CFTC Settling Suit Against 3Red’s Accused Spoofer Oystacher

  • Details of agreement in principle not disclosed in court
  • Oystacher was sued last year for alleged market manipulation

The U.S. Commodity Futures Trading Commission has agreed in principle to settle its spoofing lawsuit against Igor Oystacher and his Chicago firm, 3Red Trading LLC.
CFTC lawyer Elizabeth Streit told a Chicago federal judge Wednesday that the two sides had reached an agreement ahead of a trial set for January. Streit didn’t disclose details of the settlement, noting only that it would have to be approved by the commission.

U.S. District Judge Amy St. Eve said she will move the case along quickly to trial if the deal falls through. “I always get worried when there’s an agreement in principle” with details still to be worked out, she said.

Oystacher’s lawyer, Christian Kemnitz, told the judge only a few details were left to work out. Kemnitz declined to comment on the agreement later. Tom Becker, a spokesman for Oystacher, also declined to comment on it.

The CFTC accuses Oystacher of manipulating the market on at least 51 trading days from 2011 to 2014 by placing orders he didn’t intend to execute to create the appearance of "false market depth" and price movements that benefited his positions. Oystacher has denied wrongdoing, saying that he places and cancels orders manually at super fast speeds.

For a QuickTake explaining spoofing, click here.

The judge rejected the CFTC’s request to ban Oystacher from trading before the trial. In a July ruling she limited his traded to futures linked to the S&P 500 stock index and U.S. 10-year Treasury bonds. Oystacher’s compliance officer, who testified during the preliminary hearing, was required to file a sworn affidavit each month showing surveillance data from 3Red.

Grand Jury

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, the person said.

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 a 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.

Another federal judge in Chicago in July sentenced the first person convicted of spoofing under Dodd-Frank to three years in prison. Michael Coscia, who was the head of Panther Energy Trading LLC, made more than $1 million over 2 1/2 months through a spoofing scheme, prosecutors said.

‘Strong Signal’

Renato Mariotti, a former assistant U.S. attorney who prosecuted Coscia, said St. Eve’s July ruling, while denying the CFTC’s request for a trading ban, included language indicating she thought Oystacher had traded illegally. That sent a “strong signal” that he should settle, said Mariotti, now a criminal defense lawyer representing clients with cases before the CFTC.

"I would be surprised if the settlement did not include a significant fine and some period of time in which Mr. Oystacher is unable to trade," said Mariotti, who isn’t involved in the case.

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

— With assistance by Matthew Leising

    Before it's here, it's on the Bloomberg Terminal.