In a recent announcement, the CFTC indicated it would not appeal its district court loss in CFTC v. DRW, stating, “After careful consideration of the issues, as well as discussion with agency staff and Commissioners, Chairman Giancarlo has decided the agency will not appeal the district court’s decision.”
In 2013, the CFTC filed a complaint against principal trading firm DRW Investments, LLC (“DRW”) and its principal, alleging price manipulation of a various interest rate swaps futures contract in 2011, specifically the IDEX Three-Month Interest Rate Swap Future (the “Three-Month Contract”). The CFTC alleged that DRW’s bidding practices in the Three-Month Contract created artificial daily settlement prices. The Commission based this assertion primarily upon the fact that the bids in question were higher than the corresponding rates in the contemporaneous over the counter (“OTC”) swap market. DRW argued its bids were not … Read More »
On April 6, 2018, the Securities and Exchange Commission (SEC) obtained a court order freezing more than $27 million in proceeds from alleged illegal distributions and sales of restricted shares of a public company, and charged the company, its CEO, and three other affiliated individuals. That same day, the Nasdaq Stock Market said it halted trading in the company’s stock. The SEC’s complaint alleges that shortly after the company began trading on the Nasdaq Stock Market and announced the acquisition of a purported blockchain-empowered cryptocurrency business that its stock price rose dramatically until its market capitalization exceeded $3 billion. The SEC further alleges that the CEO and the three other individual defendants then illegally sold large blocks of their restricted shares to the public while the stock price was excessively elevated and that they collectively reaped more than $27 million … Read More »
Jim Lundy Appointed as Independent Monitor in the CFTC v. 3Red Trading & Oystacher Manipulative Trading / Spoofing Matter
Chicago partner Jim Lundy was appointed by the Honorable Judge Amy J. St. Eve of the U.S. District Court for the Northern District of Illinois to serve as the independent monitor for one of the first “spoofing” manipulative trading enforcement actions instituted by the Commodities Futures Trading Commission (CFTC). Jim’s appointment is part of a settlement between the CFTC and 3Red Trading LLC and its principal, Igor B. Oystacher, entered on December 20, 2016. Over the next three years, Jim will be responsible for monitoring the trading of 3Red and Oystacher, and identifying any future violations of the Commodity Exchange Act and CFTC Regulations as charged and pursuant to a monitoring agreement.
The CFTC filed its initial complaint on October 19, 2015. In its complaint, the CFTC alleged the employment of manipulative trading / spoofing by the Defendants in the markets … Read More »
The Third Circuit recently clarified the extraterritorial limits of the federal securities laws, as the U.S. Supreme Court defined in Morrison v. National Australia Bank, Ltd., 561 U.S. 247 (2010). See United States v. Georgiou, Nos. 10-4774, 11-4587, 12-2077, __ F.3d __, 2015 WL 241438 (3d Cir. Jan. 20, 2015). George Georgiou and his co-conspirators made zero-sum trades between brokerage accounts in Canada, the Bahamas, and Turks and Caicos to artificially inflate the value of four “target stocks” that were available for trade in the U.S. through two interdealer quotation systems, the OTC Bulletin Board (“OTCBB”) and the Pink Sheets. Id. at *1. Georgiou used the fraudulently inflated value of his ownership interest in the target stocks as collateral to obtain loans that he would never repay, ultimately costing his creditors and the other stockholders of the target stocks millions … Read More »
The SEC filed a settled administrative proceeding against an owner of a New Jersey based brokerage firm for engaging in an illegal “layering” or “spoofing” scheme that resulted in unlawful profits of almost $1 million. See SEC press release.
Market manipulation always has been a high priority for the SEC’s Enforcement Division and encompasses a broad range of activities that distort the natural forces of supply and demand. “Layering” or “spoofing” manipulation schemes involve placing a series of non-bona fide orders and then immediately canceling the orders before they are executed. These schemes create the illusion of demand resulting in an artificial increase in the market price of a security. The activity generally spurs the interest of other investors who place orders—thinking that the stock is “hot” and the increased activity is legitimate. After the manipulator stops entering orders, the price … Read More »