Tom Schoenberg and Matt Robinson
David Liew was a quick study. Less than a year into his metals-trading job at Deutsche Bank in Singapore, he joked with a colleague about their latest win.
"Tricks from the … master," Liew typed in a chat after working with a colleague to move gold futures prices while Liew executed a trade. In the course of a year, Liew and his colleagues used fake orders to try to manipulate prices, an illegal practice called spoofing, more than 50 times.
After pleading guilty to fraud charges last week and agreeing to cooperate, Liew has become a prime government witness for U.S. prosecutors investigating whether traders at the world’s biggest banks conspired to manipulate prices in silver, gold, platinum and palladium. His chats with colleagues -- part of an FBI affidavit filed in Chicago and placed under seal -- provide a window into the investigation by the Justice Department, which began looking into such activities at a dozen of the biggest global banks two years ago.
The U.S. is also looking beyond precious-metals trading and planning more criminal spoofing charges against Wall Street traders, according to people familiar with the matter. Working with the Commodity Futures Trading Commission, prosecutors in the Justice Department’s criminal division in Washington have been developing spoofing cases across markets since the 2010 adoption of the Dodd-Frank financial law, which made the practice illegal.
In his court plea, Liew described working with others at his own bank and at two other operations. He refers to “The Legend,” without naming him, at another unidentified global bank. Many details are cloaked. Liew himself is described as a trader for Bank A, which a person familiar with the situation said is Deutsche Bank AG.
According to the documents, at least two senior colleagues taught Liew how small orders could be placed and then quickly pulled, pushing prices in a direction to benefit traders with client orders to fill. Within a couple years, he was teaching newer traders to do the same. In all, according to the filings, he attempted to move prices on Chicago’s CME more than 300 times before he left.
Deutsche Bank declined to comment on the Chicago action. The bank has wound down most of its precious metals trading business since about 2014. Liew’s lawyer, Neil MacBride, also declined to comment.
In a parallel action to the criminal complaint, the CFTC settled an enforcement action against Liew on Friday, banning him from trading in markets the agency oversees.
Deutsche Bank, which wasn’t accused of wrongdoing in the cases against Liew, is one of nearly a dozen banks whose metals trading came under Justice Department scrutiny in early 2015. Investors have brought lawsuits against a handful of big banks, including Deutsche Bank, alleging manipulation of precious metals markets. In a December court filing, they produced electronic chats showing traders from multiple banks conspiring to rig prices from 2007 to 2013. Deutsche Bank agreed to pay damages to settle cases involving gold and silver trades.
Shortly after joining the bank in 2009, Liew completed training that prohibited market manipulation. He also began learning how his bank and its traders could benefit from orders that were placed but not filled, according to the affidavit prepared by the Federal Bureau of Investigation. These trades could move prices in a direction that could benefit a trader filling a client order, or move futures prices in a direction that would be favorable to traders who needed to clear open positions.
After trading silver futures on March 29, 2011, Liew wrote to the trader he called The Legend. "Look at silver … all algo play … basically I sold out … by just having fake bids," according to chats transcribed in the FBI affidavit.
By June 2011, Liew had begun teaching others the mechanics of spoofing, according to the FBI affidavit. In a chat with a trader from an unidentified trading firm, Liew explained how he used high-speed traders to move the market to his advantage. "I just spam … then cancel a lot … its actually stupid … cause im risking … but it gets the job done."
That August, Liew and a colleague discussed Dodd-Frank and their trading strategy in a chat, then engaged in spoofing to help Liew’s position in gold futures, according to the affidavit. "dodd frank gonna get me fired," Liew wrote.
Eight minutes later, Liew wrote, "I bought some gold for us … get ready .. to buy a bit more." The two then spoofed the market through a series of orders, according to the FBI account. Later, they boasted about their profits. "u greedy for 50cents pumpkin … but Im greedy for $5 …lol," Liew wrote. His Deutsche Bank colleague replied, "I think we made … a lot … its ok … ahaha."
Liew resigned from Deutsche Bank in 2012 and in July of that year wrote a blog post called, "Why I Quit my Investment Banking Job to Start a Tech Company," according to the FBI affidavit. In the post, he discussed his three years of trading, saying he was "uncomfortable with some of the things I witnessed/experienced.”