Double Jeopardy, Sort Of – U.S. v Thakkar

Thom Thompson

Thom Thompson

Contributing Editor

As just about everyone who reads this newsletter knows, the criminal case brought by the U.S. Department of Justice against Jitesh Thakkar dissolved last month when the judge dismissed the conspiracy to spoof charge and the jury split (10-2 for acquittal) on the two remaining spoofing charges. The presiding judge had called the DOJ’s case “thin.” A couple of weeks later the DOJ declined to re-try him on the two spoofing counts in the original indictment. You would think this whole, fruitless mess had been put to rest and that Thakkar could return to his business.

But not so fast! Thakkar still faces charges by the CFTC.

Mimicking the DOJ, the CFTC’s case alleges spoofing and the use of a “manipulative and deceptive device, scheme or artifice” to commit fraud. The CFTC’s case differs from the DOJ’s in, among other things, the legal circumstances needed for the CFTC to get a guilty plea – including fewer jurors and a lower burden of proof on the CFTC. The CFTC might only have to convince the jury that the preponderance of evidence shows that Thakkar knew Sarao was going to use his modified software to spoof. All the evidence against Thakkar presented by the DOJ at trial – and they didn’t seem to be holding back – came down to an ambiguous single sentence in an email. The preponderance of the communications between Thakkar and Sarao that were provided as evidence were businesslike in tone and content.

The CFTC charges that Thakkar violated the CFTC’s regulations, while the DOJ case charged him with violating federal law. This legal(istic) distinction keeps the CFTC’s case from violating the double jeopardy clause of the Fifth Amendment. To many of us who aren’t lawyers this seems unfair, but it also seems to be the law. As the CFTC’s is not a criminal case, the threat of jail time is gone, but the penalties can still include monetary fines and being banned permanently from the futures industry, potentially a crippling punishment for Thakkar and his company, Edge Financial.

At any rate, the CFTC’s case is an artifact of the U.S. regulatory system. Let’s say the DOJ had prevailed against Thakkar. Would that not have been sufficient to punish an independent software developer as well as establish that it can be a crime for a programmer to write code that might later be used in the commission of a crime? But Thakkar’s federal criminal case has been dismissed, largely on the basis that the DOJ did not prove its allegations.  

If, on the other hand, the CFTC prevails in its case – through a settlement or a trial –  the court will have affirmed that programming can be against the CFTC’s regulations. The CFTC’s action would then establish new law without following the U.S. Administrative Procedure Act’s multitude of requirements on the agency.   And, in light of the fact that Thakkar and Edge were not members of any exchange or self-regulatory organization, the CFTC will have extended its jurisdiction to the independent software development industry without arguing the necessity or the legal basis for it or providing the public opportunity to review and comment.  

Without a successful decision against Thakkar and Edge, if the CFTC wants to establish rules for programmers to follow when their customers want to trade futures contracts, the CFTC will have to provide guidance, perhaps even in the form of regulation, about the duties of third party service providers to persons in the futures industry. With or without a judgment in re: CFTC v Thakkar, it is unclear what are the obligations of CFTC registrants with regard to their and their customers using software.  By providing trading software, does a person automatically submit itself to CFTC jurisdiction?

Thakkar was not aware that Sarao was spoofing because he was not informed about and not involved in any of Sarao’s transactions, but at least a couple of CFTC registrants were – namely, the contract market and the FCM.  Any CFTC guidance catalyzed by the action against Thakkar should address the responsibilities, burdens and liabilities of the Commission’s regulatees with regard to electronic trading. The CFTC might also define spoofing! In the meantime, it can be hoped the CFTC will drop this “thin” case against Thakkar.    

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You can help Jitesh Thakkar’s legal defense by contributing to a GoFundMe campaign his supporters have established. Please visit https://www.gofundme.com/programmer-vs-us-govt-legal-defense-fund.

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