CFTC adviser ordered retraction of probe into suspicious oil bets placed ahead of Trump's Iran policy shift: Bloomberg

A senior adviser to the Trump-appointed chairman of the US derivatives regulator reportedly intervened to retract a referral for potential insider trading after billions of dollars in bets were placed shortly before President Donald Trump announced a policy U-turn.

Minutes before President Trump announced in a March 23 morning social-media post that he was postponing strikes on Tehran’s energy infrastructure, a flurry of trades swept through the market in off-hours trading. Billions of dollars’ worth of contracts predicting oil would fall and the S&P 500 (SPY) would rise were placed about 15 minutes before the post.

Responsibility for looking into the incident fell to the US Commodity Futures Trading Commission, the federal derivatives regulator whose remit — and profile — has soared with the advent of cryptocurrencies and prediction markets. There, a team of career forensic analysts embarked on their usual task of pulling together data on the day’s winners and losers.

Based on the timing of the trading they observed and who was behind it, the analysts, from the agency’s Division of Market Oversight, filed a referral to the Division of Enforcement, which would decide whether to launch a full-scale investigation into potential insider trading, Bloomberg reported.

Representatives from the two divisions also met and talked through how best to collaborate. What happened next, the report citing sources said, was highly unusual: Mel Gunewardena, a senior adviser to the agency’s Trump-appointed chairman, Michael Selig, told a supervisor within the market oversight team to retract the referral.

The team didn’t know how to proceed, the people said. As a practical matter, it was unclear how they might even carry out such an action since it had rarely, if ever, been done before, the report said.

Now, according to the people, an adviser to political appointee Selig was intervening to scuttle the referral and oversee the gathering of data himself. Gunewardena, a Wall Street veteran who spent time at the CFTC during the first Trump administration, had rejoined the agency a few weeks before as head of the Office of International Affairs and Senior Markets Advisor to the chairman, and it wasn’t clear what role he had in the evidence-gathering process.

The traders flagged by the forensic analyst unit as warranting further investigation have not been publicly identified.

An official at the agency said that, because the original findings were US-focused, it was determined there should be a more comprehensive review of markets internationally, including futures, swaps, over-the-counter activity, options and exchange-traded funds. As a former Goldman Sachs Group Inc. and State Street Corp. executive — and the most senior official at the CFTC focused on market analysis and oversight — Gunewardena was best placed to lead that exercise, said the official, who declined to be named discussing internal agency decisions, according to the report.

The CFTC’s enforcement division is continuing to probe the trading activity. The agency is looking at March and April with a particular focus on March 23, the official said.

Those trades paid off 15 minutes or so later, when Trump wrote on Truth Social that he was reversing his threat to attack Iranian infrastructure unless the country re-opened the Strait of Hormuz. Brent oil prices plunged as much as 14% after the post. US crude plummeted in the double digits as well, while stock markets in the US and Europe jumped about 4% from their session lows to intraday highs.