NDAQ Nasdaq Inc

The judge overseeing the market-manipulation trial of futures trader Donald Wilson Jr. suggested that lawyers for the Commodity Futures Trading Commission had failed to prove a crucial point as they gave their closing arguments Wednesday.

U.S. District Judge Richard Sullivan repeatedly interrupted closing arguments by lawyers for the CFTC, which alleges Mr. Wilson and his firm, DRW Investments LLC, manipulated an interest-rate contract in 2011 to yield $13 million in profits.

Judge Sullivan questioned whether the agency had successfully proven that DRW's actions had created an artificial price for the contract, which the CFTC must do to win its case.

"There are multiple elements to market manipulation and it's not clear to me that you've proven a central one, which is artificiality," Judge Sullivan said in a Manhattan courtroom.

Mr. Wilson, a prominent Chicago trader, faces the possibility of a lifetime trading ban if he loses. He denies the civil allegations and has refused to settle the lawsuit filed in 2013. The stakes are also high for the CFTC, which has a spotty record in manipulation cases.

Earlier in the trial, Judge Sullivan grilled Mr. Wilson over evidence in the case, including an email in which a DRW trader described companies that took the opposite side of the firm's trade as "suckers".

But on Wednesday the judge's toughest questions were aimed at the CFTC. He admonished the agency's lawyers for focusing on what they described as "illegitimate" bids and sidestepping the issue of whether DRW had caused an artificial price.

"You keep using 'illegitimacy', which is a very fuzzy term, to somehow be the equivalent of artificiality," Judge Sullivan said.

Arguing that DRW's bids created an artificial price because they were made with an illicit intent was "so circular as to be nonsensical," he added.

Michael Kim, a lawyer for DRW, argued that a victory for the CFTC would effectively criminalize a broad swath of trading activity as unlawful manipulation. "Under the CFTC's rule, it would be illegal to buy any more of what you own at a higher price," he said. "This is also bizarre."

The CFTC's allegations against DRW stem from a big trade in interest-rate swap futures that the firm carried out in 2010 and 2011 on an exchange owned by Nasdaq Inc. The contracts allow companies to bet on or protect against swings in rates.

DRW bought more than $350 million of the futures in late 2010, expecting the position to rise in value, the CFTC said in its lawsuit. In January 2011, the firm began placing bids in a 15-minute afternoon settlement window used by the exchange to determine the contract's closing value at the end of the day. The CFTC argues that those bids, which continued through August 2011, were an illegal strategy called "banging the close" that was aimed at enhancing the value of DRW's large position in the futures contract.

"It's illegitimate to try to take advantage and seize control of the settlement price," CFTC lawyer Traci Rodriguez said in court on Wednesday.

DRW doesn't deny placing bids in the settlement window, but it has described them as a lawful strategy that actually benefited the markets. The firm says its bids helped fix a mispricing in a contract that few other companies were trading.

Mr. Wilson and his lawyers said during the trial that DRW placed the bids because it wanted to help develop a market in the Nasdaq contract. The exchange ultimately shut down trading in the contract due to a lack of interest.

Write to Alexander Osipovich at alexander.osipovich@dowjones.com

(END) Dow Jones Newswires

December 07, 2016 19:05 ET (00:05 GMT)

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