From the May 01, 2009 issue of Futures Magazine • Subscribe!

Traders face serious jail time

Two Chicago Board of Trade floor traders were indicted in April on Federal fraud charges for allegedly engaging in noncompetitive trades that resulted in profits exceeding $2 million while depriving customers of one of the traders the opportunities to profit themselves.

The indictment charges Edward C. Sarvey and David G. Sklena, two traders in the CBOT five-year Treasury note futures pit, each with six counts of wire fraud, one count of commodities fraud and two counts of noncompetitive trading in violation of the Commodities Exchange Act (CEA). Sarvey faces two additional charges of noncompetitive trading. Sarvey and Sklena could face up to 20 years for each of the wire fraud charges and five years for CEA violations. The indictment also seeks forfeiture of $2.1 million from both defendants.

The two traders already were facing charges of fraud and “indirectly bucketing” customer orders in a civil action initiated by the CFTC last year based on the same events.

The case stems from activity on April 2, 2004, following the release of the Bureau of Labor Statistics employment situation report for March of that year and involves trades executed in a period of approximately seven minutes during fast market conditions following the release of that report.

Both traders were fined and suspended by the CBOT following an internal investigation in March 2007 and had returned to trading prior to the CFTC action. A CBOT hearing committee concluded that both traders participated in noncompetitive executions, traded contracts as an accommodation and engaged in inequitable proceedings and acts detrimental to the interests of the exchange. The committee also found that Sarvey traded ahead of executable customers’ orders and indirectly traded opposite customer orders. Sarvey was fined $175,000 and suspended for 60 days; Sklena was fined $125,000 and suspended for 75 days.

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