Last week, five industry organizations asked a federal court for permission to weigh in on what are the appropriate legal standards the Commodity Futures Trading Commission must prove in a pending lawsuit against Donald Wilson and DRW Investments, LLC alleging attempted manipulation. The CFTC initially filed its lawsuit in 2013, claiming the respondents 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 allegation based on, among other matters, purported “undisputed material facts” that the respondents, through their conduct, evidenced “an intent to affect price.” The five industry organizations – CME Group, Commodity Markets Council, Futures Industry Association, Intercontinental Exchange and Managed Futures Association – requested the court’s permission to file legal papers as amici curiae – a “friend of the court”— claiming the CFTC misconstrued the correct legal standard of attempted manipulation. According to the five organizations, the CFTC should be required to prove – consistent with prior case law – that respondents intended to create an artificial price – one “that does not reflect the legitimate forces of supply and demand” — not solely to affect price. Quoting from a 1982 landmark CFTC decision – In re Indiana Farm Bureau Coop Ass’n. Inc. – respondents argued this standard was appropriate because “market participants have a right to trade in their own best interests without regard to the positions of others as long as their trading activity does not have as its purpose the creation of ‘artificial’ or ‘distorted’ prices.” The five organizations said that “[c]ontinued application of this traditional standard will facilitate the promotion of price discovery and the other congressionally endorsed public interests the futures markets serve.” According to the five organizations, the CFTC has not consented to their filing of a brief as amicus curiae. (Click here to access a copy of the decision in Indiana Farm Bureau.)
Legal Weeds: On its own website, the Commodity Futures Trading Commission defines manipulation as “[a]ny planned operation, transaction, or practice that causes or maintains an artificial price” (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 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’ proposed amici curiae brief, it seems very surprising the CFTC would argue that an attempted manipulation could be an attempt to cause anything less than an artificial price in light of the CFTC’s own published plain words.