MEMORANDUM OPINION AND ORDER
AMY J. ST. EVE, United States District Court Judge
Defendants Igor Oystacher and 3Red Trading, LLC (collectively, "Defendants")
The CFTC asserts that from December 2011 through at least February 2016, Defendants "intentionally and repeatedly engaged in a manipulative and deceptive spoofing scheme while placing orders for and trading futures contracts on multiple registered entities." (R. 1, Complaint, at ¶ 2.) Specifically, the CFTC alleges that Defendants' "scheme created the appearance of false market depth that Defendants exploited to benefit their own interests, while harming other...participants" across a number of markets in violation of Sections 4c(a)(5)(C) and 6(c)(1) of the Commodities Exchange Act (the "CEA"), 7 U.S.C. §§ 6c(a)(5)(C) & 9(1) (2012) (the "Spoofing Statute"), and CFTC Regulation 180.1, 17 C.F.R. § 180.1 (2014). (Id. at ¶¶ 2, 6.)
In 2010, Section 747 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, Pub. L. No. 111-203, 124 Stat. 1376 (2010) amended Section 4c(a)(5)(C) of the CEA, entitled "Disruptive Practices," to add the Spoofing Statute. The Spoofing Statute provides, in relevant part, as follows:
7 U.S.C. § 6c(a)(5)(C).
Additionally, on July 14, 2011, the CFTC adopted CFTC Regulation 180.1(a)(1) pursuant to the CFTC's expanded anti-fraud and anti-manipulation authority under Section 753 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, Pub. L. No. 111-203, 124 Stat. 1376 (2010). CFTC Regulation 180.1(a)(1) provides, in relevant part, as follows:
17 C.F.R. § 180.1(a)(1); see also CFTC v. Kraft Foods Grp., Inc., 153 F.Supp.3d 996, 1007 (N.D.Ill.2015) ("In publishing Regulation 180.1, the CFTC explained that `Final Rule 180.1 prohibits fraud and fraud-based manipulations.'") (citing Final Rule, 76 Fed. Reg. at 41,400; 17 C.F.R. § 180.1).
On November 9, 2016, the CFTC moved for a preliminary injunction, prohibiting Defendants from trading in the Copper, Crude Oil, Natural Gas, S&P 500 E-mini ("ES"), Volatility Index ("VIX"), and Ten Year T-note Treasury Futures ("ZN") markets. (R. 20, 72.) The Court, thereafter, held a lengthy preliminary injunction hearing. On July 12, 2016, the Court denied the CFTC's motion for preliminary injunction,
Defendants now move for a judgment on the pleadings pursuant to Federal Rule of Civil Procedure 12(c). Defendants essentially assert three arguments: 1) the Spoofing Statute is unconstitutionally vague, 2) CFTC Regulation 180.1 is unconstitutionally vague, and 3) the Spoofing Statute constitutes an unconstitutional delegation by Congress. The Court disagrees with all three.
Under Federal Rule of Civil Procedure 12(c), a party may move for judgment on the pleadings after the pleadings are closed but early enough not to delay trial. See Fed. R. Civ. P. 12(c). "A motion for judgment on the pleadings under Federal Rule of Civil Procedure 12(c) `is designed to provide a means of disposing of cases when the material facts are not in dispute and a judgment on the merits can be achieved by focusing on the content of the pleadings and any facts of which the court may take judicial notice.'" Archer Daniels Midland Co. v. Burlington Ins. Grp., 785 F.Supp.2d 722, 726 (N.D.Ill.2011) (quoting Cincinnati Ins. Co. v. Contemporary Distrib., Inc., No. 09-CV-2250, 2010 WL 338943, at *2 (N.D.Ill. Jan. 26, 2010)).
