PENDING CRIMINAL DIVISION CASES
Propex Derivatives Pty Ltd, Deferred Prosecution Agreement (DPA)
Court Docket No.:20-CR-0039 (N.D. IL)
Court Assigned: This case is assigned to U.S. District Court for the Northern District of Illinois Eastern Division, Everett McKinley Dirksen United States Courthouse, 219 South Dearborn Street, Chicago, Illinois, 60604. _______________________________________________________________________
On January 21, 2020, Propex Derivatives Pty Ltd (Propex) entered into a deferred prosecution agreement (DPA) and agreed to pay $1 million in criminal monetary penalties, criminal disgorgement, and victim compensation. The DPA arises from criminal charges related to a spoofing scheme involving thousands of instances of unlawful trading activity in U.S. commodities markets by a former Propex trader.
Propex admitted as part of the DPA that from approximately July 2012 until March 2016, a former Propex trader, Jiongsheng (Jim) Zhao, engaged in a trading strategy that involved placing thousands of large-volume orders to buy and sell E-Mini S&P 500 futures contracts on the Chicago Mercantile Exchange that Zhao intended to cancel before execution in an attempt to deceive other market participants. By placing these orders, Zhao intended to, and did, inject false and misleading information about the genuine supply and demand for E‑Mini S&P 500 futures contracts into the market. This false and misleading information was intended to, and at times did, induce other market participants into buying and selling E-Mini S&P 500 futures contracts at quantities, prices and times they otherwise likely would not have traded, which often had the intended effect of artificially driving up or down the price of those E‑Mini S&P 500 futures contracts in a direction favorable to Zhao. The Department and Propex have filed a joint motion, which is subject to approval by the Court, to defer for the term of the DPA any prosecution and trial of the criminal information filed against Propex.
Under the terms of the DPA, Propex agreed to pay a combined $1 million in a criminal monetary penalty ($462,271), criminal disgorgement ($73,429), and victim compensation ($464,300) with the criminal monetary penalty credited for any payments made to the Commodity Futures Trading Commission (CFTC). Propex also agreed to, among other things, conduct appropriate reviews of its internal controls, policies and procedures, and to modify its compliance program, where necessary and appropriate, to ensure it is designed to effectively detect and deter violations of the Commodity Exchange Act and commodities fraud statute.
A number of relevant considerations contributed to the Department’s criminal resolution with Propex, including the company’s cooperation with the United States and Propex’s remedial efforts. In addition, the Department considered the fact that in May 2014 Zhao’s trading was flagged for Propex senior management, yet he continued placing Spoof Orders through March 2016. Further, Zhao made false and misleading statements to the CME during its investigation into Zhao’s trading activity. In March 2018, Propex undertook a significant enhancement of its compliance program and internal controls after engaging an independent compliance consulting firm to conduct an assessment of the adequacy and effectiveness of Propex’s compliance program. As part of that enhancement, Propex increased the resources dedicated to compliance and contracted with a third-party vendor to provide automated trade surveillance, including surveillance for manipulative and deceptive trading such as spoofing. The Department determined that the criminal monetary penalty of $462,271 imposed as part of the DPA is appropriate given the facts and circumstances of this case and given Propex’s inability to pay an amount within the range calculated under the sentencing guidelines because it would threaten the continued viability of Propex and impair its ability to make restitution to victims. As part of the agreement, the Department has filed an unopposed motion, which is subject to approval by the Court, to defer for the term of the DPA any prosecution and trial of the criminal information filed against Propex.
On Dec. 26, 2018, Zhao pleaded guilty to one count of spoofing. His sentencing is scheduled for Feb. 4, 2020, before U.S. District Judge John J. Tharp Jr. of the Northern District of Illinois.
To facilitate the efficient payment of restitution to victims in this matter, the Department will serve as the claims administrator and will have sole discretion to determine how the victim compensation amount will be dispersed.
For more information about the Deferred Prosecution Agreement (DPA), please see below:
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