The U.S. Commodity Futures Trading Commission (CFTC) has charged a Nevada metals trader with fraudulent trading in which he profited handsomely by defrauding the gold and silver futures markets.
The CFTC said Daniel Shak, head of small hedge fund SHK Management LLC, entered bulk orders that he intended to cancel while also placing orders on the other side of the gold or silver futures market before executing the trades. This has happened hundreds of times.
Fronting (spoofing) is a strategy to manipulate the gold and silver markets by making buy orders or offers and canceling them before execution.The CFTC said Shak engaged in this type of activity multiple times between February 2015 and March 2018.
”By posting false orders, Shak intentionally or recklessly sent false signals of increased supply or demand designed to trick market participants into executing reverse orders that he actually wanted filled,” the CFTC said in a press release. “Shak’s false orders allowed him to fill reverse orders more quickly, at better prices, and/or in larger quantities than would otherwise have been the case.”
The CFTC is seeking civil fines, expulsions, trading bans, and permanent injunctions for future violations of the federal commodities laws.
”These allegations demonstrate once again that the CFTC will vigorously prosecute misconduct that may undermine the integrity of our markets to the fullest extent of the law,” said Gretchen Lowe, acting head of the CFTC’s Enforcement Division.
This is not the first time Shak has clashed with the CFTC either. in March 2015, he was ordered not to trade in the gold futures market at the close of trading.
Shak is also well known on the World Poker Tour. In nearly 20 years, he has played in 150 major poker tournaments and won more than $11.7 million in prize money.
Ten years ago, the Wall Street Journal reported that Shak bet heavily on gold but failed, forcing him to close his position and return the money to his clients. At the time of the report, Shak’s hedge fund held contracts worth more than $850 million, or more than 10% of the major U.S. futures market.
The fraud has been making headlines in the mainstream media over the past few weeks as the market digests the high-profile case involving several JPMorgan traders.
Following a three-week trial, a jury continued deliberations for six full days in the most important court case affecting the precious metals market.
Michael Nowak, head of JPMorgan Chase’s precious metals division, Gregg Smith, a gold trader, and Jeffrey Ruffo, an executive director specializing in hedge fund sales, are accused of manipulating the price of gold and silver over an eight-year period from 2008 to 2016.