Thomas C. Lindstrom, of Winnetka, Illinois, has been permanently banned from trading and registration after being found liable for fraud related to his trading of 10-year U.S. Treasury note options. The U.S. Commodity Futures Trading Commission (CFTC) announced the consent order issued by Judge John Robert Blakey of the U.S. District Court for the Northern District of Illinois on October 11, 2018.
The case stems from a CFTC complaint filed on September 29, 2016, alleging that Lindstrom engaged in fraudulent activity in 2014. The CFTC found that Lindstrom inflated the value of his options position and misrepresented the associated risks to his employer, Rock Capital Markets, LLC. This resulted in Rock Capital paying Lindstrom $285,000 in unwarranted draws.
Lindstrom exploited a pricing convention allowing deep out-of-the-money options to settle at a minimum tick value of $15.625 before expiration. He purchased thousands of these options, creating the illusion of substantial profits. He then presented misleading screenshots of his trading account to his employer, omitting the vast number of worthless options he held. By repeatedly purchasing more out-of-the-money options to mask losses, Lindstrom amassed a position exceeding 950,000 contracts, inflating his account’s net liquidation value by over $15 million.
As a result of Lindstrom’s misconduct, Rock Capital suffered losses of $13,981,478 and ultimately ceased operations after 23 years. The consent order requires Lindstrom to pay $13,981,478 in restitution and an $855,000 civil monetary penalty. He is also permanently banned from trading and registering with the CFTC.
Separately, Lindstrom was indicted on criminal charges related to the same conduct on September 29, 2016, in United States v. Lindstrom, Case No. 16-cr-631 (N.D. Ill.). He pled guilty to one count of wire fraud on January 23, 2018, and is awaiting sentencing.
The CFTC acknowledged the cooperation of the Federal Bureau of Investigation and the U.S. Attorney’s Office for the Northern District of Illinois in the investigation.
Source: CFTC.gov
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