Chicago Futures Trader Pleads Guilty to Causing More Than $13 M in Losses from Fraudulent Trading

https://www.justice.gov/usao-ndil/pr/chicago-futures-trader-pleads-guilty-causing-more-13-million-losses-fraudulent-trading

Department of Justice
U.S. Attorney’s Office
Northern District of Illinois

FOR IMMEDIATE RELEASE
Wednesday, January 24, 2018

Chicago Futures Trader Pleads Guilty to Causing More Than $13 Million in Losses from Fraudulent Trading Scheme

CHICAGO — A Chicago futures trader admitted in federal court that he caused more than $13 million in losses through a fraudulent trading scheme that resulted in the collapse of his firm. THOMAS LINDSTROM used deep out-of-the-money options on ten-year Treasury Note futures to make it fraudulently appear that his trading at Chicago-based Rock Capital Markets LLC was profitable, thereby obtaining greater financial compensation for himself. Over a six-month period in 2014 and 2015, Lindstrom obtained compensation of $285,000, while his fraud scheme caused a loss of more than $13.7 million and led to the collapse of Rock Capital.

Lindstrom, 55, of Winnetka, pleaded guilty Tuesday to one count of wire fraud. U.S. District Judge Harry D. Leinenweber set sentencing for June 19, 2018. Lindstrom acknowledged in the plea agreement that at the time of sentencing, the Court will order him to make full restitution in the amount of $13,776,518.
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A tick is the minimum price increment at which an option on a futures contract could trade. Prior to 2016, the Chicago Board of Trade set the minimum settlement value of all options on futures contracts at one tick, even if the actual value of the option was considerably less. For options on ten-year Treasury Note futures contracts, one tick was approximately $15.63.

Lindstrom admitted in a plea agreement that he acquired hundreds of thousands of deep out-of-the-money options on ten-year Treasury Note futures, and on certain occasions he used spread transactions to pay effectively less than one tick apiece. Lindstrom made the trades knowing that these options would likely expire worthless – resulting in losses – but would temporarily appear to have substantial value in his trading account because the minimum settlement value was one tick.

Lindstrom concealed the scheme by telling Rock Capital’s owner that the options were profitable, when in reality Lindstrom’s trading was causing substantial losses.
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