On May 6, 2010, in what become known as the “Flash Crash,” the Dow fell almost 10% before recovering much of that loss within an hour. Years later, a whistleblower who had analyzed market data (but had no inside knowledge himself) filed a report with the CFTC identifying a market participant in the S&P 500 E-Mini as a major cause of the Flash Crash.[1] The CFTC investigated and identified this actor as Nav Sarao, a trader who had been spoofing the market from the basement of his mother’s flat in suburban London. Determining that this was likely a criminal violation of the new anti-spoofing section of the Commodity Exchange Act (“CEA”),[2] the CFTC brought in the Fraud Section of the U.S. Department of Justice’s (“DOJ’s”) Criminal Division. The Fraud Section (and the CFTC) pursued the investigation with vigor, and in April 2015, Mr. Sarao, whom the British tabloids subsequently nicknamed the “Hound of Hounslow,” was arrested by Scotland Yard. Sarao ultimately pleaded guilty and agreed to cooperate with U.S. authorities. Continue reading
Tag Archives: Aitan Goelman
Decision in DRW Makes It Even Harder For The CFTC To Prove Up Manipulation
Summary
Almost two years ago, Judge Richard Sullivan, then a district court judge in the SDNY, presided over a trial in which the CFTC charged prominent trader Don Wilson and his company, DRW, with violating sections of the Commodity Exchange Act (“CEA”) that prohibit commodities manipulation and attempted manipulation. Last month, Judge Sullivan, now a newly-minted judge on the Second Circuit, issued his opinion in the much-watched case, CFTC v. Donald R. Wilson, 13 Civ. 7884 (RJS) (Dec. 3, 2018). Sullivan’s decision finding that the CFTC failed to prove that Wilson’s admitted (and successful) efforts to move the price of an IDEX interest rate swap violated the CEA’s prohibition against manipulation was a serious setback to the CFTC’s efforts to use the seldom-litigated ban against manipulation codified in Section 9(a)(2) of the CEA.
Background
The CFTC’s Division of Enforcement has long been responsible for policing manipulation in the derivatives and commodities markets. For many decades, its primary and, until Dodd-Frank, only, tool in battling manipulation has been the prohibition against manipulation found in Section 9(a)(2) of the CEA.
The prohibition against manipulation found in Section 9(a)(2) of the CEA is notoriously difficult to enforce, requiring the Commission to establish that “(1) Defendants possessed an ability to influence market prices; (2) an artificial price existed; (3) Defendants caused the artificial prices; and (4) Defendants specifically intended to cause the artificial price.” In re Amaranth Nat. Gas Commodities Litig., 730 F.3d 170, 183 (2d Cir. 2013). Continue reading
CFTC Non-Pros Agreements with Citibank Traders Reflects Implementation of New Cooperation Advisories
On January 19, 2017, the CFTC Enforcement Division issued new advisories outlining the factors that the Division would consider in evaluating cooperation by individuals (PDF: 272 KB) and companies (PDF: 282 KB). Intended to underscore the high value the Division placed on cooperation, these advisories were issued on the same day that the Commission announced a $25 million fine against Citigroup Global Markets, Inc., (“Citi”) for violating the CEA’s anti-spoofing provisions. The accompanying Order included a discussion of Citi’s cooperation and its impact on the terms of the settlement. On March 30, 2017, the Commission announced settlements with two former Citi traders, including the former desk head, for the same misconduct. These settlements included significant fines and market bans. Continue reading