Release Number 8359-21

CFTC Charges Swaps Trader with Manipulation, Attempted Manipulation, and Making False Statements

February 01, 2021

— The Commodity Futures Trading Commission today filed a civil enforcement action in the U.S. District Court for the Southern District of New York against John Patrick Gorman III, a swaps trader at a global investment bank, charging him with engaging in a scheme to deceive and to manipulate the price of an interest rate swap between a bond issuer and the bank. Additionally, Gorman is charged with making materially false statements to the CFTC in the course of the investigation.

“Manipulative and deceptive conduct on swap execution facilities and in the swaps markets harms their integrity and market participants, and we will take action to hold those who commit this type of misconduct accountable,” said Acting Director of Enforcement Vincent McGonagle. “Further, the Commission will seek to hold accountable individuals who make false statements in our investigations.”

Case Background

The complaint alleges that on February 3, 2015, a bond issuer was pricing bonds and a related swap with the bank using a specific screen displaying prices from a swap execution facility (SEF), including the price for U.S. dollar interest rate swap spreads with a 10-year maturity (10-year swap spreads). Gorman, who was located in Japan at the time, knew that the swap would be more profitable to the bank, at the expense of the issuer, if the screen reflected a lower price for 10-year swap spreads. Gorman therefore traded to manipulate the price of 10-year swap spreads by selling 10-year swap spreads to move the price down on the screen during the pricing of the bond and swap. Although he spoke to the issuer during the pricing call about the price, Gorman did not disclose that he was himself trading to move the price of 10-year swap spreads down.

In addition, the complaint alleges that Gorman expressed his manipulative intent in text messages he sent from his personal phone before, during, and after the pricing. For example, Gorman texted a colleague that he traded through a SEF broker in the United States—which he usually did not do—because Gorman “only care[d] who can move the screen the quickest.” Gorman, who was aware that market prices were rising before the pricing, also told his supervisor in text messages that he would “get the print at” (i.e., move the screen to) a lower level.      

The complaint also alleges that Gorman later tried to cover up his misconduct. In its investigation, the Division of Enforcement asked Gorman to preserve certain messages on his personal phone. According to the complaint, after receiving the request, Gorman deleted messages that were covered by the request, including messages on WhatsApp, and then falsely told the CFTC, both in a letter from his counsel and in investigative testimony under oath, that he had complied. 

In its continuing civil litigation, the CFTC seeks, among other relief, civil monetary penalties, disgorgement, restitution, trading bans, and a permanent injunction against future violations of the federal commodities laws, as charged.

The CFTC thanks and acknowledges the assistance of the United Kingdom Financial Conduct Authority.

The Division of Enforcement staff responsible for this case are Gabriella Geanuleas, Devin Cain, James Wheaton, Trevor Kokal, Candice Aloisi, Stephen Painter, Jr., Lenel Hickson, Jr., and Manal M. Sultan. Staff members Yusuf Capar, Alejandra de Urioste, Jennifer Diamond, Gates Hurand, Mary Lutz, Jack Murphy, and Elizabeth Padgett also provided assistance with this matter.