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UPDATE 1-U.S. CFTC reaches first non-prosecution deal with ex-Citigroup traders

traders@ (Updates with more background, comment from CFTC enforcement director)

WASHINGTON, June 29 (Reuters) - The U.S. Commodity Futures Trading Commission struck its first-ever non-prosecution deal with three former traders from a unit of Citigroup on Thursday, in what could signal part of a broader new enforcement strategy to win cooperation from Wall Street.

The country's top derivatives regulator said three former traders, Jeremy Lao and Shlomo Salant of New York and Daniel Liao of Japan, had all cooperated with the CFTC into its investigation of illegal "spoofing" - a manipulative trading tactic in which traders create the false appearance of market interest by placing orders and then immediately cancel them.

The CFTC had previously fined Citigroup $25 million in the case, which involved spoofing of U.S. Treasury futures. That was the first time a bank had been charged with spoofing since the CFTC won broad new powers in the 2010 Dodd-Frank law to go after the practice.

In March, the CFTC also filed civil charges against two other traders in connection with the case, ordering them to pay fines and face a six-month suspension.

But James McDonald, the newly minted head of the CFTC's Enforcement Division, said in a statement on Thursday that Lao, Liao and Salant stood out and were deserving of a non-prosecution deal.

"For many types of complex cases, there is simply no substitute for cooperating witnesses, who can tell the inside story of the fraud or misconduct at issue," he said in a statement.

"Thats exactly what happened here: These traders readily admitted their own wrongdoing, identified misconduct of others, and provided other valuable information, all of which expedited our investigation and strengthened our cases against the other wrongdoers."

An attorney for the three traders did not have an immediate comment on the case.

As part of the deal, the three former traders admitted to wrongdoing, the CFTC said.

Non-prosecution agreements are not uncommon in other parts of the government.

The Justice Department has often used them in its cases, and the Securities and Exchange Commission incorporated them into its enforcement program a few years ago as well.

The CFTC had not done so until now.

In January, the regulator laid out new guidance that is designed to entice companies and individuals to better cooperate during investigations. (Reporting by Sarah N. Lynch; Writing by Susan Heavey; editing by Diane Craft)