lJ.S. COMMODITY FUTURES TRADING COMMISSION 


Three Lafayette Centre 


1155 21st Streel NW, Washington, DC 20581 


Telephone: (202) 418-5000 


Facsimile: (202) 418-5538 


Division of 

Enforcement 

NON·PROSECUTION AGREEMENT 

Th~ U.S. Commodity Futures Trading Commission's Division of Enforcement 

("Division') investigated whether there were possible violations of the Commodity 

Exchange Act ("Act") and/or Commission Regulations ("Regulations"). Specilically, the 

Division investigated, inter alia, whether Citigroup Global Markets Inc., and its agents, 

employees, and affiliates (''Citigroup"), engaged in conduct known to the trade as 

"spoofing'' in the U.S. Treasuries futures markets nnd whether Citigroup failed to 

properly supervisl! its agents and employees with respect to this conduct in 20 I I and 

2012 (''Investigation"). Jeremy Lao (..Lao"} and the U.S. Commodity Futures Trading 

Commission ("Commission") enter into the following terms and conditions of a nonprosecution agreement ("Agreement") in connection with the Investigation and any other 

related enforcement litigation or proceeding to which the Commission is a party 

(together, the ..Proceedings"): 

The Commission enters into this Agrccnient based, in part, on Lao's timely ancl 

substantial cooperation in the Investigation; his immediate willingness to accept 

responsibility for his misconduct, as described herein; the material assistance he provided 

to the Division in the Proceedings, including implicating others at Citigroup for unlawful 

conduct; and the nbscnce of a history of prior misconduct by Lao. 

I. Term 

1. Lao understands and agrees that the provisions of this Abireement are in full force 

and effect from fanuary 31. 2017 to the tern1ination of the Proceedings or two years from 

the beginning date of' the Agreement which ever is Inter ("Agreement Period"), unless 

expressly stated orhcrwise. 

II. Cooperation 

2._ 	 .. L.ao ag~~es to c~ope~atc fully and tmthfully in the Proceedings, as directed by the 

D~v~s~on, s slal.1: .Lno hkc~1~e agrees to cooperate fully and tmthfully, as directed by the 

D1v1s1~n s stall. m any otl1cml investigation or proceeding by any other federal or state 

authority or n self-regulatory organization related to the Investigation and the factual 

state.mc~1ts that nrc ~art of this Agreement ("Other Proceedings"). The full, truthful, and 

cont1m11ng cooperation of Lao shall include, but not be limited to: 

a. 	 preserving and producing to the Commission in a responsive and prompt 

~m~nncr, ~s requested by the Division's staff, all non-privileged documents, 

mformauon, and other materials wherever located, in the possession, custody, 

or control of Lao; 
Page 2 of7 

b. utilizing his knowledge and skill to explain transactions. interpret infonnation 

and tcm1inology, or identify lll!W und productiye lines of inquiry, as requested 

by the Division's staff; 

c. preparing and appcming for interviews and testimony. ot such times and 

places and as requested by the Division's staff; 

d. responding completely and truthfully to 1111 inquiries und interviews, as 

requested by the Division's staff; 

e. identifying and authcnticnting documents, executing aflidaYils nr declarations, 

and testifying completely and truthfully at depositions, tdal, and other judicinl 

proceedings; 

f. accepting service by mail, electronic mail, or facsimile transmission of notices 

or subpoenas for documents andfor testimony at depositions. hearings, or 

trials; 

g. appointing Lao's undersigned nttomcy as agent to receive service of such 

notices and subpoenas; 

h. waiving the territorial limits on service contained in Ruic 45 of the Federal 

Rules of Civil Procedure and any applicable local rules in connection with 

requests or subpoenas of the Division's staff; and 

i. serving by hand delivery or by next-day mail nil written notices and 

correspondence required by or related to this Agreement to the Director of the 

Division of Enforcement, U.S. Commodity Futures Trading Conunission, 

1155 21st Street, NW, Three Lafayette Centre, Washington, DC 20581, unless 

otherwise directed in writing by the Division's stan: 

Ill. Statement of Jt'acts 

3. Ifthis case had gone to trial, the Commission would have presented evidence 

sufficient to prove the facts set forth in Exhibit A, which Lao admits. 

