please the court morning my name is michael kim from the firm of korean kim and i represent the appellant michael kosha although i did not represented a trial i wanted to present the court with what i believe are two important questions of statutory construction they believe weighed the court in assessing the spoofing koll i think the first important statutory question is whether congress intended the parent whatever questions there might be around the edges mr coe she is conduct was at the core of what is prohibited by the statute if that is not correct in your view what is the core conduct that the anti spoofing statute is is is meant to prohibit actually impossible to tell what congress was trying to prohibit and second i have a guess as to if they had written the statute more clearly what they were trying to cricket and my two statutory construction questions actually dressed her size to the point are on the just raise first what is it is it possible to tell the congress prohibited i believe on the face of the statute it is not possible as your honour's know the statute says what is a criminal offense is spoofing in quotation marks with followed by a parent got a call without quotation marks that says bidding or offering with intent to cancel before execution now the congress had used this precise language word for word even including the petition marks in the same provisions seven u s c six c in the wash sale provision and there when congress used the word wash sale in quotation marks congress was referring in fact as the legislative history shows to a commonly defined industry term and they did not define it in the commodities exchange act itself the congress uses not just the same quotation marks but literally the same wording changing the word wa d the meaning of this provision after it passed and so not only do we have a situation where literally they do the same thing in the watch trade provision and attempted to reference a industry definition that didn't exist which is why i submit to the court it is impossible to tell what congress was prohibited but also we have the even greater puzzle of if they're if the parents that call was intended to be a definition why congress would use quotation marks in the first place and i submit it's clear on the face of it the parent that it is not intended to be a definition because you're out as your others know from the same provisions in the commodities exchange act definitions are used throughout and they are in a definition section or were considered legitimate and are considered legitimate are going on every single day really going on with this sophisticated i guess it's certainly news and i look at it this it looks like t well if i had to guess your honor i believe it is targeted at conduct that occurred prior to the opening of the market which was a c f you see in force the problem in the really the year leading up to the inac of this provision where people would put in bids or offers that could not be executed before the open and then with cancel them right before the open the c f c problem number of enforcement for provision for the cases that we cited in our brief but was hampered by the fact that the then existing laws require them to show an effect on price which is complicated and i believe that's if we had to guess what they were trying to target i believe that's what they were trying to target i mean before the official opening of the market is given our minute correct you're on to become so much that goes on internationally in the meantime i assume that does affect the market yes but in terms of the relevant markets that are operating under th exposed to the marketplace cannot be assured to be cancelled without being executed now if one literally takes is there any rise to any fair and no this that it was prohibited in other words the government would at any given time say what he had the greatest value sometimes that was accurate sometimes it was an accurate sometimes they say that he  canceled more often than others now as it turned out that actually was an inaccurate claim but even if it worked what i would submit is that for conduct to be prohibited it actually has to be know this in the first place and i think the problem here is that the mere phrase bidding or offering with tinted with the intent to cancel before execution actually if you took it literally criminalizes every type of bitter offer put out where the person hopes that it doesn't get executed and get and that's the trial evidence shows there are a number of legitimate ways of doing it that would have been criminalized by this provision which defies common sense for example as a trial of the show as it is quite common and considered legitimate  if d c and apparently the d o j on appeal to put out the bitter offer saying this will cancel if not executed in one hundred milliseconds two hundred milliseconds one millisecond that's not prohibited it is common for people to put things out put out bizarre offers hoping desperately that it does not get executed for example the tribe and speaks of stop loss orders orders put out to execute only if the price of the market honor i believe there actually is no distinction that can be principled because first of all with respect to mr cautious trading the trial evidence is undisputed he left his orders out his larger is out for two hundred fifty to four hundred milliseconds trial evidence was also clear that executions can occur in a fast as one millisecond and that i believe an expert testified even leaving a bitter offer off for one hundred milliseconds involves a substantial risk of execution so in both miss the coach's orders and a stop loss order you have an order out that is long enough for it to be executed and in both order the person is desperately hoping that it gets cancelled before being executed because by definition if it's triggered the market has moved against the person the person is