United States v. Coscia

• Decision Date: 12 July 2021
• Docket Number: 19-2010,20-1032
• Parties: UNITED STATES OF AMERICA, Plaintiff-Appellee, v. MICHAEL COSCIA, Defendant-Appellant. MICHAEL COSCIA, Petitioner-Appellant, v. UNITED STATES OF AMERICA, Respondent-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

UNITED STATES OF AMERICA, Plaintiff-Appellee,
v.
MICHAEL COSCIA, Defendant-Appellant.

MICHAEL COSCIA, Petitioner-Appellant,
v.
UNITED STATES OF AMERICA, Respondent-Appellee.

Nos. 19-2010, 20-1032

United States Court of Appeals, Seventh Circuit

July 12, 2021

Argued December 2, 2020

Appeals from the United States District Court for the Northern District of Illinois, Eastern Division. Nos. 14-cr-00551-l & 19-cv-05003 - Harry D. Leinenweber, Judge.

Before Easterbrook, Ripple, and Rovner, Circuit Judges.

Ripple, Circuit Judge

A jury convicted Michael Coscia of six counts of commodities fraud, in violation of 18 U.S.C. § 1348, and six counts of spoofing, ^[1] in violation of 7 U.S.C. §§ 6c(a)(5)(C) and 13(a)(2). On direct appeal, we affirmed his conviction.^[2] We now have before us the appeals of two proceedings that Mr. Coscia initiated after we resolved his direct appeal. The first is a motion for a new trial on the basis of new evidence in which he alleges (1) that data discovered after trial establishes that there were errors in the data presented to the jury and (2) that subsequent indictments against other traders for similar spoofing activities undercut the Government's characterization of Mr. Coscia as "unique" or a trading "outlier." The second proceeding is a motion to vacate his conviction pursuant to 28 U.S.C. § 2255, in which Mr. Coscia claims that his trial counsel, Sullivan & Cromwell LLP, provided ineffective assistance of counsel. Specifically, he alleges that Sullivan & Cromwell had an undisclosed conflict of interest with several of the Government's witnesses and that this conflict adversely affected counsel's performance. He also alleges that, even if there was no conflict of interest, his trial counsel nevertheless provided constitutionally deficient representation.

The district court denied both motions, and Mr. Coscia now appeals.^[3] He submits that the district court abused its discretion when it denied his new trial motion. In his view, the newly discovered evidence demonstrated that key evidence relied on by the Government to establish his intent to spoof was false and inaccurate. As for his habeas motion, he contends that the district court correctly found that counsel had a conflict of interest, but incorrectly concluded that there was no adverse effect on counsel's performance. He further submits that the district court erred in rejecting his argument that, even in the absence of a conflict of interest, his defense counsel's performance was constitutionally deficient. In the alternative, Mr. Coscia requests further discovery and an evidentiary hearing on his ineffective assistance of counsel claims.

We now affirm the district court's judgments on both the new trial and § 2255 motions. We conclude that the district court did not abuse its discretion in denying Mr. Coscia's motion for a new trial on newly discovered evidence grounds. We further conclude that the district court correctly determined that Mr. Coscia failed to demonstrate an adverse effect or prejudice in either of his ineffective assistance of counsel claims.

I

BACKGROUND

A.

Mr. Coscia's Trading Activity

Michael Coscia was the principal of a futures trading firm, Panther Trading LLC. He traded commodity futures contracts on electronic exchanges operated by CME Group, Inc. ("CME") and the Intercontinental Exchange, Inc. ("ICE"). Trading firms such as Mr. Coscia's use computer programs to execute trades that are carried out in fractions of a second. In our opinion affirming Mr. Coscia's conviction, we described the basic process of high-frequency trading:

The simplest approaches take advantage of the minor discrepancies in the price of a security or commodity that often emerge across national exchanges. These price discrepancies allow traders to arbitrage between exchanges by buying low on one and selling high on another. Because any such price fluctuations are often very small significant profit can be made only on a high volume of transactions. Moreover, the discrepancies often last a very short period of time (i.e., fractions of a second); speed in execution is therefore an essential attribute for firms engaged in this business

United States v. Coscia, 866 F.3d 782, 786 (7th Cir. 2017).

