(Bloomberg) -- Three former Citigroup Inc. traders who admitted to spoofing U.S. Treasury futures markets will avoid sanctions after they cooperated extensively with a broader investigation by Wall Street's main derivatives regulator.
Jeremy Lao, Daniel Liao and Shlomo Salant won't receive penalties for manipulating markets in 2011 and 2012 because of their help in the agency's pursuit of other wrongdoers, the U.S. Commodity Futures Trading Commission said in a statement Thursday. The three entered into the CFTC's first-ever non-prosecution agreements, in which the government says it will drop wrongdoing claims as long as the targets fulfill certain obligations.
“These traders readily admitted their own wrongdoing, identified misconduct of others, and provided other valuable information, all of which expedited our investigation and strengthened our cases against the other wrongdoers,” James McDonald, head of CFTC enforcement, said in a statement.
Citigroup was fined $25 million by the CFTC in January for failing to adequately supervise its traders and for not having systems in place to detect spoofing, which involves entering fake orders to trick others into thinking prices are poised to rise or fall.
The use of non-prosecution agreements signals how the CFTC may police securities laws under its new enforcement chief. McDonald, a former federal prosecutor in Manhattan who joined the regulator in March, said he expects the practice to become an important part of his division's cases going forward.
The traders were taught to manipulate markets by senior traders, according to the CFTC. The three illegally profited by placing large orders they planned to cancel to fill smaller orders at favorable prices, the CFTC said. The bigger orders would typically induce algorithmic traders to transact on the smaller orders.
To contact the reporter on this story: Matt Robinson in New York at mrobinson55@bloomberg.net.
To contact the editors responsible for this story: Jesse Westbrook at jwestbrook1@bloomberg.net, Gregory Mott
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