July 13, 2016 — 12:05 PM EDT Updated on July 13, 2016 — 4:11 PM ED
Panther Energy Trading’s Coscia was charged under Dodd-Frank
Greed is only explanation for illegal trades, judge says
Michael Coscia, the first person convicted of spoofing after it was made a crime under the Dodd-Frank Act, was sentenced to less than half the prison time sought by federal prosecutors.
Coscia, 54, who had argued for probation, was sentenced Wednesday to three years in prison by U.S. District Judge Harry Leinenweber in Chicago. The only explanation for Coscia engaging in fraud while he was making $150,000 a month trading futures and had a net worth of $15 million was greed, the judge said.
“This is a serious crime with serious consequences,” Leinenweber said before handing down the sentence. He noted that spoofing has been going on for a long time.
Spoofing, which became illegal under the Dodd-Frank Act, carries a maximum of 10 years in prison. The practice typically consists of systematically placing orders without intending to execute them to trick the market into thinking there’s interest in buying or selling that doesn’t actually exist.
Coscia was convicted by a jury in November of manipulating futures markets by placing unusually large orders he didn’t intend to execute and then filling smaller trades on the opposite side. Prosecutors said it was a bait and switch scheme that yielded Coscia, the head of Panther Energy Trading LLC, more than $1 million over 2 1/2 months in 2011. The scheme resulted in losses to high frequency trading houses that were placing and executing orders at the same time.
Prosecutors had sought a term as long as seven years and three months. Coscia’s lawyers said sentencing guidelines allowed for a term of only four to 10 months. His three-year prison term is to be followed by two years of supervised release.
Coscia will appeal his conviction and ask to remain free on bond in the meantime, his lawyer said. If that request is denied, Coscia will have to surrender on Sept. 30.
Stephen Senderowitz, Coscia’s lawyer, told the judge his client had paid back $1.4 million gained through the trades at issue and cooperated with a Commodity Futures Trading Commission investigation. He also paid a $3 million fine in connection with the regulatory action against him.
‘Not an Ogre’
Senderowitz described Coscia as a devoted family man who is supporting and caring for his “gravely ill mother.”
“Michael Coscia is not an outlier,” he said. “He is not an ogre.”
Coscia’s sentencing follows a ruling Tuesday in a spoofing lawsuit brought by the Commodity Futures Trading Commission allowing a defendant to continue trading before a trial set for January. Igor Oystacher, of 3Red Trading LLC, was accused by the CFTC of continuing illegal trades even after it sued him.
A jury deliberated for one hour before finding Coscia guilty of six spoofing counts and six fraud counts. He was the first person tried under a provision of the 2010 Dodd-Frank Act that made it illegal to manipulate prices by placing orders without intending to execute them.
Renato Mariotti, who was a prosecutor in the case before leaving for private practice, said after the hearing that there was initially skepticism about whether the government could prove the charges.
“I think that skepticism is gone.” Mariotti said. “I think any trader who hears this sentence has to be thinking, ‘I don’t want to go to jail.”’
Testimony during the trial showed that Coscia, like many high-frequency traders, used an algorithm to place, cancel and execute orders. Coscia testified that he intended to execute all his orders at the time he placed them. He said he wasn’t aware of the provision of the Dodd-Frank Act and his lawyers argued in court filings that the law was unconstitutional.
Prosecutors presented trading data from the Chicago Mercantile Exchange and the ICE Futures Europe exchange showing that Coscia placed orders that were much larger than any others trading at the same time and also that he canceled those orders much more frequently.
During the trial, prosecutors focused on six transactions in the gold, euro, soybean meal, soybean oil, British pound, and copper futures markets. In total, these trades resulted in a profit of $1,070, according to testimony. Coscia conducted thousands of such trades, prosecutors told jurors.
U.S. Attorney Zachary Fardon in Chicago said after the hearing that it’s been suggested that such crimes are “murky” because of technology and the speed at which trading takes place. If there is harm to the market, the office’s Securities and Commodities Fraud Section will bring charges whether the conduct involved algorithmic trading in fractions of a second or manual trading, he said.