hoping the market does not move in that direction so the person putting out a stop loss order is desperately hoping i hope the market never turns for this thing to be executed and i hope it is cancelled of its own kind limitation which again can be one millisecond one hundred milliseconds or whatever the person puts on it what mr kosha did is simply another form of conditional cancellation other words he put out fully executable orders that were programmed to cancel upon the occurrence of certain conditions either the passage of time which it is undisputed is illegitimate or the occurrence of other bits or offers or other executions in the marketplace on his own positions to mr kim the thing that bothers me about this whole thing you know it's it's way over my head it just seems that you know it when you talk about who would in a matter of time there is no time you were dealing with milicic and so it has to be one computer reacting to another and is in that period of time that has to be another computer or set of computers a new question is is the market have evolved to this point where is the market situation where you got a better computer than the other guy with respect your honor i believe you're honest and correct mr coaches bitzer office were hit by human traders within two hundred fifty four hundred milliseconds thousands of times and that's what the undisputed trial evidence shows and while it's not cited in the briefs the see itself has published papers showing human beings can react and trade in milliseconds so the commodity futures markets the troll evidence shows operate fundamentally differently in that stop loss orders and a bits and offers are out there for very short amounts of time to trial over this was undisputed that ninety eight percent of all bits and offers are cancelled before execution and more than half of those in under one second and that the prices and commodity futures markets often change hundreds of times within the span of one second and that's not an epiphany but how should we interpret mr coe she is conversations with with all of that so your honor as a matter of fact i believe the word he quote was not used by mr kosha but was used by another witness to describe an innocuous type of trading called a ping whether it tiny order put out to the marketplace to see if somebody would execute but in any event i believe that it is not necessary for the court to interpret any of those statements i am not your quibbling with the factual inference that the jury apparently drew that mr kosha had a hope that his bizarre offers would be cancelled before execution i am here arguing about the lack of legal significance of one harboring that hope because where the the parents got a call talks about the intent to cancel i submit this court should interpret the word inten to not include situations where a person has merely a hope or expectation of cancellation because to do so would expose everyone to the risk of rampant arbitrary enforcement and that is because anybody who puts out a conditional cancellation order has a hope if it's a type of order where they don't want the market conditions to move that way has a hope that it's not executed two examples of the types of conditional that kosher is intention was to make small orders that were intended to be executed and simultaneously he was manipulating the market with large orders holdings down below shows it is a common market practice for people to put orders are busier offers on opposite sides of the marketplace and so the conduct the kosha has engaged in which the deal jaber cars as suspicious was never prohibited and never publicized as being for it and so they are torturing the phrase intend to castle before execution to include all instances where somebody has a hope that it does not execute when in fact there are but it's undisputed a number of types of orders the people will put out where people have a hope that it is not executed not just to stop limitation or stop loss orders but types of paying workers fill or kill orders where people are hoping that only a tiny gets executed or the rest are not executed and your honour's i think the problem here is if you're going to convict somebody of a crime and put them in jail the prohibition of what conduct is prohibited and what is not has to be clear and we have a situation where the government on appeal has admitted that there are a vast number of conditional cancellation orders orders for people when they place the offers would be in place but as the trial transcript shows at six seventy six seven twenty seven sixty nine it is undisputed that nobody in the marketplace has any expectation as to how long anybody else's orders will be in place before they are cancelled and the second type of fraud they don't see nor is it your position that the discrepancy in cancellation rate it's between large and small enforcement and a fair though this perspective there was no prohibition at the time on how often or colic stream or in whatever manner one trades now john it was there factual disputes that i think later work back off at sentencing us to the government statistical information how accurate that was but as a matter of law your honor i don't believe the court can say well if you're the largest trader or feet this something so often it's criminal because nobody really has come out and said so except in arguments of the government it's the ex post facto decision as to what factors are considered suspicious that i think the government is trying to impose on a what was a big set of standards that even the c of t c and industry agreed were big entice moving provision of the commodities exchange act is not unconstitutionally vague as applied to the defendant it contains a definition of spoofing it requires action th or offering in the marketplace and it requires specific intent at the time that somebody placed that bidder offer that he intended to appear