Updates from the U.S. Commodity Futures Trading Commission

Trader pleads guilty to spoofing and wire fraud, and settles manipulation and spoofing case with CFTC.  On November 9, Navinder Singh Sarao pled guilty in the U.S. District Court for the Northern District of Illinois to one count of spoofing and one count of wire fraud related to the “flash crash” in 2010.  On the same day, the CFTC announced that it submitted a proposed Consent Order that would resolve its civil enforcement action in the U.S. District Court for the Northern District of Illinois against Sarao.  The CFTC’s complaint charged Sarao, along with his company Nav Sarao Futures Limited PLC, with unlawfully manipulating and spoofing with regard to the E-mini S&P 500 near month futures contract (E-mini S&P).  In the proposed Consent Order, Sarao admits to the allegations in the CFTC complaint that Sarao: (a) successfully manipulated the E-mini S&P on at least 12 days between April 27, 2010 and March 10, 2014 (including the May 6, 2010 “flash crash” day); (b) attempted to manipulate the E-mini S&P tens of thousands of times between April 2010 and April 17, 2015; (c) placed tens of thousands of bids and offers that he intended to cancel before execution (i.e., spoof orders) between July 16, 2011 and April 17, 2015; and (d) employed or attempted to employ a manipulative device, scheme, or artifice to defraud in connection with his spoof orders between August 15, 2011 and April 17, 2015.  On November 17, Judge Andrea R. Wood approved the Consent Order against Sarao, which requires him to pay a $25,743.174.52 civil monetary penalty and $12,871,587.26 in disgorgement.  The Court’s order also imposes permanent trading and registration bans against Sarao.

Judge denies DRW and Wilson motion for reconsideration, and CFTC files pretrial memorandum.  On November 2, Judge Richard Sullivan denied the motion for reconsideration filed by defendants DRW Investments, LLC and Donald R. Wilson in the CFTC’s market manipulation case pending in the U.S. District Court for the Southern District of New York.  In denying the motion, Judge Sullivan reasoned that the CFTC presented sufficient circumstantial evidence of defendants’ specific intent to create artificial prices to create a genuine dispute of fact.  According to Judge Sullivan, the defendants appear to have simply attempted a second bite at the apple in the hopes that a different judge would be more sympathetic to their arguments and grant them judgment as a matter of law, which is not a proper basis for a motion for reconsideration.  As previously ordered, a trial will begin on December 1, and a final pretrial conference is scheduled for November 22.

On November 4, the CFTC filed a pretrial memorandum in the case.  The CFTC argues that DRW and Wilson manipulated the prices of the IDEX USD Three-Month Interest Rate Swap Futures Contract from January 2011 through August 2011.  According to the CFTC, when the contract did not trade at the price that the defendants wanted, they took matters into their own hands.  The CFTC claims that the defendants executed a manipulative scheme involving “banging the close” to influence the daily settlement price of the futures contract in order to increase the value of DRW’s open positions in that contract.  The CFTC asserts that DRW and Wilson distorted the market price for their personal benefit over 1,000 times and profited by nearly $13 million.

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