"A motion for judgment on the pleadings under rule 12(c) of the Federal Rules of Civil Procedure is governed by the same standards as a motion to dismiss for failure to state a claim under Rule 12(b)(6)." BBL, Inc. v. City of Angola, 809 F.3d 317, 325 (7th Cir.2015) (quoting Adams v. City of Indianapolis, 742 F.3d 720, 727-28 (7th Cir.2014)). As such, "the question at this stage is simply whether the complaint includes factual allegations that state a plausible claim for relief." Id. (citing Fortres Grand Corp. v. Warner Bros. Entm't. Inc., 763 F.3d 696, 700 (7th Cir.2014)) (applying Rule 12(b)(6)). "A plaintiff's `[f]actual allegations must be enough to raise a right to relief above the speculative level.'" Yeadon Fabric Domes, LLC v. Roberts Environmental Control Corp., No. 15 CV 6679, 2016 WL 3940098, *1 (N.D.Ill. July 21, 2016) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). Put differently, "a `complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.'" Id. (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009)) (citation and quotation marks omitted). "All reasonable inferences are drawn in favor of the non-movant." Id. (citing Lodholtz v. York Risk Servs. Grp., Inc., 778 F.3d 635, 639 (7th Cir.2015)). Ultimately, a court will grant a motion for judgment on the pleadings only if "no genuine issues of material fact remain to be resolved and...the [moving party] is entitled to judgment as a matter of law." Alexander v. City of Chicago, 994 F.2d 333, 336 (7th Cir.2012); see also Hartford Fire Ins. Co. v. Thermos LLC, 146 F.Supp.3d 1005, 1012 (N.D.Ill.2015) (citing Alexander, 994 F.2d at 336).
Defendants move for a judgment on the pleadings pursuant to Federal Rule of Civil Procedure 12(c). Defendants claims that 1) the Spoofing Statute is unconstitutionally vague, 2) CFTC Regulation 180.1 is unconstitutionally vague, and 3) the Spoofing Statute constitutes an unconstitutional delegation by Congress. The Court addresses each in turn.
I. The Spoofing Statute is Not Unconstitutionally Vague
Defendants first claim that "the Spoofing Statute is unconstitutionally vague, and the CFTC's claims fail as a matter of law." (R. 164-1 at 22.) Specifically, Defendants
"A fundamental principle in our legal system is that laws which regulate persons or entities must give fair notice of conduct that is forbidden or required." United States v. Brown, No. 14 CR 674, 2015 WL 6152224, at *3 (N.D.Ill. Oct. 19, 2015) (citing F.C.C. v. Fox Television Stations, Inc., 567 U.S. 239, 132 S.Ct. 2307, 2317, 183 L.Ed.2d 234 (2012)). "A statute is unconstitutionally vague if it `fails to give ordinary people fair notice of the conduct it punishes, or [is] so standardless that it invites arbitrary enforcement.'" United States v. Morris, 821 F.3d 877, 879 (7th Cir.2016) (quoting Johnson v. United States, ___ U.S. ___, 135 S.Ct. 2551, 2556, 192 L.Ed.2d 569 (2015)). In other words, "[a] challenge to a statute's vagueness `rest[s] on the lack of notice, and hence may be overcome in any specific case where reasonable persons would know that their conduct is at risk.'" United States v. Lim, 444 F.3d 910, 915 (7th Cir.2006) (citing Maynard v. Cartwright, 486 U.S. 356, 361, 108 S.Ct. 1853, 100 L.Ed.2d 372 (1988)). Under the Constitution, Congress is not permitted to "set a net large enough to catch all possible offenders, and leave it to the courts to step inside and say who could be rightfully detained, and should be set at large." City of Chicago v. Morales, 527 U.S. 41, 60, 119 S.Ct. 1849, 144 L.Ed.2d 67 (1999) (citing United States v. Reese, 92 U.S. 214, 221, 23 S.Ct. 563 (1875)). "[F]ew words," however, "possess the precision of mathematical symbols[.]" Boyce Motor Lines v. United States, 342 U.S. 337, 340, 72 S.Ct. 329, 96 S.Ct. 367 (1952) (citing Nash v. United States, 229 U.S. 373, 377, 33 S.Ct. 780, 781, 57 S.Ct. 1232 (1913)); see also Lim, 444 F.3d at 915 (citing Boyce Motor Lines, 342 U.S. at 340, 72 S.Ct. 329). Rather, "most statutes must deal with untold and unforeseen variations in factual situations, and the practical necessities of discharging the business of government inevitably limit the specificity with which legislators can spell out prohibitions. Consequently, no more than a reasonable degree of certainty can be demanded." Id. (citations omitted). Indeed, "the fact that Congress could have employed `[c]learer and more precise language' equally capable of achieving the end which it sought does not mean that the statute which it in fact drafted' was unconstitutionally vague." Lim, 444 F.3d at 916 (quoting United States v. Powell, 423 U.S. 87, 93, 96 S.Ct. 316, 320, 46 L.Ed.2d 228 (1975)). Ultimately, courts must, if possible, "construe, not condemn, Congress' enactments." Skilling v. United States, 561 U.S. 358, 403, 130 S.Ct. 2896, 177 L.Ed.2d 619 (2010) (citing Civil Serv. Comm'n v. Letter Carriers, 413 U.S. 548, 571, 93 S.Ct. 2880, 37 L.Ed.2d 796 (1973); United States v. Nat'l Dairy Prods., Corp., 372 U.S. 29, 32, 83 S.Ct. 594, 9 L.Ed.2d 561 (1963)).