that he did not intend to execute its premeditation ok what is a legitimate reason to cancel an order why are more than ninety percent of commodities orders cancelled within milliseconds of being placed a legitimate reason to cancel would be anything that occurs after that order is placed so a very common reason to cancel is that you place an order in the market and you realize based on market events whether pricing early quiddity information in the market that that  order was ill conceived the definition of spoofing in the statute excludes that it excludes good faith orders it excludes reckless orders it excludes orders that marketing conditions show will not be profitable that accounts for a vast majority of the cancellations that occur in the market that does not define or does not describe what the defendant's conduct was in this case according to the jury the jury was ok cancelled larcher orders as i see it under three conditions first if a smaller order was executed second if they were partially filled and third if they were on the others which is the behavior that is really the problem and i'll just take issue with one issue phrase all a g in the question which is that the defendant characterizes these as condition and under which cancel that is not what these are these are the parameters under which the cancellations occur and that's an important distinction because conditions suggest an after the fact of vent something like a market change orders can  at all those are after the fact a vent that occur what the defendant's parameters of his algorithm provided were that he wanted these large orders to be cancelled in all situations so how he did this is he used his large orders and his small orders in a fraudulent manner in a strategic manner he programmed those large orders to be cancelled as soon as the small order filled so he wanted that small order to be filmed as a result of the the pressure of the buying pressure of the selling pressure that those large orders provided he also had as a cram it or his cancellation that those large orders would fill if even a single contract got filled so if he had a true hundred law order and a single contract was hit the rest of the order completely went away and then the third parameter was if no activity happened in the specified time frame that order w cancelled all the all the orders large and small were canceled which is just that kind of stop gap measure if nothing was happening in the market but those try first two parameters are very important because it shows that by their very design these orders the defendant did not want them to exist in the market he wanted to use them to shift supply and demand in a way that brought the market down to the price or up to the price at which that small order had been placed and that's important that's the core conduct disproving statute prohibits and that's i want to turn to the defense argument that this is not a definition in the statute an argument that really cannot be squared with the statutory text either a definition which is how to read because it does not contain an e g d urn including or an ip prior to it or it's an example and remember that the defendant has only pursued his challenge vagueness challenge on appeal as an ass applied challenge so even if this is an illustration of conduct that is prohibited that means that the defendant had fear notice this is the example of conduct th congress said was illegal they provided fair notice the same convict the defendant was who was convicted of prosecuted and convicted for is the conduct that is prohibited by the statute the defendant  defense counsel says that this is like the wash sales provision i fail to understand the significance of that the statute in a separate provision under six prohibits wash sales and accommodation trades it provides both of those words in quotation marks but does not provide a definition even if there was some similarity in the use of quotation marks the spoofing provision does provide a definition that goes farther than those earlier versions where it uses the term wash sale it provides a definition of spoofing i want to take you a little a little somewhere else for per minute you see in some way it seems like all of these computer algorithms are just trying to outsmart each other and making the program that say here's out the market in a new way couldn't other traders adapt their computer algorithms to this new method in other words in other words are we punishing this defendant for being the first to build a better mousetrap it is not legal to adapt computer algorithms be effective it is not illegal to respond to other traders activities it is not illegal to buy low and sell high those are market activities the significant difference is that the defendants conduct was deceptive it was fraudulent he placed his orders with intent execute them so for example the defendant repeatedly refers to the statistic in his brief that he filled eight thousand large quarters and somehow that indicates that he did not intend to cancel those march quarter that figure is is a misnomer the actual number of large orders that he fully filled during his scheme was two hundred  sixty the statistic is that he filled zero point zero eight percent of his large orders out of about three quarters of a million orders at the place during the scheme this is significant because it shows that although his large orders could have been there legitimately he was doing everything he could to ensure that they were not executed this goes back to your question judge of her because the significance of that is that other traders at trial testified that supply and demand is very very important in commodities markets there actually is nothing more important than supply and demand that's how prices are determined it where the market is it determines how people trade that market and traders are entitled to rely on supply and demand