Vega Capital London Ltd.—the small trading house facing manipulation claims in a Chicago federal court over oil’s crash into negative price territory in April—defended its $500 million haul that day, saying it did no more than observe the market signals forecasting a “once-in-a-century storm” caused by the Covid-19 pandemic.
The lawsuit against Vega ignores “the obvious explanation for the price volatility,” the firm says in a motion to dismiss the proposed class action led by Mish International Monetary Inc., a coin collector, in the U.S. District Court for the Northern District of Illinois.
“Saudi Arabia, Russia, and other countries were flooding the global market” while demand was at “historic” lows, “physical storage space” was “diminishing rapidly,” and the looming expiration of futures contracts required anyone holding them “to take physical possession of large amounts of oil,” the filing says.
The antitrust suit concerns Vega’s allegedly uneconomic trading behavior April 20, the day crude oil futures fell $56 a barrel to close at -$37 on the New York Mercantile Exchange. It was the first time oil ever went negative on the exchange.
The complaint, filed in August, accuses Vega and its traders of dumping certain May 2020 futures contracts at a loss, in a coordinated scheme to drive down the cost of “trading at settlement” contracts pegged to the closing price that day.
The Vega traders had bought “a large volume” of those contracts beforehand, so they were highly motivated to make “West Texas Intermediate” futures settle “at the lowest possible price,” the suit says. After closing at -$37, prices recovered to $10 a barrel the next day, allegedly giving Vega a huge windfall.
But the factors responsible for the decline—unprecedented uncertainty, low demand, oversupply, and a critical storage shortage—were not just a matter of public record, they were so obvious that they should be subject to judicial notice, the firm says in its dismissal motion.
In fact, CME Group Inc., which owns the mercantile exchange, “repeatedly warned” of the potential for negative prices in the days leading up to the futures deadline, according to the court filing. The suit ignores those circumstances in favor of “conclusory allegations” blaming Vega, the motion says.
The complaint doesn’t specify “any particular trade,” any details about “the higher offers that were supposedly available and declined” or “the identity of the traders who declined” them, or any basis for inferring a “scheme” by Vega, according to the firm.
The filing came less than a week after the Commodity Futures Trading Commission released an “interim report” that reached few conclusions about the cause of the price plunge.
Vega is represented by Akerman LLP. Mish is represented by Miller Law LLC and Lovell Stewart Halebian Jacobson LLP.
The case is Mish Int’l Monetary Inc. v. Vega Capital London Ltd., N.D. Ill., No. 20-cv-4577, motion to dismiss filed 11/27/20.