CFTC Charges Options Trader with Fraud for Causing Collapse of Trading Firm
- Thomas Lindstrom’s scheme caused his employer over $13.9 million in losses and led to the collapse of Rock Capital Markets.
The US Commodity Futures Trading Commission (CFTC CFTC The 1974 Commodity Exchange Act (CEA) in the United States created the Commodity Futures Trading Commission (CFTC). The Commission protects and regulates market activities against manipulation, fraud, and abuse trade practices and promotes fairness in futures contracts. The CEA also included the Sad-Johnson Agreement, which defined the authority and responsibilities for the monitoring of financial contracts between the Commodity Futures Trading Commission and the Securities and Exchange Commiss The 1974 Commodity Exchange Act (CEA) in the United States created the Commodity Futures Trading Commission (CFTC). The Commission protects and regulates market activities against manipulation, fraud, and abuse trade practices and promotes fairness in futures contracts. The CEA also included the Sad-Johnson Agreement, which defined the authority and responsibilities for the monitoring of financial contracts between the Commodity Futures Trading Commission and the Securities and Exchange Commiss Read this Term) has charged Thomas C. Lindstrom with fraud in connection with his trading of options on 10-year US Treasury note futures (T-Note Options).
Lindstrom is registered with the CFTC as a floor broker, has been a member of the Chicago Board of Trade (CBOT) since 1993, and is a long-time trader of T-Note Options offered on the CBOT.
The CFTC alleges that, from at least 1 January 2014 to 27 January 2015, Lindstrom perpetrated a scheme to falsely inflate the value and profitability of his options position, and lied about the quantity of options and associated risks, in order to defraud his employer, proprietary trading firm Rock Capital Markets, into paying him $285,000 in draws to which he was not entitled.
Lindstrom’s scheme caused Rock Capital to incur more than $13.9 million in losses and caused the collapse of the firm in early 2015.
Bogus Profits
The CFTC’s complaint alleges that Lindstrom’s scheme exploited a pricing convention set by Exchange Exchange An exchange is known as a marketplace that supports the trading of derivatives, commodities, securities, and other financial instruments.Generally, an exchange is accessible through a digital platform or sometimes at a tangible address where investors organize to perform trading. Among the chief responsibilities of an exchange would be to uphold honest and fair-trading practices. These are instrumental in making sure that the distribution of supported security rates on that exchange are effectiv An exchange is known as a marketplace that supports the trading of derivatives, commodities, securities, and other financial instruments.Generally, an exchange is accessible through a digital platform or sometimes at a tangible address where investors organize to perform trading. Among the chief responsibilities of an exchange would be to uphold honest and fair-trading practices. These are instrumental in making sure that the distribution of supported security rates on that exchange are effectiv Read this Term rules whereby deep out-of-the-money options settled each day at the standard minimum tick value of $15.625 prior to expiration.
Lindstrom allegedly generated millions in bogus profits in his trading account by acquiring hundreds of thousands of deep out-of-the-money options which were virtually assured to expire worthless. Even though the options Lindstrom acquired were so far out of the money as to be essentially worthless, they settled each day up until expiration at the minimum tick value of $15.625.
Lindstrom's account had a net liquidation value that was inflated by more than $15 million.
According to the complaint, from one contract expiration to the next, as the options expired worthless and his account’s bogus profits were wiped out, Lindstrom allegedly acquired more and more out-of-the-money options to cover the realised losses his account had incurred and create more bogus profits.
By 27 January, 2015, when his trading activity was discovered, Lindstrom accumulated a position of more than 950,000 deep out-of-the-money T-Note Options, and held 99.9 percent or 100 percent of the open interest in at least ten T-Note option contracts.
Doctored Screenshots
Lindstrom reportedly hid his scheme from and defrauded Rock Capital by sending screenshots from trading software that Lindstrom doctored to omit his huge position in deep out-of-the-money options.
He allegedly took draws of $285,000 from Rock Capital based on his bogus profits. In doing so, he failed to disclose his huge position in deep out-of-the-money options that was not accurately valued on his trading statements, the risk that the position posed to the firm, and that he had exceeded his $500,000 margin limit by millions of dollars.
When Lindstrom’s scheme was uncovered, his account had a net liquidation value that was inflated by more than $15 million and it was just days before he was to receive an additional payment of over $500,000.