"The degree of vagueness that the Constitution tolerates...depends in part on the nature of the enactment." Independents Gas & Serv. Stations Ass'ns, Inc. v. City of Chicago, 112 F.Supp.3d 749, 754 (N.D.Ill.2015) (quoting Karlin v. Foust, 188 F.3d 446, 458 (7th Cir.1999)). Importantly, "[v]agueness challenges to statutes that do not involve First Amendment interests are examined in light of the facts of the case at hand." Id. (citing Maynard, 486 U.S. at 361, 108 S.Ct. 1853); see
Hoffman Estates, 455 U.S. at 498, 102 S.Ct. 1186 (footnotes and citations omitted); see also Record Head v. Sachen, 682 F.2d 672, 676 (7th Cir.1982) (economic regulation is "directed at people who are assumed to have some expertise and some ability to demand clarification"). Also, vague terms of an economic regulation "may be given content through proper application." Brockert, 711 F.2d at 1381 (citation omitted).
The CFTC has charged Defendants with violating the Spoofing Statute, Sections 4c(a)(5)(C) and 6(c)(1) of the CEA, 7 U.S.C. §§ 6c(a)(5)(C) & 9(1) (2012). As noted earlier, the Spoofing Statute provides, in relevant part, as follows:
7 U.S.C. § 6c(a)(5)(C). As Defendants' vagueness challenges do not involve Defendant Oystacher's First Amendment interests, the Court must assess them in light of the facts at hand. The Court now turns to the Complaint's factual allegations which the Court must accept as true. See Yeadon Fabric Domes, 2016 WL 3940098, at *1 (citing Iqbal, 556 U.S. at 678, 129 S.Ct. 1937).
The Complaint explicitly alleges that Defendant Oystacher placed both bids and offers with the intent to cancel those bids or offers before execution. (R. 1 at ¶ 87 ("Defendants' pattern of placing visible passive (spoof) order(s) for a large number of contracts, at or near the best bid or offer price, then simultaneously canceling them and flipping to aggressively take the other side of the market at the same or better price demonstrates their intent, at the time they placed them, to cancel these spoof orders prior to execution.").) Moreover, the CFTC illustrates this unlawful intent by detailing Defendant Oystacher's manipulative trading patterns. (Id. at ¶ 54 (alleging that Defendant Oystacher "engaged in a...pattern of spoofing conduct across all relevant markets during the relevant period.").) As explained at length in the Court's July 12, 2016 Opinion,
(Id.) These systematic trading actions, the CFTC alleges, "created a strong (but false) signal regarding interest on one side of the market. These large spoof orders deceptively encouraged other market participants (and their algos programmed to react to changes in book pressure) to enter orders on the same side of the market as the spoof orders." (Id. at ¶ 59.) Defendant Oystacher would subsequently "trade against" market participants that were drawn to the artificial market depth. (Id. at ¶ 54.) In addition, the CFTC includes market data highlighting parts of Defendant Oystacher's trading pattern in support of its allegation that he entered bids or offers with the intent to cancel those bids or offers before execution. Specifically, the data illustrates, in part, Defendant Oystacher's "manipulative and deceptive `flips,'" cancellation speeds, iceberg order usage, and fill and cancellation rates, and market reactions to Defendant's trading as measured by the average increase of contracts participants entered. (Id. at ¶ 55; Id. at ¶ 58; Id. at 65; Id. at 70; Id. at 89.) Finally, the CFTC highlights examples of Defendant Oystacher's orders that it claims constitute spoofing. (Id. at ¶ 71, ¶ 79.) Ultimately, the CFTC concludes, Defendant Oystacher's repeated trading pattern, the market depth deception, and resulting profit-motive, considered in the aggregate, all evidence his intent to cancel orders before execution, in violation of the Spoofing Statute.
