Amy St. Eve
Amy St. Eve

A statue barring a trading tactic designed to manipulate commodity prices passes muster under the U.S. Constitution, a federal judge ruled Tuesday.

In a written opinion, U.S. District Judge Amy St. Eve rejected the argument that the statute is so vague it fails to give fair warning of what type of conduct constitutes “spoofing” and what type of conduct constitutes legitimate trading.

Spoofing is a tactic where traders try to manipulate commodity prices to their benefit by placing orders or making bids they intend to cancel before the orders or bids are executed.

Quoting Independents Gas & Service Stations Association Inc. v. City of Chicago, 112 F. Supp. 3d 749 (N.D. Ill. 2015), St. Eve noted that assertions that statutes are vague “are examined in light of the facts of the case at hand” unless First Amendment interests are involved.

And assertions that economic regulations are vague are examined under a “less stringent” standard than that used with other types of statutes, St. Eve wrote, quoting Brockert v. Skornica, 711 F.2d 1376 7th Cir. 1983).

She held a civil suit filed against Igor B. Oystacher alleges trading conduct that falls within the spoofing statute’s definition of that offense.

Her holding is bolstered by the statute’s requirement that a trader must intend to cancel a bid or offer when he or she makes it, St. Eve wrote.

This scienter requirement “mitigates any vagueness concerns,” she wrote, because traders who legitimately change their minds are not guilty of spoofing.

And the suit cites circumstantial evidence in support of its allegation of spoofing, St. Eve wrote.

That evidence, she wrote, includes details about the “predictable speed, volume and precision” of Oystacher’s purported trading patterns.

St. Eve denied a motion to dismiss the suit.

The suit alleges Oystacher engaged in spoofing by canceling more than 1,300 buy or sell orders within a second of placing them.

The suit was filed against Oystacher and his firm, 3 Red Trading LLC, by the U.S. Commodity Futures Trading Commission.

The lead attorney for the commission is Elizabeth M. Streit.

Commission spokesman Dennis Holden in Washington, D.C., declined to comment because the case is pending.

The lead attorney for Oystacher and his firm is Stephen J. Senderowitz of Dentons US LLP.

Michael S. Kim of Kobre & Kim LLP in New York and Matthew I. Menchel of the firm’s Miami office handled their clients’ motion to dismiss the suit.

Kim and Menchel could not be reached for comment.

In 2010, Congress amended the Commodities Exchange Act to add the spoofing statute.

The following year, the Commodity Futures Trading Commission adopted a regulation barring traders from intentionally or recklessly using any “manipulative device, scheme or artifice to defraud.”

The commission adopted the regulation under the expanded authority to go after fraud and manipulation it was given by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

In 2014, a federal grand jury in Chicago indicted a New Jersey high-frequency trader under the spoofing law. United States v. Michael Coscia, No. 14 CR 551.

The trader, Michael Coscia, was accused of illegally earning around $1.5 million through the Chicago-based CME Group and European futures markets.

A jury convicted Coscia of 12 counts and U.S. District Judge Harry D. Leinenweber sentenced him to three years in prison.

In her opinion declining to dismiss the unrelated civil suit against Oystacher, St. Eve also rejected the argument that the commission’s anti-spoofing regulation is unconstitutionally vague.

No one should have trouble understanding what type of conduct is forbidden by the regulation’s bar on “manipulative schemes,” St. Eve wrote.

And she held Congress did not unconstitutionally delegate power to the commission and federal courts in the spoofing statute.

St. Eve conceded Article I of the Constitution places legislative power in Congress.

But this non-delegation doctrine does “not prevent Congress from obtaining assistance from other branches of government,” she wrote, quoting United States v. Esfahani, No. 05 CR 255, 2006 WL 163025 (N.D. Ill. Jan. 17, 2006).

The case is U.S. Commodity Futures Trading Commission v. Igor B. Oystacher, et al., No. 15 C 9196.