The U.S. Court of Appeals for the Seventh Circuit reversed futures trader David Sklena’s fraud conviction Thursday, citing an earlier court’s decision to exclude relevant testimony from Sklena’s alleged co-conspirator.
The case dates back to April 2, 2004, when Sklena and broker Edward Sarvey were trading Five-Year Treasury notes on the floor of the Chicago Board of Trade. That morning, the U.S. Bureau of Labor Statistics released its monthly employment report, causing the Treasury futures markets to drop sharply triggering Sarvey to execute stop orders totaling 2,474 contracts for his customers. Sarvey allegedly sold these contracts to Sklena at a price significantly below market value as the market was rebounding from previous lows, and then immediately repurchased 485 contracts, also at low prices.
In 2008, the Commodity Futures Trading Commission (CFTC) filed a civil complaint against the duo, claiming that their noncompetitive trades had defrauded customers of more than $2 million. Sarvey died before trial, but Sklena was ultimately convicted of wire fraud, commodities fraud and noncompetitive trading, and sentenced to five years in prison.
In February 2012 the CFTC obtained a Federal court ruling ordering Sklena to pay more than $6.6 million in the case, and barring Sklena from “engaging in any commodity-related activity, including trading, and from registering or seeking exemption from registration with the CFTC.”
At the time Sklena was being held in Federal prison.
On Thursday, however, the 7th Circuit overturned the trader’s conviction and remanded his case for further proceedings. Sklena had appealed his conviction on two grounds, arguing that the government had insufficient evidence to support its charges against him, and that the district court erred in excluding Sarvey’s deposition as inadmissible hearsay.
In its opinion, the court found that the government’s evidence was sufficient to support Sklena’s conviction. But it agreed that Sarvey’s testimony was inappropriately excluded from the initial trial, ruling that the deposition “provides additional insight into Sarvey’s and Sklena’s private conversation on the trading floor—the conversation…that the government portrays as the basis for the Sarvey-Sklena conspiracy to engage in noncompetitive trades.”
A spokesman for the U.S. Attorney’s Office for the Northern District of Illinois, where the case was originally tried, said the office had “no immediate comment but would review [the decision] and consider our options.”