Considering the CFTC's allegations as true, Defendant Oystacher's trading behavior falls within the Spoofing Statute's defined prohibition. The Spoofing Statute forbids and parenthetically defines spoofing as "bidding or offering with the intent to cancel the bid or offer before execution." 7 U.S.C. § 6c(a)(5)(C). The CFTC, through Defendant Oystacher's aggregate trading patterns, alleges a plausible claim that he did exactly that. Thus, Defendant Oystacher's trading behavior "track[ed] the language of the statute, and constitutes `spoofing' as the statute defines that term." United States v. Coscia, 100 F.Supp.3d 653, 658 (N.D.Ill.2015) (quoting
Coscia, 100 F.Supp.3d at 659. Here, the CFTC's allegations make it clear that Defendant Oystacher's trading patterns relied on bidding or offering with the unlawful intent to cancel those bids or offers before execution. In light of the Spoofing Statute's parenthetical definition and scienter requirement, the statute provided reasonable notice to Defendant Oystacher that this trading conduct was prohibited. See Boyce Motor Lines, 342 U.S. at 340, 72 S.Ct. 329 ("Nor is it unfair to require that one who deliberately goes perilously close to an area of proscribed conduct shall take risk that he may cross the line.") (citing Nash, 229 U.S. at 377, 33 S.Ct. 780); see also Morris, 821 F.3d at 879 (citing Johnson, 135 S.Ct. at 2556); Lim, 444 F.3d at 915 (citing Maynard, 486 U.S. at 361, 108 S.Ct. 1853). Thus, the Spoofing Statute, as applied to Defendant Oystacher, is not unconstitutionally vague.
Defendants' arguments to the contrary are unavailing. Defendants first argue that the "CFTC's claims do not fit squarely within the [Spoofing Statute] parenthetical[.]" (R. 164-1 at 22.) Specifically, Defendants contend that "[t]he CFTC has not, and cannot, allege any direct evidence of any `intent to cancel.' And merely alleging that Mr. Oystacher had the intent to cancel before execution, without supporting facts is insufficient to push the CFTC's claims into the realm of plausibility." (R. 164-1 at 22-23 (citations omitted).) "As they stand," Defendants conclude, "the allegations about Mr. Oystacher's intent are conclusory." (Id. at 23.) This assertion is patently false. The Complaint, as detailed above, presents a plethora of circumstantial evidence alleging Defendant Oystacher's unlawful "intent to cancel." "Circumstantial evidence of intent is just as probative as direct evidence." United States v. Cunningham, 54 F.3d 295, 299 (7th Cir.1995) (citing United States v. DeCorte, 851 F.2d 948, 954 (7th Cir.1988)). CFTC v. Kraft Foods Grp., Inc. is instructive. There, the court held that
Kraft Foods Grp., Inc., 153 F.Supp.3d at 1020-21 (N.D.Ill.2015) (emphasis added); see also Fidlar Techs. v. LPS Real Estate Data Sols., Inc., 810 F.3d 1075, 1079 (7th Cir.2016) ("[I]ntent to defraud means that the defendant acted willfully and with specific intent to deceive or cheat, usually for the purpose of getting financial gain for himself or causing financial loss to another. Because direct evidence of intent is often unavailable, intent to defraud `may be established by circumstantial evidence and by inferences drawn from examining the scheme itself which demonstrate that the scheme was reasonably calculated to deceive persons of ordinary prudence and comprehension.'") (quoting United States v. Pust, 798 F.3d 597, 600 (7th Cir.2015)) (emphasis added). It bears repeating that, at this stage, the Complaint must simply "contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.'" Yeadon Fabric Domes, 2016 WL 3940098, *1 (quoting Iqbal, 556 U.S. at 678, 129 S.Ct. 1937) (citation and quotation marks omitted); see also Lodholtz, 778 F.3d at 639. It does not have to allege all of the CFTC's evidence regarding intent. Here, the Complaint presents a detailed description of Defendant Oystacher's trading patterns, relevant market data, and examples of his trading it alleges constitute spoofing. Considering these alleged facts in the aggregate and drawing all reasonable inferences in favor of the CFTC, the Complaint properly alleges that Defendant Oystacher traded with an unlawful "intent to cancel."
