NEW YORK Nov 25 A small hedge fund manager turned professional card player who came to fame for a mammoth gold trade two years ago, was fined and banned from some trading for attempting to manipulate oil markets in 2008, the U.S. futures market regulator said on Monday.
Daniel Shak, 54, and his fund, SHK Management LLC, must pay a total of $400,000 in civil penalties for violating the Commodity Exchange Act, through a trading gambit known as "banging the close".
The method involves a trader flooding the market with orders in the final minutes before the day's close to sway prices, according to a settlement from the Commodity Futures Trading Commission (CFTC).
During two trading days in 2008, Shak and another trader at his fund also exceeded position limits while trading on the New York Mercantile Exchange (NYMEX), the CFTC said.
Shak, who reportedly shut his hedge fund in 2011, was barred from trading in regulated crude oil markets again, and received a two-year ban from trading "outrights," or so-called "naked futures," in which a position is not put on as a hedge against risk during the close.
Shak and another trader for SHK were taking heavy short bets through a mechanism called Trading at Settlement, contracts that are based on the daily closing price. Then, during final few minutes of trade, they traded a "significant" volume of long futures to drive up the price just before the settlement, the agency said.
Shak, whom the CFTC said was a NYMEX member, could not be reached for comment. The CFTC said it would not comment beyond the order.
Shak achieved fleeting fame in early 2011 when SHK liquidated a gold trade spread trade - with a notional value of some $850 million - that caused tremors in the gold market. Open interest in U.S. gold futures fell by the most on record as he closed out positions equivalent to a 10th of the market.
Since then he has attracted more notice as a professional card player with poker tournament winnings totaling some $5.7 million, according to the poker industry magazine Bluff. In June, he joined hedge fund managers David Einhorn and Bill Perkins in a charity poker event in Las Vegas.
Last year, Shak sued his ex-wife for a share of her shoe collection valued at $1 million, according to media reports.
The fine also highlighted the CFTC's expanded powers to pursue this type of manipulation after the Dodd-Frank financial reform act, said a Washington, D.C.-based lawyer familiar with these types of manipulation cases.
"Before Dodd-Frank the CFTC had to show intent, now it can show "recklessness," which is something short of intent." (Reporting by Jeanine Prezioso Additional reporting by Douwe Miedema in Washington; Editing by Leslie Gevirtz)