“Spoofing” as a Stand-Alone Scheme to Defraud: United States v. Gregg Smith, Michael Nowak & Christopher Jordan, Seventh Circuit 2025

Introduction

United States v. Gregg Smith consolidates three appeals arising from a high-profile federal prosecution of former JPMorgan and Credit Suisse precious-metals traders. The defendants – Smith, Nowak and Jordan – manually entered large “spoof” orders on the Chicago Mercantile Exchange (CME) that they never intended to execute, thereby nudging market prices to profit from opposing genuine orders. After jury trials the defendants were convicted of (i) wire fraud (18 U.S.C. § 1343), (ii) commodities fraud (18 U.S.C. § 1348(1)), (iii) conspiracy, and (iv) violation of the Dodd-Frank anti-spoofing provision, 7 U.S.C. § 6c(a)(5)(C) enforced through § 13(a)(2).

On appeal, they attacked the convictions on four main fronts: (1) that spoofing involves no “essential” misrepresentation about price or product and therefore is not a “scheme to defraud”; (2) that the statutes are unconstitutionally vague; (3) that the jury lacked sufficient evidence of intent to cancel; and (4) that numerous evidentiary and instructional errors warranted new trials. The Seventh Circuit – per Judge Kirsch with Judges Easterbrook and Kolar joining – rejected every contention and squarely held that spoofing, by itself, fits within the traditional fraud statutes even when victims receive the contracted product at the contracted price.

Summary of the Judgment

• Fraud Theory Upheld – Following the Supreme Court’s Kousisis decision (2025), the court ruled that a fraud conviction can rest on a material deception that merely induces a contractual transaction; proof of economic loss or misstatement about intrinsic characteristics is unnecessary.
• Anti-Spoofing Statute Survives Vagueness Attack – Reinforcing its 2017 precedent (Coscia), the Seventh Circuit reaffirmed that § 6c(a)(5)(C) provides adequate notice and standards.
• Intent Standard Clarified – The government need only show that, at order placement, defendants intended to cancel; it need not prove an “unconditional” intent to cancel regardless of market movement.
• Evidentiary Rulings Affirmed – Lay trader testimony, CME investigator opinions, and business-records reports were admissible; the court properly excluded post-2010 compliance memos and declined a “good-faith” instruction.
• Convictions and Sentences AffIRMED – No cumulative error or insufficiency warranted reversal or new trial.

Detailed Analysis

1. Precedents Cited and Their Influence

• Ciminelli v. United States, 598 U.S. 306 (2023) – Clarified “money or property” requirement but left open deception-induced contract theory.
• United States v. Kousisis, 145 S. Ct. 1382 (2025) – Supreme Court held that using lies to procure a contract suffices for wire-fraud liability even if the victim receives the bargained-for service. Seventh Circuit treated Kousisis as dispositive, foreclosing defendants’ “essential-element” theory.
• United States v. Coscia, 866 F.3d 782 (7th Cir. 2017) – First appellate decision upholding constitutionality of the Dodd-Frank anti-spoofing statute; heavily relied upon for vagueness analysis and definition of spoofing.
• United States v. Pacilio, 85 F.4th 449 (2d Cir. 2023) & United States v. Chanu, 40 F.4th 528 (2d Cir. 2022) – Sister-circuit cases treating spoofing as fraud-on-the-market; cited to show national consensus.
• United States v. Silvern, 484 F.2d 879 (7th Cir. 1973) – Controls supplemental jury instructions to resolve deadlock; validated the trial judge’s approach.

2. Court’s Legal Reasoning

1. Spoofing = Deceptive Scheme. The act of placing orders “with no present intent to trade” falsely signals supply/demand and manipulates price discovery. Because market participants rely on each order’s implied representation of genuine trading interest, spoof orders are material deceptions.
2. No “Essential Characteristic” Requirement. Defendants argued that only misstatements about price, quantity, or product qualify. The court, embracing Kousisis, held that inducing participation under false pretenses is enough; the fraud statutes protect “property” in the form of money risked in transactions.
3. Intent Determination. Measurement is at the moment of order entry. A conditional willingness to trade (i.e., only if spoof “accidentally” fills) is not a bona-fide intent; it is indistinguishable from intent to cancel.
4. Statutory Vagueness Rejected. The anti-spoofing statute’s text (“any trading, practice, or conduct … that is, is of the character of, or is commonly known to the trade as, ‘spoofing’ …”) plus CME rules and industry usage provide fair notice.
5. Evidentiary Balance. The trial court did not abuse its discretion under Rules 401–403, 701, 702, or 803. Even if lay testimony “approached the line,” overwhelming evidence rendered any error harmless.

3. Potential Impact

The decision cements–at least within the Seventh Circuit–three doctrinal points likely to shape federal enforcement and private litigation:

• Universal Fraud Hook. Prosecutors may charge spoofing under wire- or commodities-fraud statutes independent of Dodd-Frank. This widens venue choices and raises sentencing exposure.
• Lowered Intent Defense. Traders cannot avoid liability by claiming a theoretical willingness to trade if accidentally filled. Compliance programs must discourage any order lacking contemporaneous genuine intent.
• Market-Integrity Theory Endorsed. The court treats interference with price discovery itself as a property harm. Expect analogous arguments in crypto-asset, carbon-credit, and other novel markets.

Complex Concepts Simplified

Futures Contract

An agreement to buy or sell a commodity at a future date for a price set today; traded on regulated exchanges (e.g., CME).

Spoofing

Placing large, visible orders one never intends to execute, solely to mislead other traders about supply/demand and move prices.

Wire Fraud (18 U.S.C. § 1343)

A scheme to defraud using interstate wires (emails, phone lines, trading platforms). Requires (1) intentional deception and (2) use of wires in furtherance.

Commodities Fraud (18 U.S.C. § 1348)

Parallel to securities fraud; covers deceptive schemes involving commodities or commodity futures.

Dodd-Frank Anti-Spoofing Provision (7 U.S.C. § 6c(a)(5)(C))

Makes it unlawful to enter orders with intent to cancel before execution – a targeted response to high-frequency and manual spoofing.

Rule of Completeness (FRE 106)

Allows introduction of the remainder of a statement when partial admission would be misleading. Does not mandate inclusion of self-serving, unrelated remarks.

Silvern Instruction

A Seventh-Circuit-approved supplemental charge encouraging deadlocked juries to reach a verdict without coercion.

Conclusion

United States v. Gregg Smith firmly anchors spoofing within traditional fraud doctrine, erasing any perceived gap between the Dodd-Frank anti-spoofing rule and older general statutes. By aligning itself with the Supreme Court’s fresh endorsement of deception-induced contracts (Kousisis), the Seventh Circuit closed the door on the “essential-element” argument and clarified that the critical inquiry is the trader’s intent at order entry. For legal practitioners, compliance officers, and market participants the case underscores a simple mandate: every order must be bona fide at the moment it hits the book. Future litigants challenging spoofing-related charges will now face an uphill battle, and regulators may invoke wire-fraud theories beyond traditional commodities contexts, extending to digital assets and other emergent markets. In short, the decision crystallizes a modern principle: manipulating market perception is itself a property-targeting fraud, even when the tangible goods or contracts remain unchanged.