“It stands for the principle that if you commit fraud, we will find you and we will investigate you and punish you as appropriate,” Fardon said. “The key take-away is the government is not going to let technology get in the way.”
Three years is a substantial sentence for doing something that isn’t easily distinguished from every day cancellation of orders and will put high-frequency trading firms on alert, said Peter Henning, a law professor at Wayne State University’s Law School in Detroit.
“This should throw a scare into them,” Henning said. “They need to figure out where the line is between permissible trading strategies and spoofing.”
The case is U.S. v. Coscia, 14-cr-00551, U.S. District Court, Northern District of Illinois (Chicago).
Rosamond Hutt, World Economic Forum 1h 701
Commodities have already had a tough 2015 – but earlier this week, prices for everything, from crude oil to industrial metals such as iron ore and copper, plummeted even further.
The sector is contending with the lowest prices since the financial crisis, perhaps even this century. Here is a brief guide to what is happening, how each of the main commodities are faring, and why it matters for global growth.
How bad is this crunch?
Earlier this week, crude oil dipped below $40 a barrel for the first time since 2009. The situation was so dire that the Bloomberg Commodity Index, which covers a wide range of natural resources, dropped to its lowest level since June 1999. After two days of freefall, prices have plateaued, with the oil price managing a brief recovery.
What’s causing the slump?
A combination of oversupply and weak demand have wreaked havoc on the natural resources industry. The growth slowdown in China and other emerging economies such as Brazil has reduced demand for natural resources like steel, iron ore and crude oil. Meanwhile, on the supply side, cheap borrowing costs and a failure to predict China’s slowdown led producers to expand too much in recent years. Now there is a glut that analysts say might continue well into 2016, with prices unable to pick up until global supplies decrease.
Who are the winners and losers?
Falling commodity prices are forcing the world’s mining giants to restructure their businesses in order to stay afloat as they battle declining profits. The market capitalization of the top 40 global mining companies has fallen by nearly $300 billion this year.
The crash is particularly devastating for economies that rely on export earnings from commodities. The oil-producing states of the Middle East, Russia, Brazil and a number of African nations have all been badly affected.
Conversely, in Britain and the Eurozone, low energy prices have benefited both consumers and business.
How are the big commodities faring?
Oil: China has been the biggest driver of oil demand in the past decade, so the country’s economic slowdown means bad news for crude consumption. Traders and investors are concerned that the oversupply will persist, with OPEC producers flooding the market.
Copper: Demand for copper in China has been weaker than expected this year, growing by about 2-3%. The metal fell to a six-year low this month, and is trading below the cost of production. Some analysts are blaming the drop on a slump in Chinese infrastructure investment, especially the power sector, which is one of the biggest consumers of copper.
Aluminium: The market for aluminium is oversupplied – global supplies rose more than 10.3% in the first half of the year. Meanwhile prices are trading at the lowest level in six years. China is also switching from being a customer to a producer of the metal, which is putting pressure on Western producers.
Iron ore: This base metal has done better than other commodities over the past few months. It hit a record low in July but has since recovered about 25% thanks to a reduction in exports from Brazil and Australia. However, supply continues to outweigh demand.
Gold: The precious metal has slipped 9% this year and is on track for its third year of losses. Traditionally gold has been viewed as a safe haven for investors, but analysts are watching carefully to see how prices will react to a predicted rise in US interest rates.
Read the original article on World Economic Forum. Copyright 2015.
The commodities bloodbath of 2015 in one chartNOVEMBER 30, 2015 AT 11:27 AM
Business Insider / Jonathan Marino
Commodities have been getting creamed in 2015.
And according to Jodie Gunzberg, global head of commodities at S&P Dow Jones Indices, it isn’t going to get any better any time soon.
“Unfortunately for commodities, there’s no waking up from this nightmare.”
So far, 2015 has not yet been the worst year for any single commodity, Gunzberg noted in a November 30 report, but there are a number of commodities that are on pace for one of their worst years on record.
“Aluminum is having its second worst year in history and gold is having its sixth worst year in history,” Gunzberg writes.
The S&P tracked each commodity’s performance back to 1970 for its research. No fewer than 17 are having one of the their five worst years out of 45.