IV. Prohibitions and Undcrtaldngs 

4. During the Ag1·ecment Period, Lao understands nncl agrees to comply with the 

following prohibitions: 

a. 	 To refrain from violating the Act and/or Regulations; and 

b. 	 To rc~rnil~ from violating the rules promulgated by any self-regulatory 

orgamzat1on and uny registered entity (as that term is defined in 

Section la(40) ofthe Act, 7 U.S.C. § la(40)). 
Page 3 of7 

5. During the Agreement Period, Lao unde1·stands and agrees to perfonn the 


following undeitukings: 


n. 	 provide written notification to the Division, within fom1een calendar days, if 

Lao has been charged or convicted of an offense by any other federal or state 

authority, or self-regulatory organization. 

h. 	 provide written notification to the Division, within fourteen calendar days, if 

Luo has been questioned, a formal or infom1al complaint has been made 

against Lao, or disciplinary action has been taken against Lao, by any other 

federal. state, or self-regulatory organization. 

c. 	 Luo will cooperate folly, ns enumerated in Section I. 

6. Nothwistanding the end of the Agreement Period, Lao understands and· agrees that 

neither Lao nor any of Lao's successors and assigns, agents or employees under Lao's 

authority or control shall lake any action or make any public slatcment denying, directly 

or indirectly. any aspect of this Agreement or creating, or tending to create. the 

impression that this Agreement, which includes the statements in Exhibit A. is without a 

factual basis; provided, however. that nothing in this provision shall affect Lao's (i) 

testimonial obligutions, 01· (ii) right lo take legal positions in other proceedings to which 

the Commission is not n party. Lao and his successors and assigns shall unde11ake all 

steps necessary to ensure that all of Lao's agents and/or employees under Lao's authority 

or control undcrstund and comply with this provision. Ifit is dete1mined by the Division 

that a public statement by Lao, or by anyone under Lao's authority or control, contradicts 

in whole or in part this Agreement which includes the statements in Exhibit A~ the 

Division, at its sole discretion, may recommend, and the ·commission may bring, an 

action or proceeding against Lao in accordance with this Agreement. 

7. Notwithstanding the end of the Agreement Period, before issuing any press 

release concerning this Agreement, Lao ugrees to have the text of the release approved by 

the Division's stafl: 

V. Violation of the Agreement 

8, Luo understands and agrees that it shall be a violation of this Agreement if Lao 

prnvidcs false or misleading information or materials i11 connection with the Proceedings 

or Other Proceedings if he knew or reasonably should have known the information or 

matcrinls to be false or misleading. Providing false or misleading information or 

materials to the Commission also violates Section 6(c)(2) ofthe Act (7 U.S.C. § 9) and 

also may subject Lao to criminal penalties for providing false infonnation to the U.S. 

Government ( 18 U.S.C. § 100 I), providing false information to the Commission (Section 

6(c)(2) of the Act, 7 U.S.C. § 9). contcmpl (18 U.S.C. §§ 401-402), pe1jury 

( 18 U.S.C. § 162 I), mnking false statements or declarations in court proceedings 

(18 U.S.C. § 1623}, and/or obstmctingjusticc ( 18 U.S.C. § 1503 et seq.). Further, 

providing folse. _fictitious, or fraudulent information to a registered entity, board of trade, 

swap dutn repository. or futures nsi;ociution designated or registered under the Act 
Pugc 4 of7 

violates. and may also subject Lao to criminal penalties pursuant to Section 9(a)(4) of the 

Act (7 U.S.C. § 13). 

9. Lao understands and agrees that it shall be a violation of this Agreement if Lao 

violales the Act am.Var Regulations during the Agreement Period. 

IO. Lao understands and agrees that should the Division in its sole discretion 

determine thut Lao failed to comply with any of the Prohibitions or Undertakings of this 

Agreement, the Division may recommend an enforcement action against l.ao for 

violations of the Act and/or Regulations, including, but not limited to. the substantive 

offenses relating to the Investigation. Jn such circumstances, the Division will exercise 

ils discretion whether to notify Lao or Lao's counsel ofa recommended enforcement 

action und whether to provide an opportunity for Lao to make a submission consistent 

with the procedures s~l forth in Appendix A to Part 11 or the Regulations, 17 C.F.R. pt. 

