prices of futures contracts in the precious metals markets via spoofing from approximately December 2009 to November 2011. The government claimed that the orders amount to fraudulent statements, due to the defendants’ intent to later cancel the orders. As such, the DOJ claims these actions are punishable under the wire fraud statute.
The Chamber points out that the alleged acts at issue fall squarely within the prohibitions of the Commodity Exchange Act (“CEA”). The portion of the CEA that prohibits spoofing, however, only took effect in July 2011, causing a potential timing problem for the government’s case.
In its amicus brief, the Chamber asserts that the government’s interpretation of wire fraud, if accepted, would allow post-hoc inquiry into the subjective intent of parties entering into a potential transaction. Potentially, any offer to enter into a transaction that is factually accurate could violate the wire fraud statute if the party making the offer did not intend for the offer to be accepted at the time the offer was made. And, given that wire fraud is a predicate violation for civil RICO claims, the expansion could reach outside the criminal context. The brief also highlights that the DOJ’s approach “threatens to render superfluous” the CEA’s anti-spoofing prohibitions.
It is widely known that wire fraud charges are a powerful tool for prosecutors, frequently appearing in white collar indictments. The novel application of the wire fraud statute in this spoofing case shows prosecutors are willing to test its boundaries. As detailed in the Chamber’s brief, for financial institutions and individuals working at financial institutions, this attempt at expansion is worrisome. We will continue to monitor the progression of the case to see whether the courts rein in the DOJ.
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