In a ruling that came just two days after U.S. President Barack Obama proposed a renewed campaign against illegal oil trading schemes, the Amsterdam-based company agreed to disgorge $1 million in profits and pay a $13 million civil penalty over allegations it used a rapid-fire tool nicknamed "The Hammer" to influence U.S. oil prices in 2007.
It was the first case brought by the Commodity Futures Trading Commission (CFTC) in its 2008 effort to curb market malfeasance, launched as prices soared toward a record near $150 a barrel in the middle of that year.
The case alleged that traders in Optiver's Chicago office reaped a $1 million profit by engaging in a practice called "banging the close", in which the firm attempted to move U.S. oil prices by executing a large volume of deals during the final moments of trading.
While far from the agency's largest fine, the case was viewed as an important milestone in the CFTC's efforts to get more aggressive over market manipulation - a charge that has historically been difficult to prove, despite mounting political pressure to take rogue traders to task.
"The CFTC will not tolerate traders who try to gain an unlawful advantage by using sophisticated means to drive oil and gas futures prices in their favor," David Meister, the CFTC's enforcement chief, said in a statement.
"Manipulative schemes like 'banging the close' harm market integrity, and false and misleading statements to exchange officials to cover tracks obstruct the investigative process."
Optiver, which neither admitted nor denied the CFTC's allegations as is common in settlement cases, said it was "pleased to put this matter behind it".
The settlement bars traders Christopher Dowson, Randal Meijer and Bastiaan van Kempen from trading commodities for eight years, four years and two years, respectively. Two of the three defendants have since left the firm.
The order also limits the entire company from trading U.S. oil futures in the three minutes prior to the market close for the next two years.
The fine is less than the $19.3 million that Optiver had set aside for the case in its 2010 annual report.
"YOU NEVER KNOW HOW LONG IT'S GOING TO LAST"
Optiver, founded as a one-person operation by options trader Johann Kaemingk in Amsterdam in 1986, is considered a pioneer within the close-knit high-frequency and algorithmic trading communities of Amsterdam and Chicago.
It has more than 600 employees worldwide, including offices in Sydney, and says on its website it has "never had a loss-making year". The firm trades only with its own capital, and doesn't have any clients.
The CFTC case revealed emails and phone recordings showing efforts by traders at Optiver's Chicago branch to "move," "whack" and "bully" oil prices.
According to a CFTC background sheet, van Kempen told an Optiver trader on March 19, 2007: "You should milk it for right now because you never know how long it's going to last."
The CFTC complaint said Optiver and van Kempen made false statements to New York Mercantile Exchange (NYMEX) compliance officials in an effort to conceal the manipulative scheme.
The defendants had attempted to manipulate NYMEX U.S. crude oil, gasoline and heating oil contracts on the 19 separate times during 11 days in March 2007, according to the complaint.
"Those who seek to manipulate oil or other commodity markets should know we aren't messing around," said CFTC Commissioner Bart Chilton. "You manipulate, we are going after you."
In a copy of the private company's 2010 annual report obtained by Reuters last year, the firm reported trading income of 551.1 million euros (about $800 million) in 2007 and 710.6 million euros in 2008.
But trading income fell to 263.7 million euros in 2009 and 377.5 million euros in 2010.
Based on reported personnel expenses at the firm and a staff of 600, the average annual salary was about 153,000 euros in 2010.
LONG TIME COMING
President Obama on Tuesday called on lawmakers to raise civil and criminal penalties on individuals and companies involved in manipulative practices.
But while the CFTC was keen to trumpet the Optiver settlement on Thursday, the long wait between the alleged manipulation and a settlement illustrates the difficulties faced by regulators.
"As reflected by the court's order, we will seek significant financial penalties from violators and limitations on their privileges to trade on markets in the United States," Meister at the CFTC said.
High-frequency trading has come under scrutiny in commodity markets in recent years following a series of violent and seemingly inexplicable price moves that many traders have blamed on its growth. But most of the CFTC's outright manipulation cases still revolve around human trades.
In 2010 the CFTC won a $25 million fine from renowned hedge fund Moore Capital Management for attempting to manipulate settlement prices of platinum and palladium futures, also for "banging the close". Another major suit against London-based oil trader Arcadia and its U.S. unit is pending in court.
The CFTC is expected to review HFT trading, which has come in for fierce criticism since the equity market "flash crash" in May 2010.
The settlement was approved on Thursday by Chief Judge Loretta Preska of the U.S. District Court in Manhattan.
The case is CFTC v. Optiver US LLC et al, U.S. District court, Southern District of New York, No. 08-06560. (Additional reporting by Karey Wutkowski, Sarah Lynch and Alexandra Alper in Washington, D.C.; Editing by Bernard Orr and Robert Birsel)
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