Federal Court Fines Individual for Attempting to Manipulate the Wheat Futures Market
Commentary by Bob Zwirb
The CFTC announced that it obtained a federal court consent order against an individual for attempting to manipulate the wheat futures market.
According to the CFTC, the relevant individual attempted to manipulate the price of the Chicago Board of Trade ("CBOT") #2 Soft Red Winter Wheat Futures Contract during eight different days in October 2009 and entered into fictitious sales and noncompetitive transactions during four days in October 2009.
The CFTC found that this individual intended to create a misleading impression of rising liquidity in the marketplace by electronically entering and immediately canceling numerous large-lot orders for CBOT wheat futures that he did not intend to fill. The individual then attempted to take advantage of any price movements that resulted from this manipulative scheme by placing smaller orders at prices that were beneficial to him.
The Court ordered a $1.56 million penalty, and the CFTC barred the individual from trading in any wheat futures products for five years and prohibited him from trading in any futures product or registering in any capacity with the CFTC for one year.
See: Order.
Related news: Memorandum Order - Eric Moncada, BES Capital LLC and Serdika LLC; Order of Default Judgment - BES Capital LLC and Serdika LLC.
Commentary
This case was litigated under the traditional pre-Dodd-Frank standard for manipulation that requires proof inter alia of the respondent's intent to influence prices. Indeed, in July, the trial judge ordered a bench trial to resolve that issue before ruling on the CFTC's motion for summary judgment, though the documentation does not reveal whether the issue was resolved judicially before the consent order was entered. In any case, this settlement illustrates that the CFTC can prevail in manipulation cases under the pre-Dodd-Frank standard, notwithstanding regulatory protestations that the standard is too rigorous.