information being accurate that other people when they're placing their orders for doing so in good faith that they intend to actually keep that market that order on the market long enough for it to have the possibility of being executed the defendant statistics regarding his actual trading and the data that shows that he executed only zero point eight percent of his large orders indicate that he had no intent to execute these large orders he was using it to artificially deep press or impress or increase market prices so that he could fill those small orders and that's what was deceptive that was that's what was fraudulent and that's what kind there is other activity on the market that has been prosecuted that's like this however the statistics show that during the time frame that he was operating this scheme it was one of a kind insofar as he's the only person that was attempting to manipulate the markets like this you are correct electronic trading happens very quickly things happen in a fourth of a second that you know that's as fast as about you blink your eyes but the elder of them is are specifically program to adapt to that fast movement and the traders who testified at trial and this goes to some of the materiality arguments that they raise in their reply brief and in their opening brief is those algorithms were specifically programmed to trade based on imbalances that they perceived in supply and demand so for example if what the defendant was doing is if corn was at three dollars let's say using those numbers out of out of  box here so let's take turns at three dollars he wants to buy it low so he puts then a small trade order for two dollars but he needs to make sure that the price because nobody is willing to fill it at the dollars comes down to two and the way that he does that is he flips to the other side of the market he puts in a series of sell orders starting high so five for three and he becomes the whole market right because he has large orders are so big that he is the vast majority of that market and the effect of that is that other algorithms see an imbalance of supply and demand lots of liquidity for that moment in time because those contracts are so big that orders are so big and then there are progressive leap decreasing towards where his small order sits and the effect of that is that it perceives a depression in prices and somebody goes and fills that small order that's sitting at too even quickly but that's a great example of how the effect on supply and demand deceives these other traders who are trading through their their algorithms and the defendant makes a big deal in his reply brief about how you know deception of algorithms isn't the same thing as deceiving traders and and that is such an artificial distinction it's like saying that i my voice is talking but i'm not the traders are trading through these algorithms they're programmed in a particular way to assess i think drake the evidence shows that traders like the defendant develop these algorithms using computer programmers using their own sometimes proprietary software and there are always and the traders have testified that what's very very important to those algorithms is supply and demand and so that's why even though yes there is no minimum amount of time that orders need to be on the market that through the defendant's conduct went way beyond that he wasn't canceling orders quickly he was using those orders in a way that manipulated that supply and demand and the defendant as he did in the district court repeatedly argues that you know he wasn't charged with price manipulation and  law there is there is a civil case a civil suit case that's pending in the northern district of illinois in front of judge scene involving and similar conduct was the cold case i'm sorry stop loss orders still or kill and hidden quantity orders illegal i've had to learn a whole new language you there's a lot of verbal and there's a lot of terminology to to learn and i think that we have to take each one of those separately because the answer differs for them it makes none of those things a legal but the reason why is is is different so there are some of them fall into the category of being conditions that arise after the order is placed and so the spoofing statute very clearly makes it only a crime to place an order intent at the time to cancel that order and so that encompasses schemes like the defendant where he from by its very design wanted those orders to not go through he was using them for another purpose other than execution so something like a stop order which is i want the market to be at a particular price but if it goes down then i'm going to i'm going to sell that security or that commodity before it gets to or at that price before it goes in a lower well that's an after the fact market event depends on particular market conditions and in fact when it's place they they don't want the market to move in that direction they would like it to be filled at a higher price they would like to trade at that higher price and the same is true of filler kill orders what that is is where somebody says i want my order filled but i want two hundred logs or i want to hundred lines i want to specific quantity of orders to be filled and if and if i can't get that order filled that i don't want anything and in that situation the trader does want that order filled but they want to filled under particular conditions and that's the big distinction between what the defendant was doing and what these legitimate traders are doing is that from by its very design the defendant is acting to orders you know a different way for reasons other than trading them and that to go to one of your honor's questions of the defense attorney you asked about his conversations with jeremiah parker who was his computer programmer and in an e mail to jeremiah park the defendant described wanting to use his large orders as sizable