Hedge Fund Settles Palladium / Platinum Manipulation Case

Discussion in 'Commodity Futures' started by ASusilovic, Apr 30, 2010.

  1. Moore Capital Management, the veteran hedge-fund firm ensnared earlier this year in a U.K. insider-trading probe, agreed to pay $25 million to settle a regulatory investigation over allegedly manipulative commodity-futures trading two years ago.

    The U.S. Commodity Futures Trading Commission said that, between November 2007 and May 2008, Moore failed to supervise a portfolio manager who improperly tried to "exert upward pressure" on futures contract prices tied to platinum and palladium. Moore didn't admit or deny wrongdoing in agreeing to the penalty announced Thursday.

    The trader, who isn't identified by the CFTC, is Christopher Pia, according to people close to the matter. Mr. Pia worked at Moore for about 20 years. He left in the fall of 2008 "as a result of concerns about his end-of-day trading in the platinum and palladium markets," a Moore Capital spokesman said.

    Mr. Pia has since started a new hedge-fund firm called Pia Capital Management. Ken Frydman, a spokesman for Mr. Pia and his firm, declined to comment.

    Separately, the CFTC also settled administrative charges against Morgan Stanley and UBS AG alleging that Morgan Stanley had concealed a large crude-oil block trade last year and UBS helped Morgan Stanley hide it. The companies neither admitted nor denied the findings.

    Morgan Stanley, which will pay a $14 million penalty, said it fully cooperated with the CFTC's investigation and called the matter "an isolated request by a former Morgan Stanley trader." UBS, which will pay $200,000, declined to comment.

    New York-based Moore manages $15 billion in assets and is overseen by Louis Moore Bacon. It is one of the most successful hedge funds in the world, with a track record that for two decades was mostly unblemished.

    In March, the U.K. Financial Services Authority accused a London-based execution trader at Moore—now on administrative leave—of participating in an insider-trading ring in what the FSA called its biggest such case ever. The firm said the accusations don't involve any funds managed by Moore, and the firm is cooperating with the probe. Lawyers said the trader "is working to clear his name."

    That investigation and the CFTC action aren't related, Moore's spokesman said Thursday.

    The CFTC order alleged that the former Moore portfolio manager engaged in a practice called "banging the close" that futures traders can use to artificially bid up prices in the final minutes of a trading session.

    The portfolio manager, the agency said, routinely submitted buy orders through "instant messages" with "directions that indicated that he wanted to push the settlement prices higher."

    David Threkeld, a metals trader who has publicly criticized trading irregularities in the copper market, says the legality of practices like "banging the close" can turn on a trader's intent.

    "If the intent is merely to move the market, and distort the price temporarily, it's market manipulation," he says.

    The CFTC said Moore "failed to have sufficient policies and procedures" to flag and prevent manipulative trading. In addition to paying the penalty Moore agreed among other things not to trade platinum or palladium futures 15 minutes prior to close of trading.

    The 53-year-old Mr. Bacon called the CFTC developments "deeply disappointing" to him in a letter to clients Thursday afternoon. He called the CFTC investigation a "trying time" that will lead to further beefing up of measures to prevent improper trading.

    The matter concerning Morgan Stanley and UBS involved crude-oil futures trading on a day that the largest crude-oil exchange traded fund, the U.S. Oil Fund, was shifting out of a contract ahead of its expiration. Oil traders were aware of this "roll" date, Feb. 6, 2009, so volatility intensified around it. UBS at the time was the fund's broker.

    The CFTC alleged that, on that day, a Morgan Stanley trader and a UBS broker discussed the opportunity to act as a trading partner for an unnamed UBS customer to buy a block of March 2009 crude oil futures and sell a similar amount of April 2009 contracts. The price of the two legs of the trade was to be determined later by the closing price.

    But before the trade was finalized, the CFTC alleges, the Morgan Stanley trader asked the UBS broker not to report the block trade until after the close of trading, and the broker agreed.

    The CFTC order doesn't mention USO, which wasn't immediately reached for comment.

    Write to Jenny Strasburg at jenny.strasburg@wsj.com, Carolyn Cui at carolyn.cui@wsj.com and Brian Baskin at brian.baskin@dowjones.com


    Moore Capital Management is not the first time in the headlines...
  2. Pia Capital Management launches with $300m

    Following HFMWeek’s exclusive report that Christopher Pia, formerly of Moore Capital Management departed Louis Bacon’s firm to set up Pia Capital Management, the portfolio launched today with approximately $300m.

    The offering, called the Pia Macro Fund, has commitments from US and European investors.

    At Moore Capital Management, Pia, one of Bacon’s top two executives, was a senior portfolio manager. He has filled his team with veterans of Tudor Investment Corp. including Joseph Niciforo and Nancy Skiest Andrews as well as Charlie Gilroy from Paloma Partners.


    It's so easy to find new investors as a market manipulator...
  3. seems that all this does is provide free advertising for his new fund. ....

    Id like to know how much was made from the manipulation though......
  4. Sorry - as a newbie, could anybody please explain to me what they did exactly?

    1. "Bang the close"?
    2. "not report the block trade until after the close of trading, "

    What's wrong?

    Thanks a lot!