The CFTC is seeking repayment of the fraudulent gains, a monetary penalty, permanent registration and trading bans together with a permanent injunction against violations of the relevant commodities laws.
The US Commodity Futures Trading Commission (CFTC CFTC The 1974 Commodity Exchange Act (CEA) in the United States created the Commodity Futures Trading Commission (CFTC). The Commission protects and regulates market activities against manipulation, fraud, and abuse trade practices and promotes fairness in futures contracts. The CEA also included the Sad-Johnson Agreement, which defined the authority and responsibilities for the monitoring of financial contracts between the Commodity Futures Trading Commission and the Securities and Exchange Commiss The 1974 Commodity Exchange Act (CEA) in the United States created the Commodity Futures Trading Commission (CFTC). The Commission protects and regulates market activities against manipulation, fraud, and abuse trade practices and promotes fairness in futures contracts. The CEA also included the Sad-Johnson Agreement, which defined the authority and responsibilities for the monitoring of financial contracts between the Commodity Futures Trading Commission and the Securities and Exchange Commiss Read this Term) has charged Thomas C. Lindstrom with fraud in connection with his trading of options on 10-year US Treasury note futures (T-Note Options).
Lindstrom is registered with the CFTC as a floor broker, has been a member of the Chicago Board of Trade (CBOT) since 1993, and is a long-time trader of T-Note Options offered on the CBOT.
The CFTC alleges that, from at least 1 January 2014 to 27 January 2015, Lindstrom perpetrated a scheme to falsely inflate the value and profitability of his options position, and lied about the quantity of options and associated risks, in order to defraud his employer, proprietary trading firm Rock Capital Markets, into paying him $285,000 in draws to which he was not entitled.
Lindstrom’s scheme caused Rock Capital to incur more than $13.9 million in losses and caused the collapse of the firm in early 2015.
Bogus Profits
The CFTC’s complaint alleges that Lindstrom’s scheme exploited a pricing convention set by Exchange Exchange An exchange is known as a marketplace that supports the trading of derivatives, commodities, securities, and other financial instruments.Generally, an exchange is accessible through a digital platform or sometimes at a tangible address where investors organize to perform trading. Among the chief responsibilities of an exchange would be to uphold honest and fair-trading practices. These are instrumental in making sure that the distribution of supported security rates on that exchange are effectiv An exchange is known as a marketplace that supports the trading of derivatives, commodities, securities, and other financial instruments.Generally, an exchange is accessible through a digital platform or sometimes at a tangible address where investors organize to perform trading. Among the chief responsibilities of an exchange would be to uphold honest and fair-trading practices. These are instrumental in making sure that the distribution of supported security rates on that exchange are effectiv Read this Term rules whereby deep out-of-the-money options settled each day at the standard minimum tick value of $15.625 prior to expiration.
Lindstrom allegedly generated millions in bogus profits in his trading account by acquiring hundreds of thousands of deep out-of-the-money options which were virtually assured to expire worthless. Even though the options Lindstrom acquired were so far out of the money as to be essentially worthless, they settled each day up until expiration at the minimum tick value of $15.625.
Lindstrom's account had a net liquidation value that was inflated by more than $15 million.
According to the complaint, from one contract expiration to the next, as the options expired worthless and his account’s bogus profits were wiped out, Lindstrom allegedly acquired more and more out-of-the-money options to cover the realised losses his account had incurred and create more bogus profits.
By 27 January, 2015, when his trading activity was discovered, Lindstrom accumulated a position of more than 950,000 deep out-of-the-money T-Note Options, and held 99.9 percent or 100 percent of the open interest in at least ten T-Note option contracts.
Doctored Screenshots
Lindstrom reportedly hid his scheme from and defrauded Rock Capital by sending screenshots from trading software that Lindstrom doctored to omit his huge position in deep out-of-the-money options.
He allegedly took draws of $285,000 from Rock Capital based on his bogus profits. In doing so, he failed to disclose his huge position in deep out-of-the-money options that was not accurately valued on his trading statements, the risk that the position posed to the firm, and that he had exceeded his $500,000 margin limit by millions of dollars.
When Lindstrom’s scheme was uncovered, his account had a net liquidation value that was inflated by more than $15 million and it was just days before he was to receive an additional payment of over $500,000.
The CFTC is seeking repayment of the fraudulent gains, a monetary penalty, permanent registration and trading bans together with a permanent injunction against violations of the relevant commodities laws.