TFS-ICAP senior managers respond to CFTC allegations

Maria Nikolova

Ian Dibb and Jeremy Woolfenden argue that the CFTC fails to allege that the practice called “flying’” violates the CEA.

Several months after TFS-ICAP LLC and TFS-ICAP Ltd. opposed the Commodity Futures Trading Commission (CFTC) allegations of fraud and supervision failures, Jeremy Woolfenden and Ian Dibb who are also defendants in this case, sought to respond to the CFTC claims.

Jeremy Woolfenden was the Global Head of Emerging Markets broking at TFS-ICAP, whereas Ian Dibb was the CEO of TFS-ICAP from approximately 2011 to 2017.

Mr Woolfenden and Mr Dibb have earlier this week submitted Letters which seek to highlight alleged deficiencies in the CFTC complaint in this case.

Jeremy Woolfenden, who is a United Kingdom citizen, argues that the CFTC claims against him have to be dismissed as he has never lived in the United States and never engaged in any alleged conduct in New York. The CFTC also fails to allege sufficient “minimum contacts” of Mr Woolfenden with the forum to satisfy the due process requirements, he says.

Both Mr Woolfenden and Mr Dibb argue that the practice called “flying” does not violate the Commodity Exchange Act.

According to the Complaint, “flying” is when a broker posts a bid or offer that is not backed by a specific trading institution. The Complaint alleges that this practice is fraudulent because the Volbroker User Agreement and User Guide indicate that bids and offers posted by brokers are binding bids and offers backed by trading institutions. These documents say no such thing.

The defendants insist that “flown” levels posted by brokers were merely good faith estimates of where the market would likely trade – a permissible and non-fraudulent practice – as opposed to a false factual representation that a specific institution was making an offer at a specific level. Therefore, according to Mr Woolfenden and Mr Dibb, the CFTC cannot allege that these levels were fraudulent.

Additionally, as detailed in TFS’s letter, the Complaint fails to allege materiality. Contrary to the CFTC’s assertions in response to TFS’s letter, there is nothing in the Complaint that “gives rise to a strong inference of materiality,” and, even if there were, that is neither a particular allegation nor the relevant legal standard. Rather, to survive a motion to dismiss, the CFTC must show that a “there is a substantial likelihood that a reasonable investor would consider the alleged misstatements important in making an investment decision.”

Mr Dibb notes that, although the Complaint refers to the incorporation of certain bids and trades into proprietary trading models, the Complaint is silent on whether flown prices and printed trades were actually important to investor decisions.

Let’s recall that the CFTC downplayed the arguments raised by TFS-ICAP LLC and TFS-ICAP Ltd. and insisted no amendment to its complaint is necessary. It remains to be seen what the CFTC’s reaction to Dibb’s and Woolfenden’s argumentation would be.

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