Another day of methodical testimony unfolded in Judge John Tharp’s federal courtroom on Wednesday, the second day of testimony in the case of the Department of Justice versus James Vorley and Cedric Chancu. The defendants in the criminal case, who worked together trading precious metals at Deutsche Bank, are charged with wire fraud. They allegedly spoofed the gold and silver futures markets on COMEX.
Vorley and Chanu were not charged with spoofing per se because some of the charges stem from activities before the Dodd-Frank Act came fully into force in 2011. Otherwise, the proceedings, which first got underway with jury selection on Monday, look and sound like a spoofing trial.
The trial is being held in the Dirksen Federal Building with COVID-19 precautions. The trial takes up the entire courtroom to accommodate social distancing, everyone wears masks, and the press and public in a nearby courtroom watch the proceedings on screens.
On Wednesday, David Liew, another Deutsche Bank alumnus and the most junior of the three DB traders who were charged with spoofing, spent the whole day in the witness stand. Liew, who worked for DB in Singapore, is a witness for the prosecution.
Liew pleaded guilty more than three years ago. If you watch enough Law and Order and TV shows of that ilk, you learn that the first person in the conspiracy who sings gets a deal. Liew got the deal, pleading guilty to one count of wire fraud and conspiracy to spoof. Liew, who now teaches programming in Singapore, has been banned from commodity trading for life but the monetary penalties hinge on his providing assistance to the Department of Justice.
For hours on Wednesday, the prosecution went through a number of examples of spoofing by Chanu and Vorley, sometimes solo, sometimes in concert; sometimes with Liew or other DB traders taking part. In total, the Justice Department had identified 61 instances of spoofing for analysis by its experts and potential presentation to the jury. The previous day’s testimony from the big data expert from Analysis Group indicated that these “episodes” (the prosecution’s term) were cherry-picked by the government attorneys.
Each episode presented to the jury differed from every other one, and the prosecution established that Liew, Vorley and Chanu had traded on one side of the market while holding open orders on the opposite side of the market either alone or in concert. Liew’s testimony established that their intent behind placing orders on the wrong side of the market was to get a better price for the orders they executed. Spoofing, in other words.
Liew also testified that such trading constituted fraud, that he knew that it was wrong at the time, and that the examples presented in court were part of his guilty plea.
But Liew is not on trial and his guilt is not in doubt. The prosecution demonstrated to the jury how unquestionably unsavory these business practices were that included the defendants. Liew knew what he was talking about because he was part of the conspiracy to spoof. The prosecution probably will not have the chance to question the defendants, so having the testimony of a co-conspirator will be valuable.
So far, the cross-examination of Liew covered much of the same ground. The defense shifted the questioning to emphasize Liew’s role in the precious metals department, a continent away from Vorley and Chanu in London.
The defense also, oddly enough, managed to humanize Liew a bit. They drew out his youthful naivete as a junior trader at DB when he chatted with friends about how he wished he could marry gaming technology to trading platforms ostensibly because there were big spoofers out there in the market that he would be able to take down.
A trader friend joshed in a chat that Liew wanted to create a “Play Station 3, Comex version” controller instead of using a mouse for trading.
Mostly though, the defense undercut the prosecution’s star witness’s integrity. They entered into evidence copies of internet chats not only between Liew and the defendants but also between Liew and precious metals traders at two competitor banks in Singapore, branches of UBS and Barclays.
The chats indicate that Liew conspired not only within DB but also with traders outside the bank to spoof precious metals markets. Liew’s testimony confirmed this reading of the chats.
Liew’s value as a witness for the prosecution looks doubtful. It may parallel Navinder Sarao’s lengthy star-witness turn in the government’s trial of Jitesh Thakkar last year. In that case, the prosecution questioned Sarao, who was – like Liew – testifying as part of a plea deal, but he ended up refuting the government’s principal charge that Thakkar had conspired in Sarao’s spoofing.
While Liew was invaluable to the prosecution in making their case against spoofing more concrete and understandable, the admission under cross-examination that he acted against his employer’s interest by conspiring with the competition may render his testimony kryptonite with the jury.
Cross-examination of Liew continues on Thursday.