The United States Commodity Futures Trading Commission (CFTC) has stood behind its complaint against John Patrick Gorman III, accused of manipulation of the price of USD interest rate swap spreads. This becomes clear from a letter filed with the New York Southern District Court on June 7, 2021, and seen by FX News Group.
Let’s recall that the complaint alleges that on February 3, 2015, Gorman III, a U.S. dollar swaps trader and managing director of a global investment bank (the bank is unnamed in the complaint), trading from Tokyo, Japan for a U.S. affiliate of the Bank, engaged in a scheme to deceive and to manipulate the price of U.S. dollar interest rate swap spreads published on a screen displaying prices from a swap execution facility broker firm (SEF Broker Firm) in the United States. Gorman engaged in this scheme in order to benefit the Bank in a separate interest rate swap transaction with a bond issuer, the CFTC says.
Gorman has sought to rebuff the allegations.
In its letter submitted at the Court on June 7, 2021, the CFTC disagrees with the trader’s contention that the Complaint is deficient. The CFTC maintains that its complaint satisfies Rule 9(b) and states a claim against Gorman under each of its three counts.
The regulator stresses that the Complaint more than adequately alleges that Gorman engaged in prohibited conduct. First, the Complaint alleges acts that constitute a manipulative device or scheme and that would operate as a fraud or deceit.
The CFTC says that the Complaint’s allegations that Gorman traded Ten-Year Swap Spreads not because he legitimately wanted to sell at that price and time, but instead to move and control the 19901 screen using the broker who could “move the screen the quickest,” show that he planned and timed his trades to “get the print” lower in order to benefit the Bank in the Issuer Swap, sending a false price signal and deceiving the Issuer and the broader market.
Second, according to the CFTC, the Complaint properly alleges as an alternative basis of liability that Gorman made actionable misstatements, specifically half-truths which created a materially misleading impression by virtue of what they omitted. The Complaint pleads with specificity that Gorman’s statements to the Issuer that the Ten-Year Swap Spread price was 13.5 during the dry run and live pricing were misleading because they omitted material facts, including that the only reason the price was 13.5 was because Gorman intentionally pushed it there to “get the print” in order to benefit the Bank at the expense of the Issuer.
Finally, the Complaint alleges numerous overt acts by Gorman. It also explicitly alleges that Gorman intended to cause an artificial price (“Gorman intended to cause an artificial price for Ten-Year Swap Spreads with his trading”), an allegation supported by specific facts, including that “Gorman chose to ‘sell low’ during the Pricing Call” to make money on the Issuer Swap, the CFTC says.
According to the regulator, these allegations are more than sufficient.
For these reasons, the Complaint states claims upon which relief can be granted, the CFTC concludes.
The Commission seeks civil monetary penalties and remedial ancillary relief, including, but not limited to, trading and registration bans, restitution, disgorgement, pre- and post-judgment interest.
