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U.S. Commodity Futures Trading Commission v. Oystacher

United States District Court, N.D. Illinois, Eastern Division

August 23, 2016

U.S. COMMODITY FUTURES TRADING COMMISSION, Plaintiff,
v.
IGOR B. OYSTACHER and 3 RED TRADING LLC, Defendants.

          CORRECTED MEMORANDUM OPINION AND ORDER

          AMY J. ST. EVE United States District Court Judge.

         Defendants Igor Oystacher and 3Red Trading, LLC (collectively, “Defendants”) move for a judgment on the pleadings pursuant to Federal Rule of Civil Procedure 12(c). For the foregoing reasons, the Court denies Defendants' motion.

         BACKGROUND[1]

         The CFTC asserts that from December 2011 through at least February 2016, Defendants “intentionally and repeatedly engaged in a manipulative and deceptive spoofing scheme while placing orders for and trading futures contracts on multiple registered entities.” (R. 1, Complaint, at ¶ 2.) Specifically, the CFTC alleges that Defendants' “scheme created the appearance of false market depth that Defendants exploited to benefit their own interests, while harming other . . . participants” across a number of markets in violation of Sections 4c(a)(5)(C) and 6(c)(1) of the Commodities Exchange Act (the “CEA”), 7 U.S.C. §§ 6c(a)(5)(C) & 9(1) (2012) (the “Spoofing Statute”), and CFTC Regulation 180.1, 17 C.F.R. §180.1 (2014). (Id. at ¶¶ 2, 6.)

         In 2010, Section 747 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, Pub. L. No. 111-203, 124 Stat. 1376 (2010) amended Section 4c(a)(5)(C) of the CEA, entitled “Disruptive Practices, ” to add the Spoofing Statute. The Spoofing Statute provides, in relevant part, as follows:

(5) It shall be unlawful for any person to engage in any trading, practice, or conduct on or subject to the rules of a registered entity that -
(C) Is, is of the character of, or is commonly known to the trade as, “spoofing” (bidding or offering with the intent to cancel the bid or offer before the execution).

7 U.S.C. § 6c(a)(5)(C).

         Additionally, on July 14, 2011, the CFTC adopted CFTC Regulation 180.1(a)(1) pursuant to the CFTC's expanded anti-fraud and anti-manipulation authority under Section 753 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, Pub. L. No. 111-203, 124 Stat. 1376 (2010). CFTC Regulation 180.1(a)(1) provides, in relevant part, as follows:

(a) It shall be unlawful for any person, directly or indirectly, in connection with any swap, or contract of sale of any commodity in interstate commerce, or contract for future delivery on or subject to the rules of any registered entity, to intentionally or recklessly:
(1) Use or employ, or attempt to use or employ, any manipulative device, scheme, or artifice to defraud[.]

17 C.F.R. § 180.1(a)(1); see also CFTC v. Kraft Foods Grp., Inc., 153 F.Supp.3d 996, 1007 (N.D. Ill. 2015) (“In publishing Regulation 180.1, the CFTC explained that ‘Final Rule 180.1 prohibits fraud and fraud-based manipulations.'”) (citing Final Rule, 76 Fed. Reg. at 41, 400; 17 C.F.R. § 180.1).

         On November 9, 2016, the CFTC moved for a preliminary injunction, prohibiting Defendants from trading in the Copper, Crude Oil, Natural Gas, S&P 500 E-mini (“ES”), Volatility Index (“VIX”), and Ten Year T-note Treasury Futures (“ZN”) markets. (R. 20, 72.) The Court, thereafter, held a lengthy preliminary injunction hearing. On July 12, 2016, the Court denied the CFTC's motion for preliminary injunction, but added various restrictions and obligations on Defendants. (R. 195.)

         Defendants now move for a judgment on the pleadings pursuant to Federal Rule of Civil Procedure 12(c). Defendants essentially assert three arguments: 1) the Spoofing Statute is unconstitutionally vague, 2) CFTC Regulation 180.1 is unconstitutionally vague, and 3) the Spoofing Statute constitutes an unconstitutional delegation by Congress. The Court disagrees with all three.