11, app. A. Moreover, nothing in this Agreement limits the Division's discretion to 

recommend to the Commission or the Commission's authority to bt'ing an enforcement 

action against Lao for violations not arising from this Investigation or for future 

violations of the Act and/or Regulations, without notice, to protect the publie interest. 

11. Lao understands and agrees that in the event the Commission docs bring an 

enforcement action against Lao following Lao's violation of this Agreement, any 

documents, statements, infonnation, testimony, or evidence r>rovidcd by Lao during the 

Proceedings and Ocher Proceedings, as well as any leads derived therefrom, may be used 

against Lao. 

12. Lao understands and agrees Lhut any enforcement action brought by the 

Commission following Lao's violation of the Agreement may be commenced against 

Lao, notwithstanding the expiration of the statute oflimitations between the signing of 

this Agreement and lhe commencement ofsuch action, provided that, applying any and 

all previously executed tolling agreements, the action would not have been timc·barred 

by the applicable statute of limitations if brought on the date of tl1e execution of this 

Agreement. Lao will not assert any claim or defense based on the passage of time from 

the date of this Agreement to the commencement of any uction or proceeding against Lao 

au1horized, instiluted. or brought by or on behalf of the Commission or lo which the 

Commission is a party arising out of the Investigation, including any sanction or relief 

that muy be imposed therein, regardless of whether such claim or defense is 

constitutional, statutory (inc1ucling any statute of limitations), or equitable (including 

!aches or other equitable doctrines). It is f111ther understood and ngrccll that a separate 

tolling agreement is not required to give effect lo this paragraph. 

13. lf Lao violates this Agreement, Lao agrees not to dispute, contest, or contradict 

the factunl statements in Exhibit A us admissions pursuunt to Federal Ruic of Evidence 

80 I (d)(2), or their admissibility. in any future action or proceeding against Lao or any 

action or proceeding to which the Commission is a party. 
Page 5 of7 

VI. Compliance with Agreement 

14. Subject to the full, truthful. and continuing cooperation or Lao, as described 

above, and compliance with all Prohibitions and Undertakings in this Agreement, as 

described above, the Commission will not bring any enforcement uction against Lao 

arising from the Investigation. 11lis Agreement should not, however, be deemed an 

exoneration of Lao or be constnied as a finding by the Commission or the Division that 

no violations of the Act and/or Commission Regulations have occurred. 

JS. Lao understands aud agrees that this Agreement does not constitute a grnnt of 

immunity by the Commission, nor is it any other fonn offinal disposition. 

16. Lao understands and agrees that this Agreement does not bind any other federal or 

state authority or any self-regulatory organization. The Division may, at its discretion, 

issue a lcltcr to other federal or state authorities or self-regulatory organizations detailing 

the coopcmtion of Lao during the Proceedings or Other Proceedings, upon Lao's written 

request. 

17. This Agreement does not limit or olherwise aflect any understandings or 

conditions in any agreements between Lao and any other federal or state authority or any 

self-regulatory organization, and any agreements between Lao and any other fcdcml or 

stale authority or any selt:rcgulatory organization do not limit or othenvise afTcct the 

understandings and conditions set forth in this Agreement. 

18. Lao understands and agrees that the Agreement only applies to enforcement 

actions urising from the investigation and does not provide protection for any other 

violations or for any individual or entity other than Lao. 

VII. Vohmtnry Agreement 

19. Lao· s decision lo enter into this Agreement is freely and voluntarily made and is 

not the result of force, threats, assurances, promises, or representations other than those 

contnincd in thi:; Agreement. 

20. Lao has mid and understands this Agreement. Furthermore. Lao has reviewed all 

legal and factual aspects of this matter with Lao's attomcy and is fully satisfied with that 

attorney's legal representation. Lao has thoroughly reviewed this Agreement with his 

attomcy and has received satisfactory explanations concerning each paragraph of the 

Agreement. Aficr conferring with his attomey and considering all available alternatives. 

