CFTC ORDERS CARGILL DE MEXICO TO PAY $500,000 FOR ROLE IN WASH SALES SCHEME

FROM:  COMMODITY FUTURES TRADING 

CFTC Orders Cargill de México SA De CV to Pay $500,000 for Unlawfully Executing Wash Sales on the CBOT and KCBT

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today issued an Order filing and simultaneously settling charges against commodities trading company Cargill de México SA De CV (Cargill de México) for executing wash trades involving corn, soybean, and wheat futures contracts on the Chicago Board of Trade (CBOT) and wheat futures contracts on the Kansas City Board of Trade (KCBT). The CFTC order requires that Cargill de México pay a $500,000 civil monetary penalty.

The Order finds that on multiple occasions between March 2010 and August 2014 Cargill de México engaged in wash sales and unlawful non-competitive transactions in certain agricultural futures products, including corn, soybeans, and wheat on the CBOT, as well as in hard red wheat traded on the KCBT. Before orders for these trades were entered on an exchange, Cargill de México employees, either acting alone or with another employee, entered equal and opposite transactions in the same futures contract for another account that was also owned by Cargill de México, and matched the product, quantity, price, and timing of those orders and trades. The Order finds that by so prearranging, structuring, and entering these orders, which negated the risk incidental to an open and competitive marketplace, Cargill de México also engaged in noncompetitive transactions.

In addition to imposing the $500,000 civil monetary penalty, the Order also requires Cargill de México to comply with certain undertakings. First, the Order requires Cargill de México to conduct training for certain personnel addressing the ethics, compliance, and legal requirements of the Commodity Exchange Act (CEA) and CFTC regulations with regard to prearranged, fictitious, or noncompetitive trading. Second, the Order requires Cargill de México to submit a report to the CFTC’s Division of Enforcement representing (i) that Cargill de México has adopted policies and procedures designed to prevent any potential prearranged, fictitious, or noncompetitive trading in violation of the CEA and CFTC regulations, (ii) that Cargill de México has conducted certain training sessions for relevant personnel, and (iii) that Cargill de México has begun using the self-match prevention technology available on the front end system provided by its primary clearing firm. Finally, the Order requires Cargill de México to cease and desist from further violations of Section 4c(a)(1) of the CEA and CFTC Regulation 1.38(a), as charged.

The CFTC thanks the CME Group, Inc. for its assistance in this matter.

CFTC Division of Enforcement staff members responsible for this case are Trevor Kokal, James G. Wheaton, Lenel Hickson Jr., and Manal M. Sultan.

CFTC ORDERS MORGAN STANLEY CAPITAL GROUP TO PAY $200,000 PENALTY

FROM:  COMMODITY FUTURES TRADING COMMISSION 
CFTC Orders Morgan Stanley Capital Group Inc. to Pay $200,000 Penalty for Violating Soybean Meal Futures Speculative Position Limits

Washington, DC — The U.S. Commodity Futures Trading Commission (CFTC) today announced that Morgan Stanley Capital Group Inc. (MSCGI) agreed to pay a $200,000 civil monetary penalty to settle CFTC charges that it exceeded speculative position limits in soybean meal futures contracts trading on the Chicago Board of Trade (CBOT).

The CFTC Order finds that, beginning on January 14, 2013, MSCGI held in its house accounts net long positions in the CBOT soybean meal futures contract in excess of the all-months speculative position limit of 6,500 contracts established by the CFTC. The Order further finds that, on January 15, 2013, MSCGI decreased its net long position in CBOT soybean meal futures, but its position still exceeded the soybean all-months position limit. On January 16, 2013, MSCGI reduced its position below the CBOT soybean meal position limit, according to the CFTC Order.

In addition to imposing the $200,000 civil monetary penalty, the CFTC Order requires MSGCI to cease and desist from further violations of Section 4a(b)(2) of the Commodity Exchange Act and CFTC Regulation 150.2, as charged.

CFTC Division of Enforcement staff members responsible for this action are Karin N. Roth, David W. MacGregor, Lenel Hickson, Jr., and Manal M. Sultan.

CFTC ORDERS BROKER EMPLOYEE TO PAY PENALTY FOR MAKING FALSE STATEMENTS

FROM:  COMMODITY FUTURES TRADING COMMISSION 
CFTC Orders Futures Broker Employee Susan Butterfield to Pay $50,000 Penalty in Settlement of Charges of Making False Statements to the CFTC During Her Investigative Testimony

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that it entered an Order requiring Susan Butterfield of New Lenox, Illinois, to pay a $50,000 civil monetary penalty for making false statements of material fact in testimony to CFTC staff during a CFTC Division of Enforcement investigation. The Order enforces the false statements provision of the Commodity Exchange Act (CEA), which was added by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act).

According to the CFTC’s Order, Butterfield, an employee of a company registered with the Commission as an introducing broker (the IB), handled various clerical and administrative responsibilities concerning trading on the floor of the Chicago Board of Trade (CBOT). Her responsibilities included accepting and recording customer orders. When done properly, this involved time-stamping paper order tickets contemporaneously with the receipt of a customer commodity futures or options order to accurately record the time of day when the IB received the order.

