8/12/2025 3:03:20 PM | 5 minute read

Notice in a nutshell: Gonzalez, Sheth, Urra

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Katie Stephen

Co-Head of the Contentious Financial Services Group

Get in touch

Katie Stephen

Co-Head of the Contentious Financial Services Group

On 1 July 2025, the Upper Tribunal (UT) released its judgment in relation to spoofing activity carried out by three bond traders, remitting the case back to the Financial Conduct Authority (FCA) with directions that they be fined and prohibited.

Key takeaways

This case is a reminder for firms and traders of:

the danger of engaging in trading behaviours involving orders on both sides, orders away from the touch and orders which are cancelled before trading; and
the practical difficulties of defending against spoofing allegations and demonstrating intention to trade particularly in a market abuse case taking place so long after the conduct occurred when memories have faded and records such as voice recordings may not be available (the FCA commenced enforcement proceedings more than four years after the trading activity and the Upper Tribunal hearing took place more than eight years after the trading).

The decision illustrates that:

explanations for trading activity will be tested rigorously including by reference to records and experts and any inconsistencies or facts that do not fit will be identified and may undermine credibility;
even where there are no communications to provide direct evidence of abuse, inferences can be made from other evidence such as trading patterns and coincidences in the timing of trades;
an unblemished record and the fact that abusive trading is high risk and carries severe consequences will not necessarily be persuasive in terms of convincing the regulator / tribunal that no abuse was intended or occurred.

In terms of practical steps for firms and traders with a view to avoiding these pitfalls:

Training: Regular practical training is a key defence against market abuse and should include reference to specific trading strategies and elements that are likely to raise queries and could potentially be viewed as indicators of market abuse. Case studies and worked examples can be useful in enhancing understanding of what is permitted. Traders should be encouraged to see training not as a tick box exercise but as a valuable interactive opportunity that may assist in avoiding incidents which could lead to a long investigation and painful consequences.
Compliance engagement: Trading desks should consider checking any new / novel strategies with compliance before implementing these and should also consider making changes where strategies are not successful as continuing to pursue them in the face of failure may undermine a credible rationale.
Record-keeping: To the extent practical and proportionate to the risks involved, traders and compliance teams should consider making and keeping records of how and why a particular strategy is being used and why it is believed it to be legitimate.
Challenge: Firms need to foster an environment in which all those involved in trading activity can and do question strategies, including those engaged in and encouraged by senior managers, and where these are not just assumed to be lawful.
No news is not necessarily good news: Traders need to be aware that they should not necessarily assume that a lack of alerts or enquiries from compliance means that their activity is compliant. Abusive activity can be difficult to detect and so may not always trigger any red flags or raise any enquiries.
Investigations: Any concerns or alerts, including those raised by third parties, should be carefully considered by compliance and investigated where appropriate with contemporaneous records kept of any internal discussions as consistency of explanations may be a factor in the event of any regulatory enquiry and internal conclusions may be scrutinised.

Key findings

Decision maker	The Upper Tribunal
Individuals	Jorge Lopez Gonzalez, Poojan Sheth, Diego Urra
Related decisions	The FCA had previously published Decision Notices in relation to the individuals.
Sanction	Prohibitions and fines as follows: Urra: £223,400 Gonzalez - £100,000 Sheth - £57,600 In coming to these figures, the Upper Tribunal agreed with the FCA that the seriousness of the conduct merited level 4 but reduced two of the penalties proposed by the FCA for the following reasons: Mr Urra’s penalty was reduced by basing the calculation on income he had earned in the 12 months prior to the end of the period in which his conduct occurred (and excluding sums received by him in that period but earned in a prior period); Mr Sheth’s penalty was reduced from the usual minimum of £100,000 “in the interests of fairness and justice”, taking into account the level of his income in comparison to that of the other two and having regard to proportionality.
Provisions	Section 118 FSMA 2000; and Article 12 and Article 15 of the Market Abuse Regulation
Facts	The case focused on certain orders placed by the traders, between 1 June 2016 and 29 July 2016, which were larger than and opposite to other orders they placed on the other side of the book and which were cancelled before they were traded (in circumstances where the timing of the cancellation coincided with the smaller orders trading). The traders made a number of submissions in defence of their conduct including that they were variously engaged in particular trading strategies referred to as the information discovery strategy and the anticipatory hedging strategy: the information discovery strategy involved placing orders in anticipation of demand from market makers looking to hedge their positions with a view to obtaining information about hidden liquidity and creating profitable positions; the anticipatory strategy included looking ahead to what the trader predicted to be likely client demand and seeking to position his book to meet that demand and be able to offer competitive prices (this is different from ‘pre-hedging’ which involves trading after receipt of information about an anticipated client trade and before execution which can give rise to concerns such as around conflicts – and which has been the subject of a November 2024 consultation by IOSCO).
Findings	Market manipulation arises from trading activity which gives a false or misleading impression or signal as to supply, demand or price. It does not matter whether the trader intended to manipulate the market or give any particular signal. However, the question of whether the signal given (or likely to be given) was false or misleading may entail subjective analysis because falsity depends on intention. A key question was therefore whether, when placing the larger orders, the traders intended to trade because, if they did, those orders were not giving false or misleading signals. In rejecting the trader’s explanations, the UT concluded that both strategies seemed implausible and there were inconsistencies in execution: the information discovery strategy was not a plausible response to being at an information disadvantage for various reasons including because it was not logical to place a large order away from the touch and expect the market to come to the order – the existence of the order would have a tendency to push the market the other way. It also appeared to be unsuccessful which raised a question about the likelihood of it being pursued; the anticipatory hedging could be a legitimate strategy but, in considering whether it was the reason for the relevant trades, the UT took into account a number of factors including that: it involved taking directional risk which was at odds with relevant trader’s other trading activity and the business and so there were reasons to doubt he would have been pursuing it; the unpredictability of client demand meant he ran the risk of ‘going underwater’ and was prevented from quoting competitively in both directions; it did not explain certain large orders; the trader did not change the strategy when the market moved against him and it was unsuccessful; there was a repeated obvious and striking pattern of coincidence of the timing of the cancellation of the large orders shortly after the small orders filled. The UT concluded that all three traders had engaged in market abuse through spoofing and also that they were dishonest and so should be prohibited.