In connection with a motion for partial summary judgment brought by the Commodity Futures Trading Commission, Donald Wilson and DRW Investments LLC prevailed in their argument to a federal court in New York that the CFTC must prove that they had “the specific intent to affect market prices that ‘did not reflect the legitimate forces of supply and demand’” in connection with the Commission’s enforcement action against the defendants alleging manipulation and attempted manipulation. The CFTC initially filed a lawsuit in 2013, claiming the defendants manipulated and attempted to manipulate the settlement prices of the IDEX USD Three-Month Interest Rate Swap Futures contract on numerous occasions in 2011. (Click here for a copy of the CFTC’s complaint.) Respondents generally denied the CFTC’s allegations. (Click here for a copy of respondents’ answer.) In November 2015, the CFTC moved for partial summary judgment on its attempted manipulation charge based on, among other matters, the purported “undisputed material facts” that the defendants, through their conduct, evidenced “an intent to affect price.” Defendants opposed the CFTC’s motion, and their legal views were echoed by five industry organizations who appeared as friends of the court and claimed that the CFTC was applying the wrong standard. They all argued that the CFTC should be required to prove—consistent with prior case law—that the defendants intended to create an artificial price not solely to affect price, a much lesser burden, as the CFTC charged. (Click here for details of the five industry organizations’ arguments in the article, “Industry Groups Seek to Help Court Hearing the CFTC Enforcement Action Against DRW Regarding What Constitutes Attempted Manipulation” in the January 18, 2016 edition of Bridging the Week.) The court rejected the CFTC’s view of its legal requirements, and rejected both the CFTC’s motion for partial summary judgment and the defendants’ motion for summary judgment related to this matter overall.

My View: As I observed earlier this year, the CFTC defines manipulation as “[a]ny planned operation, transaction, or practice that causes or maintains an artificial price” on its own website (emphasis added). (Click here to access CFTC definitions on its website.) As the CFTC recently acknowledged in adopting its new anti-manipulation and anti-fraud rules, one of the cornerstones for proving manipulation or attempted manipulation is “that the accused specifically intended to create or effect a price or price trend that does not reflect legitimate forces of supply and demand” to wit, an artificial price. (Click here to access the CFTC Fact Sheet related to its anti-manipulation and anti-fraud rules, Rule 180.1 and 180.2.) Setting aside the long-established case law as capsulized in the decisions cited in the five organizations’ friends of the court brief and the court's decision in this matter, it was very surprising that the CFTC argued that an attempted manipulation could be an attempt to cause anything less than an artificial price in light of the agency’s own published plain words.