On January 31, 2013, Butterfield gave sworn testimony in an investigation being conducted by the CFTC’s Division of Enforcement. The CFTC Order finds that during that testimony, Butterfield knowingly made false and misleading statements regarding whether she had improperly pre-stamped order tickets, i.e., whether she stamped order tickets in blank, prior to the time when a customer order was actually received. As the Order states, this testimony was significant in that use of pre-stamped order tickets may violate Commission Regulations and CBOT rules and also may facilitate unlawful trade allocation schemes in which brokers decide who will receive trades only after they are executed, potentially allowing them to profit at their customers’ expense.

The CFTC Order finds that prior to her CFTC testimony Butterfield told her supervisor, who was a principal at the IB, that “we pre-stamp orders and it’s something that is – that we should not be doing.” However, on January 31, 2013, when the Division of Enforcement staff questioned Butterfield on the IB’s pre-stamping practice, Butterfield falsely told the staff that she “never pre-stamped any [order] tickets.” Later during the course of her testimony the same day, Butterfield admitted to various instances of pre-stamping order tickets, but only after she was confronted by documents that plainly contradicted her initial false testimony. Ultimately, having been confronted with evidence that demonstrated her falsehoods, Butterfield admitted by the end of her testimony that it was in fact her daily practice to pre-stamp order tickets from multiple futures commission merchants throughout the trading session, in numbers amounting to dozens of order tickets every day.

David Meister, the CFTC’s Enforcement Director, stated: “When a witness walks into CFTC testimony he or she should plan to tell the truth to every question or face the consequences. We will use the new Dodd-Frank false statements provision against witnesses who provide false or misleading information to make sure it is well understood that lying is not an option.”

In addition to the $50,000 civil monetary penalty, the CFTC Order requires Butterfield to cease and desist from violating the relevant provision of the CEA, to never apply for or claim exemption from registration with the CFTC or engage in any activity requiring such registration or exemption, and to never act as a principal or officer of any entity registered or required to be registered with the CFTC.

The CFTC Division of Enforcement staff members responsible for this matter are Allison Passman, Theodore Z. Polley III, Joseph Patrick, Susan Gradman, Scott Williamson, Rosemary Hollinger, and Richard B. Wagner.

MORGAN STANLEY ORDERED BY CFTC TO PAY $5 MILLION PENALTY

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION
CFTC Orders Morgan Stanley & Co. LLC to Pay $5 Million Civil Monetary Penalty for Unlawful Noncompetitive Trades
Morgan Stanley had inadequate supervisory systems and controls to detect and deter the unlawful conduct that occurred repeatedly over 18-months
Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today issued an order filing and settling charges that, over an 18-month period, Morgan Stanley & Co. LLC (Morgan Stanley), a registered futures commission merchant (FCM), unlawfully executed, processed, and reported numerous off-exchange futures trades to the Chicago Mercantile Exchange (CME) and Chicago Board of Trade (CBOT) as exchanges for related positions (EFRPs). The CFTC order requires Morgan Stanley to pay a $5 million civil monetary penalty and to cease and desist from further violations of the Commodity Exchange Act (CEA) and CFTC regulations, as charged.

According to the CFTC order, because the futures trades were executed noncompetitively and not in accordance with exchange rules governing EFRPs, they constituted “fictitious sales” and resulted in the reporting of non-bona fide prices, in violation of the CEA and CFTC regulations. The order also finds that Morgan Stanley had related supervisory and recordkeeping violations.

The commodity futures trading laws generally require that futures trades be executed on a futures exchange. The laws allow for exceptions to that requirement, such as when the futures trade is part of an EFRP, which is where parties exchange futures contracts for a related cash or over-the-counter (OTC) derivative position, such as an option or a swap. As long as the legal requirements are met, parties are permitted to execute EFRPs away from an exchange but then must report their EFRPs to an exchange after execution.
“The laws requiring that futures trades be executed on an exchange serve important price discovery and transparency principles,” said David Meister, Director of the CFTC’s Division of Enforcement. “As today’s action should demonstrate, when an FCM reports that it properly conducted an off-exchange futures trade as part of an EFRP, that report had better be accurate. In all cases, firms must have appropriate systems and controls in place designed to detect and prevent the conduct described in the order.”
According to the CFTC’s order, from at least April 18, 2008 through October 29, 2009, Morgan Stanley noncompetitively executed numerous futures trades and improperly reported them as EFRPs, since they did not have the required corresponding cash or OTC derivative positions.

The order finds that Morgan Stanley’s supervisory systems and internal controls were not adequate to detect and deter the noncompetitive trading of futures contracts improperly designated as EFRPs. For example, although Morgan Stanley’s Futures Operations department had the responsibility to report EFRPs to the CME and CBOT, that department was not required to verify that the EFRPs had the required corresponding related cash or OTC derivative positions, nor was any other operations department required to do so. The order further finds that Morgan Stanley failed to ensure that its employees involved in the execution, handling and processing of EFRPs understood the requirements for executing bona fide EFRPs. Moreover, the order finds that Morgan Stanley lacked sufficient surveillance systems to identify trades improperly designated as EFRPs. The order also finds that Morgan Stanley failed to designate the trades as EFRPs on all orders, records, and memoranda pertaining to EFRPs, as required.

The order recognizes Morgan Stanley’s significant cooperation in the Division of Enforcement’s investigation of this matter.

In a related proceeding, the CME Group is issuing a notice of disciplinary action against Morgan Stanley today. The CFTC thanks the CME Group for its assistance.
CFTC Division of Enforcement staff members responsible for this case are Brian G. Mulherin, Timothy M. Kirby, Brandon T. Tasco, Gretchen L. Lowe, and Vincent A. McGonagle.