By Janan Hanna
Former Deutsche Bank AG analyst David Liew told a Chicago jury he learned how to manipulate gold and silver prices from the two successful senior traders he admired and worked with for about three years.
Liew said he wanted to be a team player and make money after joining the bank’s Singapore office, so he began doing “spoof” trades the way he was taught by Cedric Chanu and James Vorley. The senior traders often placed buy and sell orders they never intended to execute, a strategy intended to influence prices so they could reap illegal profits, Liew said.
Vorley and Chanu are on trial for fraud and conspiracy, accused of issuing multiple bogus trade orders between 2008 and 2013. The case is the latest prosecution of “spoofing” trades brought by the U.S., which has been cracking down on the practice since the so-called “flash crash” a decade ago.
“I saw Mr. Vorley and Mr. Chanu do it,” Liew, a graduate of the London School of Economics and the prosecution’s star witness, said Wednesday in federal court.
Liew, who has pleaded guilty to spoofing charges and is cooperating with the government in return for leniency, said he sat next to Chanu in Singapore from 2009 to 2012 and communicated daily on a live video chat with Vorley in London.
While he knew manipulating prices was wrong, Liew said spoofing trades were “so commonplace” in the market and among his co-workers that he figured it was OK.
Read More: Spoofing Is a Silly Name for Serious Market Rigging
In one of several trades Liew described in detail, he worked with Vorley on Aug. 26, 2010, to push up gold prices.
Liew said he put in an order to sell 15 futures contracts, valued at around $1.8 million based on prices at the time, while Vorley placed an order to buy 80 contracts, which would have been worth about $9.9 million. When prices rose, Vorley canceled his buy order and Liew executed his sell order, Liew said.
Vorley and Chanu would often help Liew with his spam trades, he said. If they saw he had an open sell order, they would put in a buy order to help him get a better price, exhibits presented at the trial show. Such coordinated spoofing could also be done by a lone trader placing orders on each side of the market.
Liew became so familiar with spamming that he could tell when his colleagues were doing it. One day, he noticed Chanu was making such a trade, and Liew sent him a message saying, “be careful … don’t let the buy orders get into the market,” according to a chat log and Liew’s testimony.
Vorley and Chanu contend their actions were legal, and that canceling orders is an accepted bluffing strategy in the competitive world of high-frequency trading, where computers use algorithms to execute massive trades in milliseconds. None of the traders’ actions were flagged by Deutsche Bank’s compliance department, the defense lawyers said on Tuesday.
Since anti-spoofing laws were passed under the Dodd-Frank financial reforms in 2010, federal prosecutors have stepped up criminal cases and the U.S. Commodity Futures Trading Commission initiated more civil complaints
Questioning Intent
During cross-examination, defense lawyers sought to discredit the claim that Chanu and Vorley intentionally canceled trades. Liew acknowledged that there might be all sorts of situations that would result in a cancellation, including if the trader goes to lunch or the bathroom.
“There’s no button that says what intent is,” defense lawyer Matthew Mazur said while questioning Liew.
On Thursday, Liew acknowledged during testimony that he’d illegally coordinated trades with a friend, Michael Chan, who was a gold trader in the Singapore office of another bank. Some of the trades were at the expense of his colleagues at Deutsche Bank, Liew said.
It was those trades with Chan that initially drew the attention of federal prosecutors, Liew said. Chan testified in the trial of UBS SA trader Andre Flotron, describing how Flotron had taught him how to do spoof trades. Flotron was acquitted in 2018 after a federal judge in Connecticut threw out most of the charges saying the government should have brought the case in Chicago, where the trading occurred.
Mazure also noted that Liew must have been aware that his own price-manipulating strategies weren’t legal. In an Aug. 8, 2010, chat message to Chanu, Liew wrote: “Cause Dodd Frank gonna get me fired, Ha Ha,” according to a transcript of the conversation shown to jurors.
The case is U.S. v. Vorley 18-cr-35, Northern District of Illinois (Chicago).
(Updates with testimony Thursday about spoof trades with other banks; an earlier version of this story corrected the spelling of the bank’s name in ninth paragraph)
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