Speed-Chess Champ Oystacher Claims Ignorance in Spoofing Caseby and
Asked if he's intelligent, Oystacher questions meaning of word
3Red co-founder faces CFTC questioning in Chicago courtroom
On paper, Igor Oystacher is a speed-chess champion who commands a lightning-quick intellect, allowing him to cast aside allegations he manipulated futures markets for years. Under questioning in a Chicago courtroom, he frequently professed ignorance.
The co-founder of 3Red Trading LLC, accused of a type of fraud known as spoofing in a lawsuit by the Commodity Futures Trading Commission, took the witness stand Tuesday, saying he didn’t recall many aspects of his activities and didn’t know the meaning of words such as “flipping” and even “trading.”
“You’re an intelligent guy, aren’t you?" asked a lawyer for the commission. Oystacher answered, “I don’t know what that means.”
Those replies came a little more than three weeks after Oystacher outlined his defense strategy for the first time, saying his reasoning skills -- in the 99th percentile -- and customized computer equipment like a souped-up mouse, make him faster than most humans at executing trades. Unlike many traders who rely on computer algorithms to place and execute -- or cancel -- trades in less than a second, Oystacher said in a court filing then that his trading decisions required a click of the mouse.
The part of the lawsuit being heard Tuesday centers on whether Oystacher will be banned from trading while the case proceeds, a request the government made this year after it alleged he was still manipulating markets after being sued last year.
Spoofing in U.S. futures markets became illegal in 2010, when the Dodd-Frank Act took effect. The CFTC invoked that rule when it accused Oystacher and 3Red of engaging in the practice. Spoofers place orders they don’t intend to fill for the sole purpose of moving prices in a direction favorable to their strategy, and then cancel them before they are filled. While there’s nothing wrong with canceling orders, it’s illegal to place orders with no intention of following through on them.
Oystacher was a competitive speed chess player in Russia and still plays now, according to the April 1 court filing laying out part of his defense strategy. Such games are limited to three to five minutes, and “to excel, a speed chess player must therefore be able to process relevant information, forecast his opponents‘ actions, and react appropriately, all on an expedited timeline,” according to the filing.
His lawyers also described how quickly Oystacher can think on his feet.
Oystacher tested in the 99th percentile for “nonverbal reasoning” and in the 91st percentile for reaction speeds for “highly familiar tasks,” they said. “Reaction-time testing shows that Mr. Oystacher is capable of reacting to information within approximately 300 milliseconds -- an interval that is very fast by human standards, but comparatively slow in relation to algorithmic traders.”
In testimony yesterday, Matthew Wasko, a former trader at CGTA Analytics, said he filed a whistle-blower complaint with the CFTC after uncovering what he thought was market manipulation. It later turned out that Oystacher was on the other side of some of those trades, he said in court. Wasko said he stands to earn a cut of any amount the CFTC wins from Oystacher and 3Red.
The case is U.S. Commodity Futures Trading Commission v. Oystacher, 15-cv-09196, U.S. District Court, Northern District of Illinois (Chicago).