A retail
trader from United States agreed to pay more than $357,000 to settle charges
that he manipulated options prices through a scheme involving fake orders,
federal regulators announced this week.
California Trader Pays
$357K to Settle Options Spoofing Case
Ryan Cole,
who lives in Florida, used a technique called “spoofing” to
artificially move prices on thinly traded options while working at an unnamed
financial firm, the Securities and Exchange Commission (SEC) said. The practice
netted him roughly $234,000 in profits before he was caught and fired.
The scheme
worked by placing fake orders that he never intended to execute, creating the
appearance of demand or supply that would push prices in his favor. Cole would
then quickly place real trades at the manipulated prices before canceling the
fake orders, according to the SEC complaint filed in federal court in
California’s Eastern District.
Cole made
his spoofing more sophisticated by spreading fake orders across multiple
related options series rather than focusing on just one contract. He used
complex multi-leg orders that would execute immediately or be canceled, timing
them carefully with his spoof orders to maximize the manipulation’s impact.
In 2020,
another trader was ordered by the SEC to pay more than $200,000 in penalties
for spoofing.
Five-Year Trading Ban
When his
employer started asking questions about unusual trading patterns, Cole
allegedly lied to cover his tracks. The firm eventually terminated him, though
the SEC didn’t identify which company employed him during the scheme.
“Cole
took steps to conceal his spoofing scheme from the firm by providing false and
misleading responses to questions posed about his trading,” the SEC said
in its complaint.
The
settlement requires Cole to pay back his $234,803 in profits plus $52,656 in
interest, along with a $70,441 civil penalty. He also faces a five-year trading
ban that prevents him from opening or maintaining brokerage accounts in his
name, his family members’ names, or through companies he controls without
notifying brokers about his violations.
Cole agreed
to the settlement without admitting or denying wrongdoing, which is standard
practice in SEC enforcement cases. The deal still requires approval from a
federal judge.
Spoofing Fines Also Hit
Major Players
Spoofing
became illegal under the 2010 Dodd-Frank Act, though regulators have struggled
to catch sophisticated practitioners who can carry out the scheme in
milliseconds using algorithmic trading. The practice undermines market
integrity by creating a false impression of supply and demand.
The SEC
penalizes not only individuals but also large institutions for spoofing. Last
year, TD Securities was fined $6.5 million for failing to supervise its head
trader. In 2023, BofA Securities paid $24 million for more than 700 instances
of the illegal practice.
The largest
spoofing fine to date was issued in 2019 to Tower Research, which was ordered
to pay $67 million. According to the CFTC, another U.S. regulator, the firm had
earned nearly $33 million from the practice.
This article was written by Damian Chmiel at www.financemagnates.com.