High-frequency trading can also be used "to artificially move the market price of a stock or commodity up and down, instead of taking advantage of natural market events." Id. at 787. This artificial movement can be accomplished "by placing large and small orders on opposite sides of the market." Id. For example, if an unscrupulous trader wanted to buy, he would place a small order below the current market price. He would simultaneously place large orders to sell on the opposite side of the market. He would place these large sell orders at progressively lower prices until the purchase price matched the price at which the small buy order had been placed. The small order then would be executed, and the large orders would be cancelled. "Importantly, the large, market-shifting orders that he places to create this illusion are ones that he never intends to execute; if they were executed, our unscrupulous trader would risk extremely large amounts of money by selling at suboptimal prices." Id.

Congress criminalized this practice, called "spoofing," in 2010 as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, 124 Stat. 1376 (2010). It became unlawful "to engage in any trading, practice, or conduct on or subject to the rules of a registered entity that ... is, is of the character of, or is commonly known to the trade as, 'spoofing' (bidding or offering with the intent to cancel the bid or offer before execution)." 7 U.S.C. § 6c(a)(5).^[4]

B.

Mr. Coscia's Trial

In August 2011, Mr. Coscia implemented two high-frequency trading programs that followed a specific pattern:

When he wanted to purchase, Mr. Coscia would begin by placing a small order requesting to trade at a price below the current market price. He then would place large-volume orders, known as "quote orders," on the other side of the market. A small order could be as small as five futures contracts, whereas a large order would represent as many as fifty or more futures contracts. At times, his large orders risked up to $50 million. The large orders were generally placed in increments that quickly approached the price of the small orders

Coscia, 866 F.3d at 788 (footnotes omitted).

A grand jury indicted Mr. Coscia for six counts of spoofing and six counts of commodities fraud based on his 2011 trading activity. Trial began on October 26, 2015. The Government set forth Mr. Coscia's pattern of trading: placing small orders and large orders on opposite sides of the market, with the small orders filling once the desired price was met and the large orders immediately cancelled. The same pattern would then repeat in the opposite direction. Each of these patterns took place within one second or less. To establish Mr. Coscia's fraudulent intent, the Government presented (1) the testimony of Jeremiah Park, Mr. Coscia's computer programmer; (2) testimony of representatives of ICE and CME, who described Mr. Coscia's trading activities and presented charts summarizing relevant trading data; (3) testimony of other traders on the effect of Mr. Coscia's trading on their businesses; (4) Mr. Coscia's deposition testimony taken by the Commodity Futures Trading Commission; and (5) the rebuttal testimony of financial markets expert Hank Bessembinder.

Park testified that he created, at Mr. Coscia's direction, two programs: Flash Trader and Quote Trader. He confirmed that Mr. Coscia had specified that the programs were to act "[l]ike a decoy" to "pump [the] market."^[5] Specifically, the large-volume orders were designed to avoid being filled and would be cancelled based on (1) the passage of time, (2) the partial filling of large orders, or (3) the complete filling of a small order. These cancellation settings were intended to reduce the risk that the large orders would be filled. After the large orders were cancelled, the program would reenact the trades in reverse.

The Government also presented representatives of ICE and CME who testified about trading data summarized in data charts. The court admitted, without objection, six ICE summary charts and six CME summary charts. John Redman, the director of compliance for ICE, testified about the ICE data and summary charts. Ryan Cobb, a data scientist for CME, testified about the CME data and summary charts. Both Redman's and Cobb's testimony supported the Government's view that Mr. Coscia had engaged in a specific trading pattern that was outside trading norms. We briefly review the charts relevant to this appeal.

ICE Summary Chart 2 compared the rate at which Mr. Coscia filled his large orders to the rate at which he filled his small orders on the ICE market. Redman testified that between August and October 2011, Mr. Coscia had placed 24, 814 large orders and had traded on 0.5% of those orders. In contrast, Mr. Coscia had placed 6, 782 small orders and had traded on approximately 52% of those orders.^[6]

ICE Summary Chart 3 displayed Mr. Coscia's "order-to-trade ratio," or "the average size of the order he showed to the market divided by the average size of the or- ders filled."^[7] This chart compared the activity of Mr. Coscia's firm on the ICE market to the activity of others trading at approximately the same volume. ICE Summary Chart 3 showed that Mr. Coscia's average order size was 39.8 lots, but his average trade size was 2.5 lots. Thus, Mr. Coscia's order-to-trade ratio was 1, 592%. According to the chart, other trading entities had ratios between 91% to 264%.

ICE Summary Chart 6 displayed Mr. Coscia's share of cancellations of large orders that followed the trade of a small order in the opposite...