A former trader at UBS Group AG was charged with conspiracy and fraud over his suspected role in manipulating the price of precious metals.
Andre Flotron, who worked at the bank in Switzerland and Stamford, Connecticut, is the second person publicly charged in the U.S. investigation into the fixing of gold, silver, platinum and palladium prices. Flotron, a Swiss citizen, was arrested while visiting his girlfriend in New Jersey. He was charged with conspiracy, wire fraud, commodities fraud and spoofing. He faces as many as 25 years in prison on the most serious charge.
Flotron, 54, appeared Wednesday in shackles in federal court in Newark, New Jersey, where a judge ordered him held without bail after prosecutors said he might flee to Switzerland. Flotron will be held until he makes an appearance in Connecticut, where the case was filed. The judge also set a Sept. 22 preliminary hearing.
“We’re going to fight this case,” his attorney, Marc Mukasey, told U.S. Magistrate Judge Michael Hammer. “There’s a big issue here as to whether or not this was a government-created crime” or an industry practice.
Flotron’s arrest extends the Justice Department’s examination of whether bank traders conspired to rig interest-rate benchmarks and manipulate currency exchanges from 2008 to 2013. The probes, which led to guilty pleas and billions of dollars in payouts by some of the world’s biggest banks, also led prosecutors to begin investigating whether metals traders placed orders without intending to execute them to try to move prices in their favor, a tactic known as spoofing.
‘Large Orders’
“Flotron and his co-conspirators placed one or more large orders for precious metals futures contracts on one side of the market which, at the time Flotron and his co-conspirators placed the orders, they intended to cancel before execution,” according to the complaint filed in Connecticut.
While the spoof orders were pending, Flotron and his confederates often executed smaller orders on the opposite side of the market to try to profit from the price movement they caused, prosecutors alleged in the complaint.
The Justice Department’s case against Flotron was assisted by another unnamed UBS trader who avoided criminal charges by reaching a deal last fall to cooperate with prosecutors investigating spoofing in the precious metals and currency markets, according to the complaint. Justice Department trial attorney Michael Rinaldi told Hammer that prosecutors also have corroborating data.
The government’s cooperator told investigators that Flotron taught him how to spoof trades in July 2008 during his first week in Stamford, according to the complaint. That trader was to be trained by Flotron — “shadowing and observing” him — in order to learn how to trade precious metals before heading out to the bank’s Singapore outpost, the complaint alleges.
Prosecutors in the complaint point to specific trading activity on gold futures in 2011 and 2012 as evidence of spoofing.
“A cooperating witness and corroborating data can be more hurtful than helpful to the government,” Mukasey said in an interview.
Swiss Scrutiny
Swiss regulators have also shown an interest in Flotron, telling him in a 2014 letter of a possible enforcement action, two people told Bloomberg News at the time. It’s unclear whether Switzerland’s Financial Market Supervisory Authority disciplined him.
Mukasey said Flotron cooperated in an internal investigation by the bank and with prosecutors in an unrelated foreign-exchange investigation three years ago. Flotron then traveled in and out of the U.S. many times since then to visit his girlfriend, a dentist in Wayne, New Jersey, Mukasey said. Flotron was stunned when he was arrested by FBI agents, given his previous cooperation with the Justice Department, the lawyer said.
“They never said boo to him,” Mukasey said. “This came out of left field.”
UBS won immunity from criminal fraud charges in the Justice Department metals investigation as part of its 2015 settlement ending interest rate and currency rigging probes.
Prosecutors have pursued charges for spoofing more aggressively since the adoption of the Dodd-Frank financial law, which made the practice illegal. Most notably, they charged a British trader with contributing to the “flash crash” of 2010.
In June, David Liew, a former Deutsche Bank AG trader, pleaded guilty to fraud in federal court in Chicago for his role in the spoofing of contracts for gold, silver, platinum and palladium, according to court papers. Along with spoofing, he also acknowledged front-running customers’ orders.
Written by Tom Schoenberg and David Voreacos and published at Bloomberg ~ September 13, 2017.
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