Natural gas is down more than 40% this year, according to S&P, and energy is down more than 30% — making 2015 the fifth-worst year for each.
Already, Wall Street is bracing for big fallout. Wall Street banks are expecting more defaults in the energy sector as they see more loans underperforming.
Anyone who has pulled up to a gas station this winter knows oil prices have fallen — down roughly 50 percent since June.
But it’s not just oil. Prices for many commodities — grains, metals and other bulk products — have been plunging too.
Here are a few of the changes since many prices peaked in recent years:
– Copper is $2.59 a pound, down from $4.50 in 2011.
– Corn costs $3.85 a bushel, compared with about $8 at its 2012 peak.
– Iron ore pellets go for about $104 a metric ton, down from nearly $220 four years ago.
The list could go on and on. Soybeans, tin, sugar, wheat, cotton — all are much cheaper than a few years ago. The changes have been putting a squeeze on farmers and miners, but so far at least, most of these commodity plunges haven’t done much to help U.S. shoppers.
With the exception of gasoline, “the price changes are not being immediately passed through to consumers,” said Sean Snaith, an economic forecasting professor at the University of Central Florida.
Snaith said U.S. companies know global commodity prices can be very volatile, so they are afraid to cut consumer prices — at least not until they are sure that cheaper raw material prices are here to stay.
“There’s an old saying: Prices go up like an arrow and come down like a feather,” he said.
But eventually, even a feather does float down. So some economists believe that later this year, retail prices for groceries and goods may start to decline.
Let’s look at what’s been happening with crops, like corn and wheat, and consider where we might be going this year:
Over the past decade, many people around the world, especially in China, kept getting richer and buying more food. That encouraged farmers everywhere to plant more seeds.
Global food output rose, but so did prices as demand continued to shoot up. By 2011, many people around the world were experiencing food shortages and steep price increases.
But the market adjusted and production improved. A recent report by the USDA said world wheat and soybean production are at record highs. The huge harvests are helping push down prices.
And it’s not just grains. In Florida, the mild hurricane season helped send orange juice futures down to about $1.35 a pound, compared with their 2012 high of more than $2.
Looking ahead to this year’s growing season, harvests may again be huge. That’s because cheap energy is making it easier to plant more. Farmers who are paying a dollar-a-gallon less since a year ago for diesel fuel can run their tractors longer.
If the weather is good this summer, corn silos will be bulging by fall. That means ranchers and farmers will have cheaper corn to feed livestock, helping restrain meat and poultry prices.
At the same time, the global economy is running at a sluggish pace, so demand for food is not growing the way it had been a decade ago.
Also, the value of the dollar is now at a 10-year high. That means Americans will be able to purchase foreign foods, like cheeses and fruit, for less. Also, foreign customers won’t be able to buy as much from U.S. farmers, allowing more U.S.-grown food to remain at home with U.S. consumers.
So put all of these factors together: the potential for huge harvests; cheaper food imports; and reduced foreign competition for food and cheaper energy costs for farmers. That sounds like a great formula for bargains at the grocery store later this year.
And a price downdraft may hit manufactured goods too. That’s because raw materials — tin, nickel, lead and so on — keep getting cheaper too. U.S. coal prices have tumbled back nearly to the lows set in early 2009 during the worst of the Great Recession.
Economists say these across-the-board price drops in industrial commodities largely reflect the dramatic economic slowdown in China, Europe and other regions. When they are growing more slowly, then they don’t need as many raw materials.
“The risk of deflationary pressure is much higher than the inflationary pressure or stable price scenarios for the global economy in the near term,” Wells Fargo Securities’ economic team wrote in a special report on deflation.
But any American who has been out shopping lately may be thinking: huh? What price breaks? New cars cost more. Meat prices have remained stubbornly high. Eggs are expensive. When exactly will these lower commodity prices translate into relief for U.S. consumers?
“It depends,” Snaith said. “If these factors persist through 2015, we would expect to see these price declines make their way to consumers. But it’s a waiting game.” [Copyright 2015 NPR]
Copper Caps Worst Year Since 2011 as China’s Economy Cools
By Agnieszka de Sousa and Joe Deaux – Dec 31, 2014, 1:34:50 PM
Copper capped the biggest annual loss in three years in London amid signs of an economic slowdown in China, the world’s largest metals consumer.
