The U.S. District Court for the Southern District of New York, Judge Analisa Torres, rejected the CFTC's assertion that it need not prove the intent to create an "artificial price" in order for it to establish an attempted manipulation claim against an investment firm and the firm's CEO. In the recent price manipulation case U.S. CFTC v. Donald R. Wilson Jr. & DRW Investments, the Court did not accept the CFTC's position that it must prove only the "intent to affect price." Judge Torres stated that the CFTC's position was "incorrect," and that in order to claim market manipulation took place, the CFTC first must establish that the defendants intended to cause an artificial price.
However, the court also dismissed the defendants' motion for summary judgment, which argued that its bids were shielded by former CEA Section 2(d)(2), which "exempts transactions 'entered into on a principal-to-principal basis between parties.'" After considering that argument, the Court concluded that transactions by one of the defendants "on this CFTC regulated exchange are not exempted because its bids are a 'unilateral action by a single party' and not, as the exemption requires, a transaction between two parties."
Additionally, the court ruled on the parties' motions to exclude the testimony of each other's expert witnesses. It upheld (with some exceptions) the testimony of the defendant's two experts, while excluding a significant amount of testimony by the CFTC's experts. On the issue of price discovery, the Court found that the witness "failed to provide any reliable authority supporting his theory." The Court also found the testimony of the CFTC's expert to be "unreliable" on another issue, and "[not] within the range of where experts might reasonably differ" on still another.
Former CFTC Commissioner Sharon Brown-Hruska criticized the removal of the requirement to demonstrate price artificiality in attempted manipulation and disruptive trading practices cases.
Financial industry groups seek permission to file an amicus brief in a federal case involving the legal standard required to prove manipulation and attempted manipulation of a commodity price.
DRW Investments LLC ("DRW") filed a preemptive complaint against the CFTC. The complaint seeks the finding that DRW did not breach derivatives trading regulations before the CFTC could bring the action against it.
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