Former Oystacher Partner’s Suit in Spoof-Trading Case Dismissed

(Bloomberg) -- A federal judge in Chicago on Monday dismissed a lawsuit claiming commodity trader Igor Oystacher illegally ousted a former business partner who accused him of engaging in corrupt practices.

Edwin Johnson, who started the high-volume trading business of 3Red Trading LLC with Oystacher, alleged that he was pushed out in 2013, deprived of his 10 percent stake in the firm and warned not to talk to regulators about Oystacher’s trading schemes, according to U.S. District Judge Andrea Wood’s ruling. Johnson accused Oystacher of violating federal racketeering laws.

Oystacher and his firm reached an agreement with the U.S. Commodity Futures Trading Commission in 2016 to settle claims that he engaged in spoofing on the E-Mini S&P 500, copper, crude oil, natural gas and VIX futures contracts -- employing a bait-and-switch strategy that involves canceling large orders placed on one side of a transaction while profiting from smaller ones on the other.

The CFTC accused Oystacher of placing orders he didn’t intend to execute to create the appearance of “false market depth” and price movements that benefited his positions, a practice made illegal by a 2010 provision of the Dodd-Frank Act. Oystacher denied any wrongdoing, saying he places and cancels orders manually at high speeds. He paid the CFTC a fine of $2.5 million, having previously settled with CME Group, ICE and Eurex.

For a QuickTake explaining spoofing, click here.

Johnson portrayed himself as a potential whistleblower, forced to sign a settlement agreement with Oystacher and the firm to prevent him from talking to regulators about Oystacher’s trading practices, according to Wood’s ruling.

Wood said Johnson was overreaching by using the Racketeer Influenced and Corrupt Organizations Act. Quoting from a 1992 7th Circuit opinion, Wood said he was “squeezing a garden-variety business dispute into a civil RICO action.” She also held that while the Commodity Exchange Act protects whistleblowers, it doesn’t protect potential whistleblowers, and that Johnson cannot use the act to assert that Oystacher planned to silence him.

The case is Johnson v. Oystacher et al., NDIL, 15-cv-02263, U.S. District Court for the Northern District of Illinois, Eastern Division.

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