I was an intern at Goldman Sachs in 2007 working in IT and my boss was explaining to us how market making works and he described this exact phenomenon - how banks, hedge funds, HFT trading outfits spoof orders constantly so you cannot rely on the order book to determine direction / intent of other traders in the market. Apparently this guy's crime was not being part of a hedge fund or large bank.
That isn't true. Making an order with an intent to cancel is a crime. Hedge funds routinely cancel orders, but they do not necessarily make them with the intent to cancel them from the beginning.
Perhaps the most routine trade I see is with a Time in Force of Immediate or Cancel. Fill or Partial Fill if you can, cancel the remainder. Happens millions of times a day.