Defendants next argue that "[t]here is...a dearth of plausible allegations to suggest that Mr. Oystacher's alleged cancelations were the result of a preconceived intent to cancel as opposed to a lawful reason." (R. 164-1 at 23.) Specifically, Defendants contend that "there is not a single allegation concerning how Mr. Oystacher would profit from this purported scheme." (Id.) This is also markedly incorrect. As detailed earlier, the Complaint alleges, in part, that Defendant Oystacher "us[ed] the `avoid orders that cross' functionality to place `flip' order(s) as aggressive order(s) which would simultaneously (within 5 milliseconds) cancel any opposite order(s) at the same or better price. The aggressive flip order(s), except in one instance, then traded against market participants that had joined the `spoof orders' before those market participants could assess and react to the updated market information." (R. 1 at ¶ 54 (emphasis added).) Defendant Oystacher's trading scheme, the CFTC adds, "created the appearance of false market depth that Defendants exploited to benefit their own interests, while harming other market participants." (Id. at ¶ 2.) Indeed, the Complaint explicitly spells out how Defendant Oystacher would profit from this trading conduct on numerous occasions. (Id. at ¶ 3 ("This strategy allowed Defendants to buy or sell futures contracts in quantities and/or at price levels that would not have otherwise been available to them in the market, absent the spoofing conduct.").); (Id. at ¶ 67 ("Oystacher
Defendants' argument that there is not "a single allegation about the market conditions... at the times Mr. Oystacher cancelled his orders and flipped" meets the same fate. (R. 164-1 at 23.) Indeed, the Complaint alleges that "Defendants did not merely change their mind as to the direction of the market so quickly, so often, and with such precision, but rather intended to cancel these orders at the time they were placed." (Id. at ¶ 88.) In other words, Defendant Oystacher's predictable speed, volume, and precision exhibited in his alleged unlawful trading patterns illustrate that he was not reacting to unexpected market conditions.
Finally, Defendants claim that "the CFTC has concluded...based solely on fast cancellations of large orders, that 3 Red placed orders with the intent to cancel them prior to execution." (R. 192 at 8 (emphasis in original).) The Complaint, however, is riddled with allegations to the contrary. As explained earlier, the CFTC, through factual allegations, data, and examples, repeatedly portrays, in part, Defendant Oystacher's alleged pattern of passive spoof order placement at or near the best bid or offer price shielded by existing orders, flips, aggressive order placement, "avoid orders that cross" tool usage, iceberg order usage, large order size, and cancellation speed. See, generally, (R. 1.) Considering this trading behavior in the aggregate, it is clear that the CFTC relies on much more than "solely...fast cancellations of large orders." (R. 192 at 9 (alteration to original).) Likewise, Defendants' notion that none of this trading behavior is "prohibited by the Spoofing Statute" is ineffective. (Id.) "Few words, possess the precision of mathematical symbols[.]" Boyce Motor Lines, 342 U.S. at 340, 72 S.Ct. 329. Indeed, "[g]reater leeway in definition is allowed the legislature in the context of regulatory statutes governing business activities." Miner v. Gov't Payment Serv., Inc., No. 14-cv-7474, 2015 WL 3528243, at *9 (N.D.Ill. June 4, 2015) (stressing the "`futility of attempting to anticipate and enumerate all the (unfair) methods' and practices that fertile minds might devise.") (quoting Fitzgerald v. Chicago Title & Trust Co., 72 Ill.2d 179, 20 Ill.Dec. 581, 380 N.E.2d 790 (1978)); see also Mannix v. Phillips, 619 F.3d 187, 197 (2d Cir.2010) (Stating that laws "`need not achieve meticulous specificity, which would come at the cost of flexibility and reasonable breadth.'") (quoting Dickerson v. Napolitano, 604 F.3d 732, 747 (2d Cir.2010)). As such, the statute is not required to exhaustively list trade behaviors that it prohibits. Instead, the Spoofing Statute outlaws a particular intent, namely, placing orders with the intent to cancel them before execution. See Calimlim, 538 F.3d at 711 ("The presence of a scienter element to the offense makes the [Defendants' vagueness] burden very difficult to carry.") (citing Screws v. United States, 325 U.S. 91, 65 S.Ct. 1031, 89 L.Ed.2d 1495 (1945) (rejecting vagueness challenge to what is now 18 U.S.C. § 242, in part, due to its scienter requirement)). The Complaint