Lao has mndc a knowing decision to enter into the Agreement. 
Page <> uf7 

VJJ I. Entirety of Agreement 

2 1. This Agrccmcnl constitutes the entire agreement between the Commission and 

Lao. nncl supersedes all prior umkrstandings. if any. whether oral l1r written. relating 10 

Ille subject matter herein. 

22. This /\grccmcnt cannot be modified except in wriring, signed by Lao and an 


authorized representative of' the Commission. 


23. In the event an ambiguity or a question of intent or intcrprc1111ion arise". this 

Agreement sha ll be constrncd as ir drnrtcd jointly by 1he parties hereto. and no 

presumption or burden of proof shall arise favor ing l)r disfavoring the Commission or 

Lno by vir1uc or the authorship of any of the provisions or the J\grccmcnt. 

24. This Agreement may be executed by the panics to it in counterpart5, with each 

counterpart cons1i1uti11g the cn1 ire /\greerncnl. 

c()-f(/? 

Daw 

rcctor 

Division ofEnforccmc::nt 

U.S. COMMODITY FUTURES TRADING 

COMMISSION 

AGREED AND CONSENTED TO: 

_::fuJ:t.& 12 2o ;-:/­

Date 

I r.nn counsel for Jeremy Lao in this matter. l have cnrefull 1 re v· , . 

with Lao. To my knowledge, !he decision or Lao to ' t ' ..) ,I~\\ Cd this J\gr~t.:ll1Cllt informed and volu ntary. 11 en i.:r o t 11s Agreement 1s 

~3JOa~cz ---- --Chip Loew· n~~1 250 West 55111 Strc1:t 

New York. :\IY I 00 19-960 I 

(2 1:2) 468-8000 
Page 7 of 7 

EXHIBIT A 

Statement of Facts 

1. Luo worked for Citigroup Global Markets Inc. ("Citigroup'') from 2005 to 20 IS 

trading. among other things. U.S. futures nnd swaps contracts on multiple desks al 

Citigroup. 

2. Jn either 2008 or 2009, the head of North American rates trading at Citigroup 

taught Lao how 10 get orders tilled at favorable prices, in a timely manner-specifically. 

by placing large orders on the opposite side of the market from smaller orders that Lao 

wanted tu trade and quickly cancelling the large orders before they were executed. In 

these scenarios. the large orders were entered with the intent to cancel before execution. 

Al the time, Lao was assisting a senior trader in market making for Treasury influtionprotcctcd securities. 

3. From nt least July 16, 2011 through 2012, Lao employed this trading strategy 

approximately eighty times. Each time. Lno entered a large brief order on the opposite 

side of the same or coITeluted market as the smaller order he wal1led lo tmde. Lao 

understood il was imponant to cancel the large order quickly. typically in less than one 

second and sometimes in one to two seconds. Lno believed that the large brief orders 

caused algorithmic traders to react to the imbalance in the order book and transuct on his 

smaller orders on lhe other side of the market. Lao engaged in spoofing (i.e., bidding or 

offering with the intent to cancel the bid or offer before execution) to get his smaller 

orders on the uppusilc side of the same or correlated market filled (and lilied more 

quickly) at the prices he wanted. He found that getting his smaller orders filled in this 

mnnner was effective and easy to do. 

4. In or around 2012, Lao engaged in the trading stmtcgy described above in 

conjunction with a more senior trader. rn that instance, the senior trader entered and 

quickly canceled large orders on one side of the futures market to induce other markcl 

participants to tmnsacl on Lao's smaller resting fulures orders on the opposite side. 

While neither spoke spcci fically about what they were doing, Lao understood that the 

senior trader·s intent was to cancel his large orders prior to execution to get Lao's smaller 

resting orders filled (and filled more quickly) at the prices they wanted. 

5. Luo believes that the only reasons traders trading in the Treasury markets for 

Citigroup would enter and quickly cancel large orders arc accident/mistake, change of 

mind. or spoofing. Lao would not place and quickly cancel hH'ge orders simply to gather 

information about the market, and he was unaware of any other traders at Citigroup 

placing and quickly cancelling large orders simply to gather information about the 

market. 

* *