The final reading this month for the manufacturing Purchasing Managers’ Index for China from HSBC Holdings Plc and Markit Economics came in at 49.6, the lowest in seven months. A figure below 50 signifies contraction. China is on course for the slowest year of economic growth since 1990, according to a Bloomberg survey. Copper dropped 14 percent this year amid prospects for fading demand from the Asian nation.
“The biggest stumbling block is you have China certainly slowing down,” Tai Wong, the director of commodity products trading at BMO Capital Markets Corp. in New York, said in a telephone interview. “If people have trades that they want to put on for the start of 2015, buying copper doesn’t seem to be one of them.”
Copper for delivery in three months on the London Metal Exchange fell 0.4 percent to settle at $6,300 a metric ton ($2.86 a pound) at 2:50 p.m. The drop this year was the biggest drop since a 21 percent loss in 2011.
The global copper market is poised to swing to a surplus of 139,000 tons next year from an estimated 128,000-ton deficit this year on more output from mines, according to RBC Capital Markets. Slowing demand in China could push the market into a bigger surplus in 2015, RBC analyst Fraser Phillips said in a report last week.
Copper stockpiles tracked by the LME rose 2.8 percent to 177,025 tons, the highest since May, data showed today. Inventories are down 52 percent this year, the biggest decline in a decade.
Aluminum, lead and zinc were also lower in London, while nickel and tin advanced. The LMEX index of six metals fell 7.8 percent this year.
In New York, copper futures for March delivery declined 1 percent to $2.8255 a pound on the Comex, closing down 17 percent for 2014. Trading was 54 percent below the average of the past 100 days for this time, according to data compiled by Bloomberg.
To contact the reporters on this story: Agnieszka de Sousa in London at email@example.com; Joe Deaux in New York at firstname.lastname@example.org
To contact the editors responsible for this story: Millie Munshi at email@example.com Joe Richter
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By ERIN AILWORTH, GREGORY ZUCKERMAN and DANIEL GILBERT WSJ
Dec. 9, 2014 12:35 p.m. ET
Harold Hamm ’s willingness to make risky bets helped him build Continental Resources Inc. into the one of the biggest oil producers in North Dakota’s Bakken Shale and a symbol of the U.S. energy boom. But his latest gamble—a quick rebound in crude prices—is rubbing some investors and analysts the wrong way.
Mr. Hamm, who founded Continental and owns 68% of its shares, announced in early November that the company had cashed in almost all of its financial hedges that guaranteed it could sell millions of barrels of oil for about $100 apiece. The company said it had realized $433 million in cash from selling the hedges, some of which ran through 2016.
Oil Futures Arrest Slide
“We feel like we’re at the bottom rung here on prices and we’ll see them recover pretty drastically, pretty quick,” Mr. Hamm said on a Nov. 5 call with analysts. He said the Organization of the Petroleum Exporting Countries was pushing down oil prices to slow America’s expanding energy output.
Now, removing the hedges, known in the industry as “going naked,” looks misguided even to some of the company’s fans, after the recent tumble for oil prices. The benchmark price for U.S. oil has continued to slide, falling from $81 in late October to $63.82 on Tuesday.
If Continental had kept the contracts that insured it against lower crude prices, it could have reaped $52 million more for its oil in November, according to a Wall Street Journal review of company disclosures. And it might have received $75 million more this month, assuming current conditions continue.
The Journal’s calculation of about $127 million in forgone revenue is similar to projections by several Wall Street analysts, and those projections would continue to rise in the coming months if oil prices remain below $96 a barrel.
The company said it disagreed with the Journal’s figures but wouldn’t provide its own, except to say that after figuring in revenue it received for selling its hedges, it expects the “net negative effect” to be $25 million to $30 million in November and December. It sold nearly $1.2 billion of oil and gas in the third quarter and reported net income of $533 million.
