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Gold Trader’s Chat Bragged About ‘How Easy’ It Is to Manipulate Prices

·3 min read

(Bloomberg) -- Chat logs introduced as evidence by prosecutors at the Chicago spoofing trial of two former precious-metals traders for Bank of America Corp.’s Merrill Lynch unit show one of them, Edward Bases, bragging about how easy it was to manipulate prices.

On Jan. 28, 2009, when Bases was working at Deutsche Bank AG, he put out bids to buy 2,740 gold futures contracts valued around $244 million over the course of four and a half minutes, according to Maria Garibotti, a vice president at Analysis Group who studied exchange and trading data for prosecutors. More than 98% were canceled without being filled, she said.

As prices rose, a fellow Deutsche Bank trader Bases coordinated with sold his 170 contracts valued at $15,172,500, Garibotti told jurors on Wednesday. Her testimony continued Thursday.

“that does show u how easy it is to manipulate it sometimes,” Bases wrote minutes after the trading in a chat message sent to the other Deutsche Bank trader, Cedric Chanu, according to Garibotti. Chanu and another Deutsche Bank trader, James Vorley, were sentenced last month to a year in prison each for their convictions in 2020 on spoofing charges at a separate trial.

“I f..k the mkt around a lot,” Bases said in another message.

Bases and fellow Merrill Lynch trader John Pacilio face federal fraud charges for allegedly spoofing the futures market from 2008 to 2014.

Platinum

Another episode described by Garibotti involved trades by Bases and Pacilio on Aug. 9, 2010, when both were working at Merrill Lynch.

That day, Bases placed an order to buy 10 contracts of platinum, with six being filled at placement, she said. Less than 10 seconds after Bases placed that buy order, Pacilio placed an order to sell 205 contracts for $15,856,750, which was almost 90% of what was visible on the exchange order book, Garibotti said. The price went down, and the rest of Bases’ order was filled, she said. Less than a second later, Pacilio’s sell order was canceled, she said.

Garibotti said employees at Analysis Group put in about 3,000 hours studying data in this case over the course of several years, billing the government $1.2 million for its work.

During testimony on Thursday, Garibotti was asked by a defense lawyer to describe an order Pacilio placed on April 17, 2014. The so-called iceberg order, which is divided up into smaller limit orders to avoid disclosing how big it is, was for 20 silver contracts, each covering 5,000 ounces of the metal, at $19.63 an ounce. That was about 0.5 cent less than the best offer in the market at the time.

“Despite this massive, $1,963,000 notional value, the difference we’re talking about between where Mr. Pacilio placed his offer to buy and the best offer to sell at $19.635, was $500?” Pacilio’s defense lawyer, Matthew Menchel, asked Garibotti during cross examination.

“That’s right, with the caveat we don’t know how many contracts were available at that price,” Garibotti said, adding later under questioning from the prosecutor that the price differential between the two sell orders only lasted for 1.6 seconds because Pacilio canceled his.

In opening arguments Tuesday, Bases’ defense attorney told the jury that once her client understood spoofing was illegal, he stopped doing it, and that nearly all the conduct the government identified was before the enactment of the Dodd-Frank Act, which specifically prohibited spoofing.

The next prosecution witness is expected to be Harnaik Lakhan, a trader who worked with Pacilio and Bases and is cooperating with the government.

The case is U.S. v. Bases et al, 18-cr-00048, U.S. District Court, Northern District of Illinois (Chicago).

(Updates with cross examination during Wednesday proceedings.)

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