         LEGAL STANDARD

         Under Federal Rule of Civil Procedure 12(c), a party may move for judgment on the pleadings after the pleadings are closed but early enough not to delay trial. See Fed. R. Civ. P. 12(c). “A motion for judgment on the pleadings under Federal Rule of Civil Procedure 12(c) ‘is designed to provide a means of disposing of cases when the material facts are not in dispute and a judgment on the merits can be achieved by focusing on the content of the pleadings and any facts of which the court may take judicial notice.'” Archer Daniels Midland Co. v. Burlington Ins. Grp., No. 10-CV-1533, 2011 WL 1196894, at *2 (N.D. Ill. Mar. 29, 2011) (quoting Cincinnati Ins. Co. v. Contemporary Distrib., Inc., No. 09-CV-2250, 2010 WL 338943, at *2 (N.D. Ill. Jan. 26, 2010)).

         “A motion for judgment on the pleadings under rule 12(c) of the Federal Rules of Civil Procedure is governed by the same standards as a motion to dismiss for failure to state a claim under Rule 12(b)(6).” BBL, Inc. v. City of Angola, 809 F.3d 317, 325 (7th Cir. 2015) (quoting Adams v. City of Indianapolis, 742 F.3d 720, 727-28 (7th Cir. 2014)). As such, “the question at this stage is simply whether the complaint includes factual allegations that state a plausible claim for relief.” Id. (citing Fortres Grand Corp. v. Warner Bros. Entm't. Inc., 763 F.3d 696, 700 (7th Cir. 2014) (applying Rule 12(b)(6)). “A plaintiff's ‘[f]actual allegations must be enough to raise a right to relief above the speculative level.'” Yeadon Fabric Domes, LLC v. Roberts Environmental Control Corp., No. 15 CV 6679, 2016 WL 3940098, *1 (N.D. Ill. July 21, 2016) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007)). Put differently, “a ‘complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.'” Id. (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)) (citation and quotation marks omitted). “All reasonable inferences are drawn in favor of the non-movant.” Id. (citing Lodholtz v. York Risk Servs. Grp., Inc., 778 F.3d 635, 639 (7th Cir. 2015)). Ultimately, a court will grant a motion for judgment on the pleadings only if “no genuine issues of material fact remain to be resolved and . . . the [moving party] is entitled to judgment as a matter of law.” Alexander v. City of Chicago, 994 F.2d 333, 336 (7th Cir. 2012); see also Hartford Fire Ins. Co. v. Thermos LLC, 146 F.Supp.3d 1005, 1012 (N.D. Ill. 2015) (citing Alexander, 994 F.2d at 336).

         ANALYSIS

         Defendants move for a judgment on the pleadings pursuant to Federal Rule of Civil Procedure 12(c). Defendants claims that 1) the Spoofing Statute is unconstitutionally vague, 2) CFTC Regulation 180.1 is unconstitutionally vague, and 3) the Spoofing Statute constitutes an unconstitutional delegation by Congress. The Court addresses each in turn.

         I. The Spoofing Statute is Not Unconstitutionally Vague

         Defendants first claim that “the Spoofing Statute is unconstitutionally vague, and the CFTC's claims fail as a matter of law.” (R. 164-1 at 22.) Specifically, Defendants argue that the “‘is spoofing' prong of the Spoofing Statute is vague, because it fails [to] give notice of what type of trading conduct constitutes ‘spoofing' as opposed to legitimate trading.” (Id.) “And if it is unclear what facts must be proved to make out a claim, ” Defendants assert, “then there is certainly no basis to conclude that Mr. Oystacher received adequate notice of what conduct was forbidden under the Spoofing Statute.” (Id.) The Court disagrees. The Spoofing Statute's “is spoofing” prong, as applied to Defendant Oystacher, is not unconstitutionally vague.

