Trader in Spoofing Case Said to Be Tied to Deutsche Bank

A trader who admitted Thursday to conspiring to manipulate futures contracts in precious metals committed those actions while working at Deutsche Bank AG, according to a person familiar with the matter.

The trader, David Liew, pleaded guilty in federal court in Chicago to a fraud conspiracy over the spoofing of futures contracts for gold, silver, platinum and palladium futures, according to court papers. Along with spoofing — which is placing orders without the intent of executing them in an attempt to manipulate the price — he acknowledged front-running customers’ orders.

The matter indicates more potential trouble for Deutsche Bank as it attempts to shake the financial and reputational drag of more than a half-dozen settlements in recent years with U.S. authorities over wrongdoing. The documents state that Liew worked on his own but also with at least three other traders at the bank hundreds of times in coordinated spoofing. Liew admitted that he learned spoofing practices from others at Deutsche Bank. Because Liew is cooperating with the investigation, prosecutors examining the metals market could take action against other traders at Deutsche Bank.

Liew’s lawyer, Neil MacBride, and a Deutsche Bank spokesman, Troy Gravitt, declined to comment.

Deutsche Bank has reached multiple settlements with U.S. regulators in recent years over issues ranging from rate-rigging to lax sanctions controls, including a $7.2 billion mortgage-bond settlement with the U.S. government in January. A Federal Reserve settlement this week for anti-money laundering lapses required the bank to bring in a third-party monitor to oversee compliance — at least the sixth such monitor it’s been required to add recent years. 

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The bank remains under Justice Department investigation for its role in trades that allowed wealthy Russians to move some $10 billion out of the country.

The case against Liew also provides the deepest insights yet into a federal criminal investigation of whether traders at some of the world’s biggest banks conspired to manipulate prices in precious-metals markets. Liew’s cooperation, and allegations that he conspired with a trader at another global bank, suggests that prosecutors continue to press forward with the probe. 

Trading activities of at least 10 banks were under scrutiny by the Justice Department in early 2015, Bloomberg reported at the time. Prosecutors working in the department’s antitrust division closed their inquiry into several banks more than a year ago, but their colleagues in the fraud section continued looking into the matter, people familiar with the matter said at the time.

Prosecutors have gone more aggressively after spoofing since the adoption of the Dodd-Frank financial law, which made the practice illegal, most notably charging a British trader with contributing to the “flash crash” of 2010.

Liew was charged in January under seal. His plea agreement describes his former employer as Bank A. The person familiar with the matter said that Bank A was Deutsche Bank.

Liew joined the bank in July 2009 after receiving his bachelor’s degree as part of the bank’s global analyst program, according to the court documents. Later that year, he was installed at the bank’s metals trading desk in the Asia-Pacific region.

Until February 2012, Liew worked with other traders at the bank to rig precious metals futures by transmitting orders to the Chicago Mercantile Exchange that they never intended to fill, according to the court papers.

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Liew and the conspirators sought to create a false sense of supply or demand in order to cause other market participants to react and drive the price of precious metals futures contracts down or up or artificially increase the number of participants willing to transact at the existing price, according to the plea agreement. Liew and his conspirators could profit or mitigate losses by executing their positions before the spoof order, the agreement states.

On one occasion, Liew and his colleagues initiated transactions after getting information about a large metals trade to be executed for a customer of the bank “in an effort to benefit improperly from the anticipated movement in price that would result from the execution of the customer’s trade,” according to the court filing.