orders to move the market he described his large orders as being used to pump the market and that's consistent with the admissions that he made at trial he testified it wasn't just a reasonable doubt defense in this case he testified and he acknowledged that he was using those large orders to show strength in the market but his claim in his testimony was yes i did the strategy in this manner but i wanted to trade all my orders large and small i wanted to trade them all and he again a five particular examples of large orders that were filled and he said i look i want to treat those and that was  proven by the actual data that was introduced in rebuttal which showed that even as to the specific examples of large orders that he said that he wanted to trade the error log showed that he was frantically trying to none of this evidence like for example standing alone that may have more limited significance but that it was part of the slew of evidence at trial every shred of which showed that he was using these large orders for a reason other than to small orders it was data market data showing that his cancellation rates for large and small orders were were disparate so he was canceling just like other traders ninety eight or ninety nine percent of the large orders but not a small orders he was canceling somewhere closer to fifty percent of those small orders and filling the rest of them which shows that this is this isn't just like any normal trading he was doing this in a manner to manipulate the market and using those orders for an definition that's in the statute is the definition of spoofing so for example the defendant cites a december two thousand and ten round table discussion by the c f t c and if you look at the transcript of that roundtable discussion  here that is the definition they gave the defendant fair notice that definition is repeated in the may two thousand and thirteen guidance that the c a p c issued that of course happen after the defendant's conduct so it's hard to imagine how any ambiguity  affect it's fair notice but nonetheless in that interplay of guidance they they define spoofing as as a person must intend to cancel bed offer before execution that's the statutory definition and they reaffirmed it repeatedly that doesn't create some sort of ambiguity for the defendant he still fits within the poor conduct that is prohibited by that statute we have talked a lot about both commodities fraud and the spoofing statute so i think i want to address very briefly the defendant's argument that somehow this cannot be commodities fraud because no one was misled that is a misstatement of the law it rests on an assumption that  prosecution that someone must actually be misled and that is not what the law says so the law requires a scheme to defraud with intent to defraud it is possible that that scheme was not successful no one needs to have actually been misled as long as it has the capability of influencing the audience to whom it's directed and the defendant in fact proposed exactly that instruction in the district court he proposed an instruction that comported with this circuit pattern instruction on materiality for the thirteen hundred france to choose so just like me on wire fraud in the context of commodities fraud that action must be capable of influencing or have a natural tendency to influence its audience  district court accepted that standard the government agreed that standard and the evidence that was presented at trial showed that there was that natural tendency and in fact other traders were misled and this goes back to the discussion of other traders testimony about supply and demand being very very important their algorithms responding to imbalances in the market and all of that shows not only was there a tendency to be misled but they were misled and for all those reasons the government asked that the court affirm the defendant's conviction happening he's going to have big civil damages he can't if he can't pay it well he would if that had happened if somebody had actually been fast enough to fill those large orders it would mean that the defendant was losing a lot of money because it would mean that he was losing a lot of money and yet market because it takes longer to lose a lot of money to be out of business that that that's correct it does but the fact that they are subject to market risk doesn't mean that they're legitimate all orders  to avoid getting stone financial yes and if the other side of that ends up buying a small order of whatever it is  this miserable standpoint they grew us in that would eliminate disparate us it possibly would and the only thing i'll close with is that that fact that ability for those orders to be executed does not make them not that the defendant specifically used them in a manner to deceive other people thank you counsel for the government just read to you about the see if he sees definition of spoofing occur two years after the events in question here so whatever that guidance said was not available to mr kosher at the time of his actions in fact mr kostas actions occurred only a few weeks after the an accident of this cryptic provision with no guidance from the c of t c and in fact as our brief shows widespread disagreement in industry about what it means and i'll tell you why the industry was so confused about what that parent that the call was actually pretty first contrary to what counsel took for the government told you it is not illegal to trade large positions or to put out large busier offers in an attempt to move the price to two cases united states versus radley cited in our brief and see if you see her w issued other the southern district of new york recently made clear that illegality only happens if you're trying to create not artificial price and it's rather the teaches you have to do something other than putting out bids or offers into the regular marketplace you have to the something