After widespread spoofing was uncovered by an employee at 3 Red Trading, the Chief Executive Officer engaged in cutthroat whistleblower retaliation.
That is the allegation made in a recently discovered Motion to Dismiss in lawsuit between 3 Red Group and its CEO Igor Oystacher against Edwin Johnson, the company’s former Chief Risk Officer.
“Beginning in and around early September 2011, Johnson acted as the Chief Risk Officer and was the managing member in control of day-to-day of the business 3 Red. In this executive position he was 10% owner and Johnson had the authority to stop any trading activity which he determined was improper. In June 2013, Johnson confronted Plaintiff (Oystacher) concerning his illegal ‘spoofing’ commodities trading, and Johnson demanded that Plaintiff either stop his improper ‘spoofing’ or cease trading altogether.” The motion to dismiss written by Chicago attorney Jonathan Herpy stated. “Shortly thereafter, on June 17, 2013, in retaliation for Johnson confronting him, Plaintiff without proper authority, involuntarily and unlawfully terminated Johnson from his position at 3Red and refused to pay Johnson the value of his 10% ownership interest in 3Red or cause 3Red to make any severance payment to Johnson. Rather Plaintiff by way of confidential settlement agreement on August 15, 2013, sought to silence Johnson from speaking to regulatory authorities and government agencies. Knowing Johnson did not have the financial means after losing his position at 3Red to challenge plaintiff in legal proceedings, Plaintiff refused to pay Johnson for the value of his ownership interest in 3Red or cause 3Red to make severance payment to Johnson.”
Herpy did not respond to a voicemail for comment at his office, but the motion goes on to explain that after making Johnson financially vulnerable by firing him, Oystacher coerced Johnson into signing a “settlement agreement” which then gave Johnson some money- though a fraction of what he was owed. This settlement agreement was onerous, forbidding Johnson from speaking to the media, regulators, and police about what he saw there; violating the agreement meant losing the money he was given.
Furthermore, there was a gag order and many of the files were sealed.
“The settlement agreement ensured that Johnson would not speak to regulators. Furthermore, the settlement agreement ensured that Johnson would remain financially dependent on 3Red for the near future.” Herpy’s motion further stated.
3Red Trading, which has offices in Chicago and New York, has become a player in the trading world, specifically an industry source said they account for 20-50% of all trading at the CME on an average day.
3Red trading and Oystacher were fined $2.5 million at the end of December 2016, for the spoofing scheme which Johnson had discovered and lost his job over.
“The U.S. Commodity Futures Trading Commission (CFTC) today announced that Judge Amy J. St. Eve of the U.S. District Court for the Northern District of Illinois entered a Consent Order of Permanent Injunction (Order) against Defendants Igor B. Oystacher and his proprietary trading company, 3Red Trading LLC (3Red), both of Chicago, Illinois, finding that the Defendants engaged in a manipulative and deceptive spoofing scheme while trading at least five different futures contracts on four exchanges for more than two years, which violated certain provisions of the Commodity Exchange Act (CEA) and CFTC Regulations adopted pursuant to the CFTC’s anti-spoofing and expanded anti-fraud and anti-manipulation authority under the Dodd-Frank Act.” The CFTC stated in a December 20, 2016 press release.
As the Industry Spread exclusively reported, the company was recently cited again in a separate spoofing scheme.
The presence of a campaign of whistle-blower retaliation to cover-up the scheme.
Michael McCray is an attorney, whistle-blower, and whistle-blower advocate. In the 1990s, blew the whistle on $40 million worth of waste, fraud, and abuse in a United States Department of Agriculture (USDA) empowerment zone and like Johnson was subsequently terminated, and even black balled from all federal employment.
He reviewed the lawsuit and said much of it is like the retaliation he sees done to whistle-blowers in all occupations.
He said he was especially concerned about the gag order, saying that he sees gag orders quite a lot imposed on whistle-blowers.
He said that the issuance of the gag order makes the settlement agreement unenforceable in his opinion because it was “against public policy.”
McCray said that there is a part of US contract law which forbids private parties from entering into agreements which are against the public good; this is what is meant as a contract being against public policy.
Indeed, Herpy also argued that the settlement agreement was against public policy: “The Settlement Agreement is plainly unenforceable because it is against public policy. In it’s Verified Complaint, Plaintiffs blatantly fail to mention any provisions of the Settlement Agreement, which siphon Johnson from speaking to regulators or government officials. The Settlement Agreement was specifically designed to prevent Johnson from disclosing to regulators Johnson’s knowledge concerning Plaintiff’s illegal trading activity. Settlement agreements designed to prevent an individual from speaking to regulatory authorities or exposing illegal activity, are unenforceable as a matter of public policy.”
McCray noted that Dodd/Frank was supposed to provide extra layers of protections for whistle-blowers in exactly the situation Johnson found himself in, a point also noted by Herpy: “The Settlement Agreement at issue in this matter is highly controversial for a number of reasons, partially because it is in direct violation of the Dodd/Frank Wall Street Reform and Consumer Protection Act.”
It’s noteworthy that this motion is in a case where Oystacher is suing Johnson. Initially, Johnson filed suit against Oystacher and during that lawsuit, according to Herpy’s motion, his then attorneys accidentally released documents which were deemed sealed, causing this lawsuit.
A voicemail left with 3Red Trading was unreturned. Oystacher is represented in the lawsuit by the Chicago law firm Fox, Swibel, Levin and Carroll, and a message left at their office was also left unreturned.
