Edwin Johnson v. Commodity Futures Trading Commission

United States Court of Appeals
For the Seventh Circuit
Chicago, Illinois 60604
Argued January 25, 2023
Decided February 22, 2023
Before
DIANE S. SYKES, Chief Judge
DIANE P. WOOD, Circuit Judge
DORIS L. PRYOR, Circuit Judge
No. 22-1692
EDWIN JOHNSON,
Petitioner,
v.
COMMODITY FUTURES TRADING
COMMISSION,
Respondent.
Petition for Review of an Order of the
Commodity Futures Trading
Commission.
No. 22-WB-04
O R D E R
The Commodity Futures Trading Commission denied Edwin Johnson’s
application for a whistleblower award for disclosing information about disruptive
trading practices at the company where he formerly worked. Under § 706 of the
Administrative Procedure Act, Johnson seeks review of the agency’s final decision. See 5
U.S.C. § 706(2). Because the Commission issued Johnson a document preservation
request and several subpoenas before he submitted the information for which he seeks
NONPRECEDENTIAL DISPOSITION
To be cited only in accordance with FED. R. A PP. P. 32.1

-- 1 of 7 --

No. 22-1692 Page 2
compensation, the Commission correctly concluded that Johnson was ineligible. Thus,
we deny Johnson’s petition for review.
The Commodity Exchange Act (the “Act”) and associated regulations prohibit
various “disruptive” trading practices in futures markets. One such disruptive trading
practice, known as spoofing, involves “bidding or offering with the intent to cancel the
bid or offer before execution.” 7 U.S.C. § 6c(a)(5)(C). Spoofing creates the false
impression of movement in the market, which induces other market participants to
place orders on the same side as the spoofer; this creates advantageous opportunities
for the spoofer to cancel the original bid and place an order on the opposite side. See
generally United States v. Chanu, 40 F.4th 528, 533–34 (7th Cir. 2022); United States v.
Coscia, 866 F.3d 782, 786–87 (7th Cir. 2017). The Commodity Futures Trading
Commission, which administers and enforces the Act and promulgates and enforces the
implementing regulations, may file a civil enforcement action in federal court to enjoin
or impose civil penalties for spoofing transactions. 7 U.S.C. § 13a-1(a), (d).
In October 2011, the Commission opened an investigation into the trading
practices of 3Red Trading, LLC, a futures trading company, and Igor Oystacher, 3Red’s
founder and principal trader. (Doc. 8, ROA 179). The Commission suspected that
Oystacher was spoofing in several different futures markets.
At the outset of the investigation, on November 23, 2011, the Commission sent a
document preservation request to 3Red, Oystacher, and Edwin Johnson, who was then
3Red’s Chief Risk Officer. The request instructed Johnson (and others) to preserve
information about 3Red’s trades in markets including, but not limited to, “E[-M]ini S&P
500, NASDAQ, crude oil, silver, natural gas, gold, and copper on an ongoing
basis beginning December 2010.” (Doc. 21, Am. ROA 143).
Over the next year or so, the Commission issued three subpoenas in the
investigation. In March 2012, the Commission subpoenaed 3Red, Oystacher, and
Johnson “Individually, and as Principal of 3 Red Trading, LLC” for production of
company documents relating to crude oil, copper, and S&P 500 trading. (Am. ROA 145,
151). The second subpoena, which the Commission issued to the same targets in
November 2012, sought documents relating to 3Red’s corporate communications. (Am.
ROA 159, 167). Both subpoenas described Johnson’s obligations as “continuing” and
ordered him to supplement his initial production if he obtained responsive documents
in the future. (Am. ROA 149, 165).

