Allston Facing Justice Department Manipulative Trading Probe

High-frequency trading firm Allston Trading LLC is the target of a U.S. Justice Department criminal probe into possible market manipulation activity, according to a source familiar with the matter.

An Allston spokesman said the company has “received requests for information from the government and have cooperated with such requests.”

“We have not been accused of any illegal conduct arising from those requests, and it would be wrong to draw any inference to that effect from the mere fact that the government is conducting a review,” the spokesman said in an emailed statement. “It is our understanding that the government is examining the trading activities of many firms across the industry.”

Bloomberg Law obtained a May 2018 U.S. Commodity Futures Trading Commission contract mentioning Allston by name that was made with a consulting firm already analyzing “similar and overlapping trading” for the Justice Department’s Fraud Section. The CFTC deleted the reference to the company and other details from its contract after being contacted by Bloomberg Law.

The CFTC contract with Analysis Group, an economics and litigation consultancy, “is likely to provide significant cost savings due to the synergies in the two investigations,” according the agreement obtained by Bloomberg Law.

The contract does not specify what type of trading activity or time period Analysis Group was asked to analyze. Bloomberg News has previously reported the CFTC was investigating Allston’s trading practices.

Spokesmen for the Justice Department and the CFTC declined to comment.

In recent years, both the Justice Department and the CFTC have launched parallel investigations into market manipulation, with a particular focus on spoofing activity. Spoofing is the process of submitting buy or sell orders with the intent to cancel them before they can be filled, with the goal of moving market prices to a trader’s benefit.

The practice, often employed in algorithmic trading, was banned under the 2010 Dodd-Frank Act.

Competitors’ Claims

Allston’s alleged spoofing is also the subject of ongoing civil litigation.

A former competitor, Chopper Trading LLC, sued last year alleging a scheme by Allston to manipulate the market for U.S. Treasuries between 2012 and 2015. According to Chopper, its discussions with other market participants led it to conclude that Allston was behind anonymous, deceptive trades.

“Allston’s spoofing caused millions of dollars in trading loses for Chopper,” forcing it to sell off its trading assets to DRW Holding LLC, the March 9, 2019 complaint said.

Allston, citing a failure to state a claim and the expiration of the statute of limitations, asked a federal judge to either compel arbitration or dismiss the case entirely. The court has yet to rule on the motions.

In 2015, a former trader at the Chicago Board of Trade brought a civil suit against Allston, leveling similar spoofing accusations and seeking to recoup purported losses.

Mark Mendelson, whose complaint cited Bloomberg News’ reporting of a CFTC investigation into the Chicago-based firm, dropped the lawsuit a few months later.