Essex boys ‘Legends xxx’​ chat group and the crash in oil futures

You’d be hard-pressed to find a statement that sounded more like collusion than the title of this blog. In fact, that title is a statement that was captured from one of the numerous WhatsApp messages exchanged amongst “the Essex boys.” As it turns out, a group of experienced traders, all living in the same area around Essex, masterminded what is widely regarded as the greatest trade in history. Paul Cummins was apparently the group’s ringleader and operated as “Cuddles” on various messaging boards.

However, their collective brilliance is not being applauded by everyone, which is presumably what they expected to happen given that their WhatsApp group chat was called, “Legends XXX.” Indeed, The CFTC, among other regulatory authorities, is labeling the trade as market manipulation, which is hardly a form of flattery. And the authorities are investigating this trade for non-compliance – not to award it with a gold medal. Plus, a civil suit against the traders is just getting underway; coincidentally exactly one year after the eventful trade.

Eight of the twelve (12) self-employed traders from Essex – working out of their homes at the start of the pandemic – are now being investigated for a “high degree of correlation in their trades” based on the timing of those transactions and the corresponding messages on WhatsApp. Said another way and open to interpretation, they collaborated to push the price of crude oil down to buy low and then sell high the next day when the commodity began its financial recovery.

On April 20, 2020, the group made an astounding $700 million by flooding futures markets. In so doing, the price of oil tanked – dropping below zero for the first time in history. West Texas Intermediate crude oil pricing plummeted on that day as the pandemic took hold and operators panicked thinking that there would be a glut of oil since traveling and commuting had come to a screeching halt overnight. A rare coin dealer, Mish International Monetary, has brought forth a class-action civil lawsuit against the Essex boys to sue for the losses the coin dealer incurred. Is there anything in this or was it just a well-executed and daring set of trades? Would this case have been brought to the courts if these were the actions of a Tier1 bank?

Mish alleges numerous violations of antitrust laws coupled with market manipulation. The vehicle was trading at settlement (TAS) contracts where the commodity pricing is fixed based on the settlement value recorded for that day. Once recorded, huge volumes of non-TAS contracts were dumped in an alleged coordinated and deliberate plan. To give you some sense of the scope of their scheme, the Essex boys were dumping 153 contracts per minute – about 30% of the total global volume of the commodity traded at that time.

As the investigation began, most authorities and journalists suspected that some large trading firm would be at the heart of the action. Not so. A tiny, obscure firm in the UK, called Vega Capital London Ltd., held the broker licenses to the group of independent traders. Initial efforts sought to discredit the brokerage firm for its involvement in the scheme. However, the investigation has since shown that Vega Capital executives and employees had no knowledge of the alleged collusion and coordinated trading by eight of their registered brokers now under investigation and in court.

The eight traders, plus Cuddles, will have to put on quite a performance to convince the judge of non-collusion. Their messages exchanged on the popular e-Comms platform are quite telling. Not to mention how they were each profiting about $30 million per hour for a few hours. Texts include, “We pushed each other so hard for years for this one moment … And we f[******] blitzed it, boys.” Other messages include: “Just keep selling it every 5 points,” “You’ve just got to keep selling,” plus “Everyone is going to be short and have ammo.” One particularly damning message reads, “F[******] mental. I wanna see negative WTI prices.”

Here’s where it all comes together. The self-proclaimed “legends” presumably (and incorrectly) assumed that their e-Comms on the encrypted WhatsApp channel would be safe from prying eyes. They went so far as to use monikers like “Cuddles,” emojis, slang, and curse words to obfuscate their intent. By the way, today’s sophisticated, RegTech software can see right through all that and infer intent. Over the past year or so, WhatsApp features have changed dramatically.

Previously, you had seven minutes to “unsend” a message. Recently, technology has changed. Now you have up to one hour to unsend your messages – but only if the recipient has not responded and quoted or commented on your message. Gone is the ability to “delete all” of your messages in one swoop just as the banker, Konstantin Vishnyakv, did right under the noses of the London police as they were arresting him on suspicion of market fraud.

What the bad actors don’t realize is that there’s a record trail for everything. And software that can sniff out the scent on that trail. A financial forensics team for the prosecution in this civil case has mapped out the timing of every post on WhatsApp to activity on the market, hence the judge’s ruling to advance the case to trial given the “high degree of correlation” demonstrated between texts and trades. So, maybe the Essex boys will go down in history like the legends they believe they are. Or maybe history will play out a little differently for them in court. Watch this space!