-- 2 of 7 --

No. 22-1692 Page 3
In December 2012, pursuant to the third subpoena, Johnson gave sworn
testimony to Commission staff about Oystacher’s trading practices. Johnson testified
that he did not believe Oystacher’s trading was improper. But after the Commission
issued its public guidance on disruptive trading in May 2013, see 78 Fed. Reg. 31890
(May 28, 2013), Johnson changed his mind and decided that Oystacher’s trading was
improper. According to documents he submitted to the Commission, Johnson was
terminated from 3Red in June 2013 after he communicated his concerns to Oystacher
and “attempted to prevent [him] from engaging in improper trading.” (ROA 22; see
Am. ROA 127; Johnson’s Br. at 4).
Following his termination, Johnson spoke with Rosemary Hollinger, the Deputy
Director of the Commission’s Division of Enforcement, who was involved in the 3Red
investigation. Johnson would later attest under penalty of perjury in his April 2017
application for a whistleblower award, that, during his telephone conversation with
Hollinger, she told him that “if he voluntarily provided information relevant to the
CFTC’s investigation [of 3Red and Oystacher], . . . he would qualify as a
whistleblower and possibly be entitled to a whistleblower award.” (ROA 26–27).
On August 15, 2013, Johnson executed a settlement agreement with 3Red
“ostensibly to settle all outstanding claims and disputes” between him and his former
employer. (ROA 27). According to Johnson, however, his primary reason for executing
the settlement agreement—which had “onerous confidentiality provisions”—was his
concern that 3Red would take legal action against him if he disclosed information to the
Commission about Oystacher’s trading practices. (Id.). To remain in compliance with
the agreement, Johnson, through counsel, asked the Commission to subpoena him so
that he could provide information without risking retaliation. The Commission issued
yet another subpoena to Johnson in September 2013.
Over the next three years, “until at least April of 2016,” Johnson provided
information to the Commission about Oystacher’s trading practices. (ROA 28). In
addition to reporting on Oystacher’s spoofing in the three markets listed in the March
2012 Subpoena, Johnson reported on Oystacher’s trades in the natural gas market,
which the Commission had mentioned in the 2011 document preservation request but
not the 2012 subpoenas. Johnson also described Oystacher’s trades of volatility index
(VIX) futures contracts, which the Commission had not mentioned at all in its
investigation.

-- 3 of 7 --

No. 22-1692 Page 4
The Commission filed a civil enforcement action in federal court against
Oystacher and 3Red in October 2015, alleging improper trading in several futures
markets, including crude oil, copper, natural gas, S&P 500, and VIX. See U.S. Commodity
Futures Trading Comm’n v. Oystacher, No. 15-cv-09196, 2016 WL 8256391, at *1 (N.D. Ill.
Dec. 20, 2016). Finding that Oystacher and 3Red had repeatedly engaged in spoofing,
the district court entered a consent order and imposed a $2,500,000 penalty. Id. at *7.
Following the district court’s order, Johnson applied for a whistleblower award
under the Commodity Exchange Act. The Act authorizes compensation for persons who
“voluntarily” provide the Commission with “original information” that leads to a
successful enforcement action and sanctions exceeding $1,000,000. See 7 U.S.C. § 26(a)–
(b). The Commission alone determines “whether, to whom, or in what amount” to make
these awards. Id. § 26(f)(1); see 17 C.F.R. § 165.5(a).
A purported whistleblower acts “voluntarily” by supplying information “prior
to any request from the Commission … to the whistleblower … about a matter to which
the information in the whistleblower’s submission is relevant.” 17 C.F.R. § 165.2(o). If
the Commission “makes a request, inquiry, or demand to the whistleblower or the
whistleblower’s representative first,” then information that the whistleblower submits
thereafter is not voluntary, “even if the whistleblower’s response is not compelled by
subpoena or other applicable law.” Id.
On May 19, 2020, the Commission’s Claims Review Staff preliminarily
determined that Johnson was ineligible for an award because he did not voluntarily
give information. They noted that Johnson provided information about Oystacher’s
improper trading after the Commission sent him a document preservation request and
multiple subpoenas as part of an existing investigation into 3Red.
In an unsworn letter submitted by his attorney to the Commission, Johnson
contested the preliminary determination, making three arguments: that his submissions
were voluntary; that his information was critical to achieving the agency’s consent
order with Oystacher and 3Red; and that Hollinger had “promised him that he would
be entitled to whistleblower compensation” in June 2013 when she advised him that if
he “provided relevant information and cooperated with the CFTC’s investigation into
3Red, he would be treated as a whistleblower.” (ROA 194).
On March 28, 2022, the Commission entered a final order denying Johnson’s
claim for a whistleblower award. First, the agency rejected Johnson’s voluntariness