outside the marketplace you have to tell a lie something else has to occur because obviously this is this mr kim could you help me with th yes you're wrong because there was actually no evidence that he moved any prices and that the word manipulation under the law is defined as something other than operating within the marketplace so i think it be more accurate to say he created an algorithm that traded in the way that was unanticipated by other traders and other computers that's an entirely new way to deal with i use the word manipulate the statute specifically requires that a defendant offered orders that the defendant intended to cancel before execution right yes his behavior not meet this definition because he has only at most a hope or expectation of cancellation and here is where i think again we have other misinformation in on this a public record the notion of putting out a better offer that's timed surely to cancel after a certain passage of time not based on new information discovered not based on you looked at the screen after you put the bitter offer out and change your mind but at that time to better offer is put out the computer program is programmed to automatically castle that order within a certain number of milliseconds is completely lawful there's no prohibition against it you can have programmed to cancel one millisecond and that's our brief shows some sixty five percent of all trading in the commodity futures markets are done by computers not human beings and that is why prices change thousands of times per second and so therefore judge the notion that when somebody puts out better offer and programs that cancel let's say within ten milliseconds that person obviously has and that is a completely lawful order that person may have a hope that it's not executed hope or maybe they desperately wanted to be executed but they have an expectation it won't be executed none of those are criminal and yet we have the government here arguing where mr kosha who put his orders out for two hundred  four hundred milliseconds much longer than the trial of his shows could have been executed by anyone is being labeled a criminal and sent to jail because of the argument that the trading patterns he was engaged in somehow show that deceived other people and yet the trial evidence is also undisputed there is no duration anybody has to keep orders on there's no assumption anybody makes about the true extent of supply or demand it is completely lawful to hi the true nature of one's demand i think it's called the iceberg or the stairs or there's meant to hide what you really want to buy so it may be completely legitimate if this court makes a face right from the pinion that says anybody who engages in this type of trading even though it's completely lawful and always wasn't is to program orders to automatically cancel within the certain number of milliseconds even though that's the case that's one of mr cautious conditions the second condition being even though it's lawful to program your preprogram your order to cancel if it's even partially hit now and as i mentioned before i am aware that there are other well other civil cases out there but are there any other criminal cases that you're aware of the other criminal case where there was a guilty plea but there is no criminal case where somebody was actually is has gone to trial over this case and the fact is your honor of the three conditions the timing totally lawful there's no guidance but you can't counsel you can't program your orders to counsel in a certain time is completely lawful the second condition to program your order to automatically counsel if somebody hits even a part of it which is the second condition and the third condition being is totally lawful again to program your order to automatic hassle on its own if something else occurs in the marketplace such as somebody hits another of your positions so because each of those conditions were undeniably l she proved preprogrammed his algorithm just like sixty five percent of all other market activity out there on three conditions each of which is independently lawful for this court to have been convicted of a crime and imprison because there's the opinion of the department of justice that this somehow shows some type of deception which they cannot articulate because there is no assumption the trial evidence is undisputed that any market participant makes any assumption of the duration of other people's orders or their true extent of supply or demand or even their motivations for trading so it may be that if this court issues on the pinion that says if you have these three conditions in your computer algorithm it is a crime whoever does it tomorrow it certainly would be unfair and though this that you even though each of these conditions is lawful the person should be convicted however mr kosha back in two thousand and eleven with simply this bare provision filled with ambiguity with a parent that that arguably if you read it literally and non common sense sickly encompassed every type of conditional order out there every type of preprogramed computer or other that was set to cancel within certain milliseconds or you're going to take what are individually lawful pieces of conduct and say in the aggregate it is a crime then that i submit your honour's is something that has to be clearly publicized so that people can perform their behavior to it that encourages the consumption of illegal drugs and that the ordinance failed to define what instrument was and the ordinance said well you can tell what the instrument is by the intent of the person displaying it if the intent of the person displaying it was to encourage the consumption of illegal drugs and the court held that that was that incurs arbitrary enforcement and was unconstitutional because it allowed the too much discretion in the hands of the executive branch to define what the crime was and we have i submit