Alleged “spoofer” Michael Coscia took the stand in his own defense in federal court Thursday and insisted, “I didn’t move any market.”
Accused of manipulating prices on the Chicago Mercantile Exchange, Coscia, 53, faces up to 25 years if convicted by a jury.
But during a confident three hours of direct examination from his attorneys Thursday afternoon, he painted himself as a plucky self-made millionaire who rose from a blue-collar background to take on larger Wall Street and LaSalle Street traders, and was fairly rewarded for the risks he took in the high-speed futures markets.
“When you trade 300 quotes you could lose your house,” he exclaimed at one point in his testimony.
Prosecutors allege Coscia, of Rumson, N.J., induced rival traders into unfavorable trades by flooding the market with large “spoof” buy and sell orders in late 2011. By creating a false impression of market depth, Coscia could trick rivals into filling smaller orders on the opposite side of the market from his spoof orders, the government alleges. The alleged scam netted him more than $1.4 million by illegally manipulating prices in a direction that benefited Coscia, the government charges.
Coscia, however, repeatedly testified that “I intended to execute every order I made.”
“I didn’t move any market,” he said. “How could you move a market?”
The case — the first test of anti-spoofing laws included in the 2010 Dodd Frank Act — is shining a light on the controversial ultrafast world of high-frequency trading, in which traders can hold positions in periods of less than one second and compete in milliseconds to secure the best prices.
Coscia testified that his small operation, Panther Energy Trading, operated at a speed and information disadvantage and developed the automated trading program at the center of the case to compete with larger rivals.
The son of a New York subway token clerk, Coscia became interested in finance after his father won $55,000 on a $2 bet on a horse race, then invested those winnings in the stock market, he said. He learned his first lessons in trading by helping his mother at Brooklyn flea markets, he added.
His experiences as a floor trader in the pits at the New York Mercantile Exchange in the late 1980s helped him develop the strategies underpinning the computerized trading program he commissioned in the summer of 2011, he said.
Far from being “spoof” orders, as the government alleges, Coscia argued the huge orders for corn, soya, gold and other futures contracts that he placed, then almost immediately canceled, were simply intended to create a “lopsided market” that encouraged other participants to enter the market so he could act as a market maker and profit legitimately from the spread between the lowest selling price and the highest buying price.
The fact that 371 of his large alleged spoof orders were executed showed that he was genuine in his intention to trade, he said. Those trades included purchases of as much as $40 million in British Pound futures and multiple $10 million purchases of gold and oil futures, trades in which he both made and lost sums of between $6,500 and $100.
“I took this risk all the time,” he testified. “That’s what I do. I’m a trader.
“There wasn’t anything false about it … they were all genuine orders.”
Coscia, whose testimony Thursday was watched by U.S. Attorney Zach Fardon, likely faces a tougher time on the stand Friday, when he is due to be cross-examined by prosecutors.
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