Defendants also maintain that "[t]he parenthetical description in the statute (i.e., `bidding or offering with the intent to cancel before execution') does not cure the vagueness of the text." (R. 164-1 at 25 (footnote omitted).) Defendants claim that "[i]t is hardly clear that this description defines spoofing." (R. 164-1 at 26.) "In fact," they conclude, "the description more likely offers an example of what may sometimes constitute `spoofing.'" (Id.) To illustrate this point, Defendants highlight various order-types they allege inherently involve an intent to cancel before execution, but do not violate the Spoofing Statute. Specifically, Defendants point to "stop-loss orders[,]...partial fill orders[,]... fill-or-kill orders[,]...orders placed for price discovery, and orders placed to test system parameters." (Id.) The Complaint, however, does not allege that Defendant Oystacher placed any of these order-types. Rather, it alleges that he entered bids and offers with the intent to cancel those bids and offers before execution in violation of the Spoofing Statute. "Because First Amendment rights are not at stake, the Court must assess whether the statute is unconstitutional as applied to [Defendant's] conduct, not to the conduct of the `hypothetical legitimate traders' who voiced concerns about the statute's applicability to practices such as partial-fill and stop-loss orders[.]" Coscia, 100 F.Supp.3d at 658 (citing United States v. Mazurie, 419 U.S. 544, 550, 95 S.Ct. 710, 42 L.Ed.2d 706 (1975)). Indeed, "[a party] who engages in some conduct that is clearly proscribed cannot complain of the vagueness of the law as applied to the conduct of others." Id. (quoting Hoffman Estates, 455 U.S. at 495, 102 S.Ct. 1186). Defendants' as-applied vagueness challenge is limited to Defendant Oystacher's alleged trading conduct, rendering Defendants' reference to other order-types irrelevant. See Borzych v. Frank, 439 F.3d 388, 392 (7th Cir.2006) ("It would be no more than an advisory opinion to attempt to resolve now all questions that could arise under the regulation.") (citing Ayotte v. Planned Parenthood, 546 U.S. 320, 126 S.Ct. 961, 967-68, 163 L.Ed.2d 812 (2006)). Moreover, Defendants' reliance on various First Amendment cases involving facial challenges is misplaced. See City of Chicago v. Morales, 527 U.S. 41, 119 S.Ct. 1849, 144 L.Ed.2d 67 (1999); Smith v. Goguen, 415 U.S. 566, 94 S.Ct. 1242, 39 L.Ed.2d 605 (1974); Grayned v. City of Rockford, 408 U.S. 104, 92 S.Ct. 2294, 33 L.Ed.2d 222 (1972); Ashton v. Kentucky, 384 U.S. 195, 86 S.Ct. 1407, 16 L.Ed.2d 469 (1966). As noted, this is not a First Amendment issue, and the Court must consider Defendants' vagueness challenge in light of the facts at hand. Doing so makes clear that Defendant Oystacher's alleged trading violated the parenthetically proscribed conduct.
Further, order-types such as stop-loss orders, partial fill, or fill-or-kill orders do not inherently require entering them with the intent to cancel before execution as prohibited by the Spoofing Statute. Instead, traders enter these orders with the intent to execute them under certain conditions, only cancelling them later in the absence of those conditions. See CME Group Glossary, available at http://www. cmegroup.com/education/glossary.html (Defining a "stop-loss order" as "[a]n order that becomes a market order when a particular price level is reached" and a "fill-or-kill order" as "[a] designation, added to an order, instructing the broker to fill the order immediately in its entirety or not [at] all. If the order is not filled immediately in its entirety, it is cancelled.") (last visited Aug. 23, 2016); see also CME Group iLink Order Qualifiers, available at http://www.cmegroup.com/confluence/display/EPICSANDBOX/iLink+-+
Defendants next contend that "[t]he Spoofing Statute is vague, because it fails to give notice of what is `commonly known to the trade as' or `of character of' spoofing." (R. 164-1 at 28.) Defendants reason that "the Spoofing Statute outlaws `spoofing', in and of itself, [so] conduct that `is of the character of...spoofing' must be conduct that is not spoofing, but is somehow like spoofing." (R. 164-1 at 28 (emphasis in original).) "Likewise," Defendants continue, "conduct that is `commonly known to the trade as, `spoofing' must also be something other than `spoofing.'" (Id. (emphasis in original).) The Complaint, however, charges Defendant Oystacher with "spoofing." Trading that is "like spoofing" or something "other than spoofing," therefore, is irrelevant. (Id. (emphasis in original).) Specifically, Count One refers to Defendant Oystacher's "spoofing scheme" and charges Defendant Oystacher with "engag[ing] in spoofing during the relevant period by, among other things, bidding or offering with the intent to cancel the bid or offer before execution, while placing orders during the relevant period[.]" (R. 1 at ¶ 94, ¶ 95.); see also (Id. at ¶ 2 ("From December 2011 through at least January 2014, Igor B. Oystacher and...3 Red Trading LLC, intentionally and repeatedly engaged in a manipulative and deceptive spoofing scheme while placing orders for and trading futures contracts on multiple registered entities.").); (Id. at ¶ 3 ("This strategy allowed Defendants to buy or sell futures contracts in quantities and/or at price levels that would not have otherwise been available to them in the market, absent the spoofing conduct.").); (Id. at ¶ 4 ("Oystacher and 3 Red applied their pattern of manipulative and deceptive spoofing
As a result, the Spoofing Statute is not unconstitutionally vague as applied to Defendant Oystacher's alleged trading conduct.