         “A fundamental principle in our legal system is that laws which regulate persons or entities must give fair notice of conduct that is forbidden or required.” United States v. Brown, No. 14 CR 674, 2015 WL 6152224, at *3 (N.D. Ill. Oct. 19, 2015) (citing FCC v. Fox Television Stations, Inc., 132 S.Ct. 2307, 2317, 183 L.Ed.2d 234 (2012)). “A statute is unconstitutionally vague if it ‘fails to give ordinary people fair notice of the conduct it punishes, or [is] so standardless that it invites arbitrary enforcement.'” United States v. Morris, 821 F.3d 877, 879 (7th Cir. 2016) (quoting Johnson v. United States, 135 S.Ct. 2551, 2556, 192 L.Ed.2d 569 (2015)). In other words, “[a] challenge to a statute's vagueness ‘rest[s] on the lack of notice, and hence may be overcome in any specific case where reasonable persons would know that their conduct is at risk.'” United States v. Lim, 444 F.3d 910, 915 (7th Cir. 2006) (citing Maynard v. Cartwright, 486 U.S. 356, 361, 108 S.Ct. 1853, 100 L.Ed.2d 372 (1988)). Under the Constitution, Congress is not permitted to “set a net large enough to catch all possible offenders, and leave it to the courts to step inside and say who could be rightfully detained, and should be set at large.” City of Chicago v. Morales, 527 U.S. 41, 60, 119 S.Ct. 1849, 144 L.Ed.2d 67 (1999) (citing United States v. Reese, 92 U.S. 214, 221, 23 L.Ed. 563 (1875)). “[F]ew words, ” however, “possess the precision of mathematical symbols[.]” Boyce Motor Lines v. United States, 342 U.S. 337, 340, 72 S.Ct. 329, 96 L.Ed. 367 (1952) (citing Nash v. United States, 229 U.S. 373, 377, 33 S.Ct. 780, 781, 57 L.Ed. 1232 (1913)); see also Lim, 444 F.3d at 915 (citing Boyce Motor Lines, 342 U.S. at 340)). Rather, “most statutes must deal with untold and unforeseen variations in factual situations, and the practical necessities of discharging the business of government inevitably limit the specificity with which legislators can spell out prohibitions. Consequently, no more than a reasonable degree of certainty can be demanded.” Id. (citations omitted). Indeed, “the fact that Congress could have employed ‘[c]learer and more precise language' equally capable of achieving the end which it sought does not mean that the statute which it in fact drafted' was unconstitutionally vague.” Lim, 444 F.3d at 916 (quoting United States v. Powell, 423 U.S. 87, 93, 96 S.Ct. 316, 320, 46 L.Ed.2d 228 (1975)). Ultimately, courts must, if possible, “construe, not condemn, Congress' enactments.” Skilling v. United States, 561 U.S. 358, 403, 130 S.Ct. 2896, 177 L.Ed.2d 619 (2010) (citing Civil Serv. Comm'n v. Letter Carriers, 413 U.S. 548, 571, 93 S.Ct. 2880, 37 L.Ed.2d 796 (1973); United States v. Nat'l. Dairy Prods., Corp., 327 U.S. 29, 32, 83 S.Ct. 594, 9 L.Ed.2d 561 (1963)).

         “The degree of vagueness that the Constitution tolerates . . . depends in part on the nature of the enactment.” Independents Gas & Serv. Stations Ass'ns., Inc. v. City of Chicago, 112 F.Supp.3d 749, 754 (N.D. Ill. 2015) (quoting Karlin v. Foust, 188 F.3d 446, 458 (7th Cir. 1999)). Importantly, “[v]agueness challenges to statutes that do not involve First Amendment interests are examined in light of the facts of the case at hand.” Id. (citing Maynard, 486 U.S. at 361); see also United States v. Calimlim, 538 F.3d 706, 710 (7th Cir. 2008) (“A vagueness challenge not premised on the First Amendment is evaluated as-applied, rather than facially.”) (citing Chapman v. United States, 500 U.S. 453, 467, 111 S.Ct. 1919, 114 L.Ed.2d 524 (1991)). This case does not involve a First Amendment issue. Instead, Defendants' vagueness challenge targets economic legislation. Economic regulations are subject to a “less stringent” void for vagueness standard. See Brockert v. Skornica, 711 F.2d 1376, 1391 (7th Cir. 1983); see, e.g.,Cruz v. Town of Cicero, No. 99 C 3286, 2000 WL 369666, at *3 (N.D. Ill. Apr. 6, 2000). As the Seventh Circuit explains, “[e]conomic regulation usually deals with a narrower subject and ...


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