Seventh Circuit Re-Affirms “Spoofing = Fraud”
United States v. Gregg Smith, Michael Nowak & Christopher Jordan (2025)

1. Introduction

In United States v. Gregg Smith, Nos. 23-2840, 23-2846 & 23-2849, the United States Court of Appeals for the Seventh Circuit issued a sweeping opinion consolidating the criminal liability of “spoofing” under three separate statutory regimes:

• wire fraud, 18 U.S.C. § 1343,
• commodities fraud, 18 U.S.C. § 1348(1), and
• the Dodd-Frank anti-spoofing provision, 7 U.S.C. § 6c(a)(5)(C) (enforced via § 13(a)(2)).

The court affirmed the convictions of three former precious-metals traders—Gregg Smith and Michael Nowak (JPMorgan) and Christopher Jordan (JPMorgan/Credit Suisse)—for placing large, rapid-fire orders they never intended to execute in order to nudge CME futures prices and fill profitable “genuine” orders on the opposite side of the book.

The opinion rejects long-standing defense arguments that fraud requires a misrepresentation about the characteristics of the traded commodity itself (the so-called “essential-element” test). It also rebuffs vagueness challenges to both the anti-spoofing statute and the fraud statutes as applied to algorithmic or manual spoofing. In doing so, the Seventh Circuit cements a precedent likely to influence every commodities and securities manipulation prosecution going forward.

2. Summary of the Judgment

• Convictions affirmed for all three defendants on all counts tried to verdict.
• Key holdings:
  1. Spoofing constitutes a “scheme to defraud” under §§ 1343 & 1348—even without a misstatement about price or product.
  2. The Dodd-Frank anti-spoofing provision is not void for vagueness; its scienter requirement is satisfied if the trader places an order with intent to cancel to trick the market.
  3. Circumstantial trading-data, co-conspirator testimony, chat messages, and CME investigative materials were sufficient to prove intent.
  4. Evidentiary and jury-instruction challenges (Rule 106, Rule 403, “good-faith” instruction, Silvern deadlock charge) were correctly rejected.
• Practical effect: The decision integrates spoofing into traditional fraud doctrine, simplifying future prosecutions and civil actions.

3. Analysis

3.1 Precedents Cited and Their Influence

• Kousisis v. United States, 145 S. Ct. 1382 (2025). Decided months before this case, Kousisis rejected the “essential-element” limitation on fraud. The Seventh Circuit explicitly relies on it to foreclose defendants’ argument that only price-or-product lies matter.
• Ciminelli v. United States, 598 U.S. 306 (2023) & Schellef, Takhalov, Guertin. These cases had fueled the “essential-element” split. The Seventh Circuit reads Kousisis as overruling that line and restoring a broader fraud concept.
• United States v. Coscia, 866 F.3d 782 (7th Cir. 2017) & United States v. Pacilio, 85 F.4th 449 (7th Cir. 2023). Earlier Seventh Circuit spoofing cases established that (i) the anti-spoofing statute is constitutional, and (ii) intent is measured at order entry. The panel leans heavily on this precedent for both vagueness and sufficiency rulings.
• United States v. Weimert, 819 F.3d 351 (7th Cir. 2016). Defendants analogized their case to Weimert’s “negotiation bluff.” The court distinguishes: spoofing deceives the whole market, not a single counter-party.
• Silvern, 484 F.2d 879 (7th Cir. 1973). Provides the template for deadlock instructions; reaffirmed as proper here.

3.2 Court’s Legal Reasoning

1. Spoofing as deception satisfying fraud statutes.
   • The defendants’ large, fleeting orders created a false appearance of supply/demand.
   • That illusion induced counterparties to trade at distorted prices—meeting the statutory requirement of obtaining money or property “by means of” deception.
   • A private, undisclosed intent to cancel is a material misrepresentation when orders are placed in an anonymous order book that assumes bona-fide intent.
2. No “essential-element” hurdle after Kousisis.
   • Fraud convictions need not hinge on lies about intrinsic price or product attributes; any deceptive device suffices if it wrongfully obtains money/property.
   • The panel expressly “builds on and extends” Kousisis to commodities markets.
3. Mens rea inquiry.
   • Intent assessed the moment the order hits the market.
   • “Conditional intent” to trade only if one’s genuine order first fills still equals intent to cancel for spoofing counts.
4. Constitutional certainty of § 6c(a)(5)(C).
   • The statute’s focus on “knowingly engaging in any trading… that is, or is of the character of, spoofing” is sufficiently clear when coupled with CME rules and industry usage.
   • Post-Coscia, any lingering vagueness challenge has “no traction.”
5. Evidentiary rulings within broad discretion.
   • Co-conspirator traders’ lay testimony was permissible under Rule 701 despite using charged terms like “spoofing” and “fraud.”
   • CME investigator Wika’s report qualified as a business record; his lay opinions did not convert him into an undisclosed expert.
   • Excluding Jordan’s “I didn’t think it was wrong” remark under Rule 106 was proper; he could have testified himself.

3.3 Likely Impact of the Decision

• Prosecution playbook simplified. Prosecutors can now charge spoofing under traditional fraud statutes without separately proving price manipulation or resorting exclusively to Dodd-Frank.
• Civil litigation tool. Private plaintiffs (e.g., class actions) may invoke the reasoning to allege common-law fraud or RICO predicates based on spoofing data.
• Compliance departments on notice. Firms must treat any intent-to-cancel strategy as red-flag misconduct, regardless of whether their internal policies explicitly mention “spoofing.”
• Blurring algorithmic vs. manual distinction. Although defendants traded manually, the court’s framework equally applies to algorithmic high-frequency trading.
• Vagueness door largely closed. The Seventh Circuit’s reiteration that § 6c(a)(5)(C) is clear “as applied” will deter future constitutional challenges.

4. Complex Concepts Simplified

• Spoofing: Placing orders you intend to cancel in order to move market price, then quickly cancelling them after your real order is filled.
• Futures Contract: Agreement to buy/sell a commodity (e.g., gold) at a set price on a future date; traded on CME’s electronic order book.
• Scheme to Defraud: Any plan to obtain money/property through deception—it need not involve literal false statements about the product.
• Essential-Element Test (now discarded): Older doctrine requiring the lie to relate to an intrinsic element (price, quality) of the transaction; repudiated by Kousisis and this case.
• 7 U.S.C. § 6c(a)(5)(C) (Anti-Spoofing): Makes “spoofing (bidding or offering with the intent to cancel before execution)” unlawful on commodity exchanges.
• Rule 106 (Rule of Completeness): Allows a party to introduce the rest of a statement or document when the opponent introduces only part of it—but only if necessary to avoid misleading the jury.
• Silvern Instruction: A judicial directive given to a deadlocked jury encouraging further deliberation without coercion.
• Void for Vagueness: Constitutional doctrine requiring criminal statutes to give ordinary people fair notice and avoid arbitrary enforcement.

5. Conclusion

United States v. Gregg Smith is a landmark for market-manipulation jurisprudence. By holding that spoofing satisfies the deception element of both wire and commodities fraud—and by upholding the constitutionality of the anti-spoofing statute—the Seventh Circuit closes procedural loopholes that traders have exploited since the advent of high-speed electronic markets. The court’s detailed evidentiary rulings also serve as a roadmap for future trials, emphasizing the admissibility of trading-data analytics and insider testimony. In essence, the decision signals that in the Seventh Circuit, and likely beyond, “intent to cancel = intent to defraud” whenever orders are placed to trick the market’s perception of supply and demand.