II. CFTC Regulation 180.1 is Not Unconstitutionally Vague
Next, Defendants argue that CFTC Regulation 180.1 is unconstitutionally vague. (R. 164-1 at 35.) Specifically, Defendants contend that "[f]or the same reasons that the CFTC's claims do not fit squarely within the language of the Spoofing Statute, they do not fit squarely within the language of Regulation 180.1." (Id.) As a result, Defendants conclude, "the CFTC's claims under Regulation 180.1 fail as a matter of law, because it is vague and does not enable industry participants like Mr. Oystacher to conform their trading to its requirements." (R. 164-1 at 36.) Similar to their Spoofing Statute challenge, however, Defendants' vagueness claim against CFTC Regulation 180.1 fails.
As described earlier, CFTC Regulation 180.1(a)(1) provides, in relevant part, as follows:
17 C.F.R. § 180.1(a)(1); see also Kraft Foods Grp., Inc., 153 F.Supp.3d at 1007 ("In publishing Regulation 180.1, the CFTC explained that `Final Rule 180.1 prohibits fraud and fraud-based manipulations.'") (citing Final Rule, 76 Fed. Reg. at 41,400; 17 C.F.R. § 180.1).
Defendants do not support their contention that the Regulation is vague. Instead, Defendants' argument amounts to one page of conclusory statements that the Regulation fails to provide notice to Defendant Oystacher, relying on its earlier arguments
CFTC Regulation 180.1 includes a scienter requirement, namely, outlawing intentional or reckless use or employment of "any manipulative device, scheme, or artifice to defraud." 17 C.F.R. § 180.1(a)(1). Similar to the Spoofing Statute's intent requirement, the Regulation's intent element mitigates any vagueness claim launched against it, even with the included "reckless[ ]" standard. See Bd. of Trustees of Fire Fighters' Pension Fund of Vill. of Arlington Heights, Cook County, Ill. v. Poder, No. 88 C 3848, 1988 WL 115288, at *2 (N.D.Ill. Oct. 26, 1988) (Assessing a similar regulation, 17 C.F.R. § 240.10b-5 (1987), stating "Plaintiff is also required to allege scienter-namely that the defendant acted with an intent to deceive, manipulate, or defraud. This element may be satisfied alleging `reckless behavior.' Narrowly construed, reckless behavior amounts to knowledge that the Plaintiff will be misled.") (citing Panter v. Marshall Field & Co., 646 F.2d 271, 282 (7th Cir.), cert denied 454 U.S. 1092, 102 S.Ct. 658, 70 L.Ed.2d 631 (1981)) (quotation marks omitted). As explained above, "because direct evidence of intent is often unavailable, intent to defraud `may be established by circumstantial evidence and by inferences drawn from examining the scheme itself[.]'" Fidlar Techs., 810 F.3d at 1079 (quoting Pust, 798 F.3d at 600). Here, the Complaint depicts Defendant Oystacher's manipulative trading scheme and intent to defraud through various means described in more detail above.