“It was a bad move with terrible timing,” said Gregg Jacobson, a portfolio manager at Caymus Capital Partners LP, a $200 million Houston hedge fund manager that had about 4.5% of its portfolio in Continental shares as of the end of the third quarter. Though he thinks the hedging sale will prompt some investors to view the company as unusually risky, Mr. Jacobson said he remains a supporter because of its executives’ skill in finding and drilling for oil.
“In the long run, the stock will respond to how they perform in the field,” he said.
While shares of many U.S. energy producers have had double-digit percentage declines since oil prices began falling in late June, Continental’s stock has been hammered. Its shares, which closed up 7.2% at $36.18 on Tuesday, have fallen by more than half since the end of August, and more than 25% since Mr. Hamm disclosed on Nov. 5 that the company had sold the hedges.
Mr. Hamm said in an interview that he still believes his bet could pay off but that it might take as many as two years to tell. “You can’t condemn that as a bad decision,” he said. “You haven’t seen it play out.”
Companies like Continental can react quickly to market changes, he said, which gives them an advantage over OPEC’s members. The cartel is discounting “the resiliency of U.S. producers,” he said, adding that investors “need to look at Continental long-term.”
A wildcatter—he has called himself an “explorationist”—Mr. Hamm started the company that would become Continental in 1967 and first struck oil in 1971 in Oklahoma. More than two decades ago, he began focusing on exploring the then-little-known Williston Basin, which stretches from South Dakota to the Canadian province of Saskatchewan. Over time, his company became a leader in the Bakken formation in North Dakota, which has become one of the biggest oil fields in the U.S.
Continental produced nearly 35 million barrels of oil last year, almost four times what it was producing five years earlier. That growth has helped push U.S. oil output to more than 9 million barrels of crude a day, up from 5 million in 2008.
Though Continental has become a leader of the U.S. energy boom, it is unusual. Institutional and activist investors have curbed some of the risk-taking of wildcatters at other energy outfits, and few companies of Continental’s size remain controlled by their founders.
Continental said it had 5.2 million barrels insured in November and December at an average price of about $100.
When oil prices are falling, hedges—contracts that many energy companies buy to protect against declining prices by guaranteeing a minimum price for the oil and gas they produce—become much more valuable. Continental notes that several of its competitors aren’t hedged, including Apache Corp. , which has no hedges on the books in 2015. Apache said it does have some production insured through the end of this year.
Mr. Hamm isn’t the first energy executive to abandon hedges. Under the leadership of former CEO Aubrey McClendon , Chesapeake Energy Corp. dropped its natural-gas hedges in 2011, leaving it exposed to a dismal gas market and dealing with a cash crunch the following year.
‘It was a bad move with terrible timing… In the long run, the stock will respond to how they perform in the field’
—Gregg Jacobson, a portfolio manager at Caymus Capital Partners
Continental isn’t likely to face a liquidity crisis—its debt is smaller than many of its competitors at about 1.7 times its cash flow, according to S&P Capital IQ. And the company has $1.75 billion in unused credit, recent financial filings show.
“They’ve built such a good balance sheet, they have the luxury of making this gamble,” said Jason Wangler, an analyst for Wunderlich Securities, who called the move a speculative bet. “They left money on the table in the short term.”
Mr. Hamm, he said, is “the guy you’re investing in, as much as the company.”
Since selling Continental’s hedges, Mr. Hamm has lost about $4.4 billion of his personal fortune as Continental’s shares have fallen—a loss that could be compounded by Mr. Hamm’s divorce. A judge recently awarded the former Mrs. Hamm, Sue Ann Arnall, a nearly $1 billion settlement; she appealed that decision on Friday. Mr. Hamm now owns about $9.2 billion of company stock.
Some investors say Continental’s primary acreage in the Bakken and elsewhere renders the hedging decision less important in the long-term.
“Cash flow next year will be lower and more volatile, assuming prices stay under pressure,” said Joe Chin, an analyst at Obermeyer Wood Investment Counsel LLLP, an Aspen, Colo., firm that owned 340,000 Continental shares at the end of the third quarter. “But we remain confident about management’s ability to deploy capital.”
Write to Erin Ailworth at Erin.Ailworth@wsj.com, Gregory Zuckerman at firstname.lastname@example.org and Daniel Gilbert at email@example.com