[Photo: Market Manipulation; theeventchronicle.com]

U.S. District Judge Richard Sullivan is presiding over a bench trial, in which the CFTC accuses DRW Investments and Donald Wilson, Jr., its founder and CEO, of manipulating the prices of trades involving interest-rate contracts 6 years ago. 

Judge Sullivan asked Wilson about a September 2010 email in which DRW trader Brian Vander Luitgaren asked a colleague whether “any more suckers” were willing to enter the same trade as counterparties Jefferies and MF Global.

“Did you consider potential counterparties to be suckers?” the judge asked. Mr. Wilson replied: “I wouldn’t put it that way.”

The judge also asked Wilson about a February 2011 phone call in which MF Global general counsel Laurie Ferber accused DRW of a tactic that was “pretty fishy” and “screws other people.” Mr. Wilson played down Ms. Ferber’s accusation. “People accuse people in the marketplace of manipulation all the time,” he said.

The tactic that upset MF Global’s Ms. Ferber is the behavior that the CFTC describes as illegal manipulation. It involved placing electronic bids during a 15-minute settlement window that a Nasdaq subsidiary used to calculate the daily closing value of the interest rate contract.  DRW placed such bids more than 1,000 times from January to August 2011, according to the CFTC. The agency says the bids set the contract’s price and enhanced the value of the $350 million of futures DRW bought, yielding about $13 million in profits.

Judge Sullivan grilled Mr. Wilson about the bids as the trial entered its second day Friday. He repeatedly demanded an explanation for a sharp uptick in the prices submitted by DRW in August 2011, not long before the firm unwound its trades with Jefferies and MF Global.

Mr. Wilson said the increase was tied to DRW’s growing “confidence” in its models. “So I shouldn’t worry my pretty little head over this,” Judge Sullivan responded. “Just answer my questions, OK?”

During the exchange, the CFTC attorneys watched silently.