-- 4 of 7 --

No. 22-1692 Page 5
argument, noting that he did not (and could not) dispute that he provided information
related to the spoofing inquiry after having received requests and demands from the
Commission. Second, because Johnson provided information after having received a
request, the value of his information was irrelevant to the determination of whether he
qualified for a whistleblower award. Finally, there was no evidence supporting
Johnson’s assertion that he had been promised an award and, even if there had been,
such a promise could not override the statutory eligibility requirements. This appeal
followed.
We review the Commission’s decision under Section 706 of the Administrative
Procedure Act, 5 U.S.C. § 706. See 7 U.S.C. § 26(f)(2), (3); Witter v. Commodity Futures
Trading Comm’n, 832 F.3d 745, 748–49 (7th Cir. 2016). Johnson argues that we should
apply the “substantial evidence” standard from 5 U.S.C. § 706(2)(E), whereas the
Commission argues for the “arbitrary [and] capricious” standard from 5 U.S.C.
§ 706(2)(A). When this issue arose before, we declined to choose between the two
standards because the difference between them “brings to mind angels dancing on the
head of a pin,” and moreover, “[t]he Commission’s findings [we]re supportable either
way.” Witter, 832 F.3d at 749. The same is true here.
Johnson makes two arguments to support his contention that his submissions to
the Commission were voluntary. 1 He first cites the VIX information he provided,
emphasizing that he proffered this information even though the Commission never
mentioned the VIX index in the document preservation request or the 2012 subpoenas.
Further, he asserts, Oystacher did not make improper trades in the VIX futures market
until spring 2013, and the Commission could not have requested information about
events that had not yet occurred. He contends that his submissions went beyond the
scope of any request or subpoena by the Commission and were, therefore, voluntary.
Even assuming the VIX information was beyond the scope of every request and
demand made by the Commission, it was relevant to them. 17 C.F.R. § 165.2(o)(1).
Relevant submissions after a request from the Commission are not voluntary “even if
the whistleblower’s response is not compelled by subpoena or other applicable law.” Id.
By asserting that his information “was critical to the overall success of the action against
1 The Commission argues that Johnson forfeited certain voluntariness arguments, but these
arguments—about the scope of the subpoenas, VIX information, and the effect of the subpoena received
by 3Red—largely came up before the agency and can be resolved on the merits, as explained in the
agency’s final order.

-- 5 of 7 --

No. 22-1692 Page 6
Defendants,” (ROA 33), Johnson essentially concedes that the information was relevant
to the existing investigation. Thus, Johnson’s argument fails.
Johnson next argues that his submissions were voluntary because 3Red failed to
respond to a subpoena that it received, so the Commission would not have gotten the
requested information without Johnson’s cooperation. He relies on a portion of the
regulation stating that a person “will be considered to have received” inquiries and
demands received by his employer, “unless, after receiving the documents or
information from the whistleblower, the whistleblower’s employer fails to provide the
whistleblower’s documents or information to the requesting authority in a timely
manner.” 17 C.F.R. § 165.2(o)(1) (emphasis added). Johnson’s argument, though not
entirely clear, appears to be that, because the Commission issued 3Red a request and
subpoena, and he (not 3Red) submitted the responsive information, he should not be
considered to have received a request from the Commission. In other words, Johnson
argues that the subpoena issued to 3Red somehow cancelled out the subpoena issued to
him in his individual capacity, and thus his submissions were “voluntary.” That
reading is untenable. This part of the regulation says that certain persons will be
considered to have received a request unless the exception applies. And here, there is
no need to contemplate whether Johnson should be “considered” to have received a
request, because it is undisputed that he personally received a request and subpoenas
from the Commission.
Johnson makes two arguments in addition to voluntariness, neither of which
have merit. He first contends that the Commission improperly disregarded evidence of
his “invaluable assistance” in ending 3Red’s spoofing practices. He concedes, however,
that the value of his assistance bears only on the amount of a potential award, see 17
C.F.R. § 165.9, not his eligibility. Because Johnson was not eligible, there was no need
for the Commission to consider this evidence.
Finally, Johnson argues that he detrimentally relied on Hollinger’s promise of an
award, when she said that “if he voluntarily provided information … he would qualify
as a whistleblower and possibly be entitled to an award.” (ROA 27). The Commission
reasonably rejected Johnson’s argument because no member of the agency was
“authorized to make any offer or promise … with respect to the payment of any
award.” 17 C.F.R. § 165.1. Even if Hollinger was so authorized, by Johnson’s own
account of the promise, she indicated that Johnson would “possibly” be eligible for an
award if he “voluntarily provided information.” And, as discussed previously,
Johnson’s submissions were not voluntary under the regulations. See 17 C.F.R.

-- 6 of 7 --

No. 22-1692 Page 7
§ 165.2(o)(1). Johnson also invokes Santobello v. New York, 404 U.S. 257, 262 (1971), which
requires a prosecutor to honor promises made to a criminal defendant to induce a guilty
plea. Concerns about “safeguards” in “the process of criminal justice,” id., however,
have no bearing on Johnson’s efforts to obtain a whistleblower award.
We DENY the petition for review.

-- 7 of 7 --