CFTC regulator warns attorneys about whistleblower ‘abuses’

Attorneys for Igor Oystacher and his Chicago-based 3Red Trading firm are getting attention from regulators they’re battling in court, but not in a good way.

Rosemary Hollinger, deputy director in Chicago for the Commodity Futures Trading Commission’s enforcement division, reminded lawyers attending a securities and commodities enforcement panel last week that it’s not just employers who can illegally chill whistleblowers. It’s defense counsel, too, she said specifically referring to filings by attorneys in the Oystacher case playing out in federal court in Chicago.

“It’s not only the employer who abuses the whistleblower, it can sometimes be defense counsel,” she said at the Oct. 14 panel discussion in Chicago. Asked afterward what she was referring to specifically, Hollinger repeated that “harassment” could be seen in the Oystacher court filings.

The “Emerging Trends and Priorities in Securities and Commodities Enforcement” panel sponsored by the ABA Securities Midwest Regional group and hosted by law firm Barnes & Thornburg, included presentations by Hollinger as well as representatives from the Securities and Exchange Commission office in Chicago and the U.S. Attorney’s Office for the Northern District of Illinois.

Much of the discussion focused on the whistleblower programs started in recent years by the CFTC and SEC to generate more information about wrongdoing in the financial markets. Regulators have emphasized the growing importance of those programs in bringing cases.

“The government is making it extremely clear that private parties, private businesses, should not do anything in an agreement to chill an individual’s ability to talk to the government about potential law-breaking,” said Trace Schmeltz, a Barnes & Thornburg attorney in the field who moderated the panel discussion.

Any “person,” not just a company that employs a whistleblower, is subject to legal provisions that prohibit interference with a whistleblower’s ability to talk to the government, noted Jim Lundy, an attorney at Drinker Biddle & Reath in Chicago and former SEC enforcement lawyer who also was on the panel. If lawyers were found to be involved in harassment of a whistleblower, they could also be held liable for abetting a violation of whistleblower rules, he said.

The CFTC alleges that 3Red and Oystacher, who leads the Chicago firm, engaged in manipulative futures trading practices, including spoofing, from December 2011 through at least January 2014. Matthew Wasko, who formerly worked at a competing trading firm, HTG Capital Partners, has said that he filed a whistleblower complaint in the case.

Other potential whistleblowers in the case include Richard May, a quantitative researcher in Chicago-based Citadel’s market-making division who provided testimony in the case, and 3Red co-founder and former employee Edwin Johnson, who is suing Oystacher in separate pending litigation.

Attorneys for Oystacher and 3Red declined to comment on Hollinger’s remarks or didn’t respond to requests for comment. The Chicago trader is represented by a host of attorneys, including Chicago lawyers at Dentons and Katten Muchin as well as others at Kobre & Kim in New York, Washington, D.C., and Miami.

Judge Amy St. Eve, who is presiding over the case in U.S. District Court for Northern Illinois, earlier this month postponed discovery in the case because of settlement efforts. The case is still scheduled for trial in January if those talks fail.

Regulators on the panel made clear that they were expressing their own opinions and not those of the government agencies they represent. They also discussed other market manipulation cases, including the CFTC’s allegations against Northfield-based Kraft Foods Group and Chicago trading firm DRW Trading.

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