CFTC takes Chicago firm, founder to trial
over manipulation claims
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[December 03, 2016]
By Nate Raymond
NEW YORK (Reuters) - The U.S. Commodity
Futures Trading Commission took a Chicago-based trading firm and its
prominent founder to trial on Thursday over claims they manipulated the
price of a futures contract, illegally earning nearly $13.5 million.
Daniel Ullman, a CFTC lawyer, in his opening statement in the civil
proceeding urged a federal judge in Manhattan to hold Don Wilson and a
unit of his privately held 725-employee company, DRW Holdings LLC,
liable for "brazenly" engaging in market manipulation.
He said traders at DRW Investments placed bids that they did not intend
to have consummated, affecting more than 1,000 three-month interest-rate
swap futures contracts and creating prices that were inconsistent with
what would have otherwise occurred in the market.
"There was no invisible hand, your honor," Ullman said. "It was DRW's
hand."
But Jonathan Cogan, an attorney for DRW and Wilson, said his clients did
not intend to manipulate prices and had instead submitted real bids
based on legitimate economic rationales, particularly to entice buyers
in an illiquid market.
"It's bids were real bids that they stood ready and willing to act on,"
Cogan said.
The non-jury trial, before U.S. District Judge Richard Sullivan, is
rarity in a CFTC market manipulation case, which more often ends in a
settlement. The regulator's last such trial was in 2008, according to
the CFTC.
The CFTC wants DRW to forfeit $13.5 million in profits and pay
penalties. It has also asked the judge to impose a permanent
registration and trading ban on Wilson and DRW.
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According to court papers, beginning in June 2010, Wilson and DRW began
researching a particular type of three-month interest-rate swap futures
contract that was designed to hedge against, or speculate on, swings in
rates.
After also studying various pricing and valuation rules, the CFTC said,
DRW concluded it could exploit the contact to its favor and bought more
than $350 million of interest-rate futures, anticipating the position's
value would increase.
When the underlying rates for the contracts did not rise as high as the
firm hoped, the regulator said, Wilson and DRW manipulated those rates
by placing bids they knew would never be accepted to increase their
positions' value.
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![](../images/120316pics/news_a3.jpg)
DRW Holdings founder Don Wilson is seen in this 2015 photo taken in
Chicago, Illinois,
U.S. and released on November 30, 2016. Courtesy Stephen Green/DRW
Holdings/Handout via REUTERS
![](../images/ads/current/richardson_lda_090916.png)
In particular, the CFTC said that over 118 days, DRW placed bids
during a 15-minute settlement window used by the NASDAQ OMX Futures
Exchange to determine the contract's close-of-day value, resulting
in the setting of artificial prices.
The case is Commodity Futures Trading Commission v. Wilson el al,
U.S. District Court, Southern District of New York, No. 13-07884.
(Reporting by Nate Raymond in New York; Editing by Steve Orlofsky)
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