A trader at a market making firm and his colleague filed a tip with the CFTC whistleblower program about suspected illegal spoofing by Igor Oystacher after discovering suspicious trading activity in the E-mini S&P 500 futures contract market in 2013, according to a Bloomberg article. The CFTC has brought a lawsuit against Oystacher and is seeking to bar him from trading while the lawsuit proceeds. Other agencies / exchanges, such as the Justice Department, continue to investigate the conduct underlying the case.
On cross-examination, the whistleblower admitted that he stands to personally profit if the CFTC is successful. Although this scenario has undoubtedly played out numerous times in the False Claims Act, where a relator’s identity is specifically identified in the lawsuit, it is the first I have heard of it taking place for a Dodd-Frank whistleblower.
Another interesting aspect of the emergence of the whistleblower in this case is its confirmation of the SEC data that a significant number of individuals filing a Form TCR with the agency are neither employees or former employees. Based on the information, it looks like we can continue to expect the U.S. Government to take seriously the tips of victims, competitors and industry experts about misconduct in the securities market.
The Dodd-Frank Act included the first provision to specifically make spoofing in the markets illegal. Spoofing is the practice of bidding or offering on an exchange with the intent to cancel prior to execution. In November 2015, the first individual (a commodities trader) was convicted of the crime of spoofing in a trial. The case was called a landmark in the prosecution of traders for spoofing.
The spoofing case against Oystacher deals with the same product that is at the heart of the flash crash lawsuit, in which there are also reports of a CFTC whistleblower. Based on a review of the news articles in that case, the accused trader is planning to appeal a decision in the United Kingdom that he is subject to extradition to the United States to face the lawsuit. We will keep you up to date if there are any significant events in that case as well.
Update: The plot thickens as it appears there will be multiple submissions for rewards if the CFTC is successful in receiving more than $1 million in monetary sanctions. The general counsel of a large hedge fund has also filed a tip with the CFTC whistleblower office concerning anonymous traders engaged in spoofing from 2013 from 2015 in the futures market. These activities were identified by an algorithm after the company began identifying unusual losses due to the cancellation of large orders.
In the case of multiple whistleblowers, the CFTC will most likely follow the SEC approach paying out rewards both for original information as well as smaller amounts for the substantial contributions of later whistleblowers providing similar, but valuable, information.
To speak to one of our CFTC whistleblower attorneys about a potential tip or questions about the program, please call 1-800-590-4116.