Market Manipulation Trial Begins in Federal Court

By RENEE SAFF & SOPHIE DWECK

In a rare market-manipulation bench trial that began in Manhattan Federal Court on Thursday, lawyers accused the founder of a futures trading firm of injecting electronic bids in the eleventh hour of the trading day, an allegedly illegal maneuver  to drive up the price of their trades.

The Commodity Futures Trading Commission contends that Donald Wilson Jr, the founder and executives of DRW Investments LLC, used artificial bidding during 15-minute settlement windows to raise the price of interest-rate swap futures, or as the CFTC likes to call it, “banging the close.” These allegations stem from an interest-rate contract in 2010 and 2011.

In the past, civil suits like this have been settled outside of court, but Wilson, known on the street as an aggressive high-tech trader,  decided to fight it. . Not since 2008 has such a case gone to trial and in that case a jury verdict of manipulation was overturned on appeal.

CFTC lawyer, Daniel Ullman, said that DRW kept injecting bids into the exchange knowing there would be no buyers or market participators wanting to trade, and to raise the settlement price so they can profit from it in return.

During a cross examination of DRW employee Brian Vander Luitgaren, the prosecutor indicated that for 94 days and in 496 contracts, DRW would only inject electronic bids to influence the settlement prices.

“There were days where DRW only placed bids during the settlement periods,” he said.

Ullman brought up emails that Vander Luitgaren sent to colleagues about injecting bids. In some of the emails, he referred to potential buyers as “suckers.” On top of that, there were no trades or transactions that went through for nine-months.

The U.S. District Judge Richard J. Sullivan appeared to begin getting irritated.

“It didn’t dawn on you that maybe this was foolish because no wants to take the short on this?” he asked. “Did you ever think to yourself this might not be the best use of my time?”

According to Wilson’s lawyer, Jonathan Cogan, DRW made an “insightful observation” and “did their homework,” and noticed that their fair share price for the futures contract was higher than what it was stated to be. He added that the only reason for the increase was to attract buyers and get people to do transactions.

“Its [DRW] bids were real bids,” he said. “They’re happy to transact, they want to transact.”

“We were hoping to enter trades at profitable levels each and every day,” Vander Luitgaren told the defense attorney.

Judge Sullivan will decide the outcome of the lawsuit without a jury.

If Wilson is found guilty, he could pay more than $100 million and face a possibility of a lifetime trading ban.

 

 

 

 

 

 

 

 

 

 

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