Further, Regulation 180.1 is "nearly identical" to Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j, and SEC Rule 10b-5, 17 C.F.R. § 240.10b-5, which have both passed constitutional muster. Kraft Foods Grp., Inc., 153 F.Supp.3d at 1008-09. Specifically, the court in Kraft Foods, assessing the applicable pleading standard under CFTC Regulation 180.1, stated:
Id. (citing 156 Cong. Rec. S3333-01) (providing Senator Cantwell's remarks that Section 6(c)(1)'s underlying legislation "tracks the Securities [Exchange] Act[.]"). Notably, the CFTC explicitly intended to "to model final Rule 180.1 on SEC Rule 10b-5." Id. (citing Final Rule, 76 Fed. Reg. at 41,399). Multiple courts have found that Section 10(b) and Rule 10b-5 are not unconstitutionally vague. See Todd & Co., Inc. v. S.E.C., 557 F.2d 1008, 1013 (3rd Cir.1977) ("The language of Section 8 of the Rules of Fair Practice is not substantially different from that contained in s 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), or the Commission's own free-wheeling Rule 10b-5, 17 C.F.R. § 240.10b-5, neither of which are unconstitutionally vague.") (citing United States v. Persky, 520 F.2d 283 (2d Cir. 1975)); see also Persky, 520 F.2d at 287 (rejecting a vagueness challenge to Section 10(b) and Rule 10b-5, as "[n]o honest and reasonable citizen could have difficulty in understanding the meaning' of the rules' terms[.]") Moreover, courts have consistently interpreted and applied Section 10(b) and Rule 10b-5 successfully. See Kraft Foods Grp., Inc., 153 F.Supp.3d at 1009 ("For many years now, federal courts interpreting Section 10(b) and Rule 10b-5 have routinely found that those provisions create a cause of action that must sound in fraud."); see also Glickenhaus & Co. v. Household Int'l, Inc., 787 F.3d 408, 414-15 (7th Cir.2015) (citing Halliburton Co. v. Erica P. John Fund., Inc., ___ U.S. ___, 134 S.Ct. 2398, 2407-08, 189 L.Ed.2d 339 (2014) ("[W]e have long recognized an implied private cause of action to enforce the provision and its implementing regulation.")). Given the nearly identical language and foundation between the SEC's Rule 10b-5 and the CFTC's Regulation 180.1, the Court holds that the latter is not unconstitutionally vague, as no reasonable individual would have difficulty understanding its proscribed conduct. See Lim, 444 F.3d at 915.
III. The Spoofing Statute is Not an Unconstitutional Delegation of Power
Finally, Defendant argues that "[f]or essentially the same reasons that the Spoofing Statute is unconstitutionally vague, the Spoofing Statute and its corresponding grant of regulatory authority lack any intelligible principle and therefore effectuate an unconstitutional delegation of power to both the CFTC and the federal courts." (R. 164-1 at 37.) Defendant further contends that "[t]here is no adequate definition of spoofing and no `intelligible principle' in the Spoofing Statute." (Id. at 39.) "Because there can be no serious contention that the parenthetical description in the spoofing Statute could actually be applied as written," Defendant concludes, "it does not provide an intelligible principle for the CFTC to distinguish legitimate from illegitimate trading." (Id. at 41.) The Court disagrees.
Pursuant to the Constitution, "[a]ll legislative Powers herein granted shall be vested in a Congress of the United States." U.S. CONST. Art. I, § 1. As such, "`the integrity and maintenance of the system of government ordained by the Constitution' mandate that Congress generally cannot delegate its legislative power to another Branch." Mistretta v. United States, 488 U.S. 361, 371, 109 S.Ct. 647, 102 L.Ed.2d 714 (1989) (quoting Marshall Field &Co. v. Clark, 143 U.S. 649, 12 S.Ct. 495, 36 S.Ct. 294 (1892)). The nondelegation doctrine, however, does "not prevent Congress from obtaining assistance from other branches of government." United States v. Esfahani, No. 05 CR 0255, 2006 WL 163025, at *1 (N.D.Ill. Jan. 17, 2006) (citing Mistretta, 488 U.S. at 372, 109 S.Ct. 647). Indeed, "[i]f Congress shall lay down
In light of the alleged facts, the Spoofing Statute satisfies all three. The CEA's congressional findings and statement of purpose govern the Act's Spoofing Statute sub-part. Specifically, they provide the following:
7 U.S. §§ 5(a), (b); see also CFTC v. Kraft Foods Grp., Inc., 195 F.Supp.3d 996, 1004, No. 15 C 2881, 2016 WL 3907027, at *5 (N.D.Ill. July 19, 2016) (citing 7 U.S.C. § 7(b)). First, the CEA's purpose statement clearly delineates its general policy. See Goodwin, 717 F.3d at 517 (Looking to the Sex Offender Registration and Notification Act's statement of purpose and finding that the act "provides an intelligible principle"). Generally, the CEA's purpose is to "serve the public interest." 7 U.S.C. § 5(b). This alone constitutes an intelligible principle. See Goodwin, 717 F.3d at 517 (citing Nat'l. Broad Co. v. United States, 319 U.S. 190, 216-17, 63 S.Ct. 997, 87 S.Ct. 1344 (1943) (statutory purpose stating that regulators act "in the public interest" qualifies)). The CEA, however,
For the foregoing reasons, the Court denies the CFTC's motion for a judgment on the pleadings pursuant to Federal Rule of Civil Procedure 12(c).