CFTC, Oystacher Said to Be in Spoofing Case Settlement Talks

Updated on
  • Lawyers have asked judge for two weeks to hammer out details
  • CFTC sued Oystacher last year for alleged market manipultion

The U.S. Commodity Futures Trading Commission is trying to settle its market-manipulation case against Igor Oystacher and his Chicago firm 3Red Trading LLC.

Lawyers on Tuesday persuaded U.S. District Judge Amy St. Eve to allow two more weeks for those discussions, according to the people familiar with the matter who asked not to be named because they weren’t authorized to speak publicly. No agreement has been reached and the talks could still break down, one of the people said. A trial is scheduled to begin in January.

The CFTC sued Oystacher and 3Red Trading last year, alleging that he cheated the market on at least 51 trading days from 2011 to 2014. He is accused of creating the appearance of “false market depth” -- manipulating the market to create the impression of increased interest and price movements favorable to him using an illegal strategy known as spoofing. Oystacher has said he did nothing wrong.

Spoofing is a kind of manipulation that often goes unchecked, traders complain. It involves generating a flood of fake orders to fool other traders into thinking the market is poised to rise or fall. The fake orders are then canceled and the spoofer flips from being a buyer to being a seller, or vice versa. The spoofer profits from earning the difference in price to buy and sell the contracts. While there’s nothing wrong with canceling orders, the Dodd-Frank Act passed in 2010 makes it illegal to place orders with no intention of executing them.

To read more about spoofing, click here.

Tom Becker, a spokesman for Oystacher and 3Red, declined to comment. Steve Adamske, a CFTC spokesman, also declined to comment.

The judge ordered the two sides to return to court on Oct. 18 to discuss their progress, according to court records. She kept a delay on discovery in the case in place until then in light of the settlement efforts.

Most CFTC enforcement cases are settled at the same time they are announced, with cases rarely going to trial. Prior to the current settlement talks, Oystacher and his lawyers decided to fight the CFTC.

Earlier this year, the CFTC lost its bid to bar Oystacher from trading until the trial. St. Eve ruled that he could continue trading only futures linked to the S&P 500 stock index and U.S. 10-year Treasury bonds. In addition, Oystacher’s compliance officer, who testified during the preliminary hearing, must file a sworn affidavit each month showing surveillance data from 3Red.

Those conditions will have to be met in any settlement agreement, according to one of the people. A settlement of the CFTC case won’t affect any further federal action against Oystacher. In addition to the CFTC inquiry, a federal grand jury has heard testimony in Chicago about Oystacher’s trading practices, a person with knowledge of the matter said last year. Members of the U.S. Attorney’s office in Chicago were in the gallery during the preliminary-injunction hearing this summer, according to a person familiar with the matter.

The case is U.S. Commodity Futures Trading Commission v. Oystacher, 15-cv-09196, U.S. District Court, Northern District of Illinois (Chicago).