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Largest Award Issued In Commodity Fraud Case; Trading Firm Charged $3.4m For Attempted Manipulation

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Friday, July 13, 2018    06.09AM  /   CFTC       

 

The Commodity Futures Trading Commission (CFTC) yesterday announced its largest whistleblower award to-date in a commodity fraud case.  According to the Commission, it issued “an award of approximately $30 million to a whistleblower who voluntarily provided key original information that led to a successful enforcement action”

 

“This is a major breakthrough for whistleblower protections.  The CFTC has been slow in processing and granting awards for whistleblowers.  Today’s $30 million award is good news for whistleblowers who expose frauds in the trillion-dollar commodities markets,” said Stephen M. Kohn, a leading whistleblower attorneyand the pro bono Executive Director of the National Whistleblower Center.

 

“Large awards in whistleblower cases are the key in deterring future wrongdoing, and incentivizing other whistleblowers to step forward, facts that the Chairman of the CFTC recognized.” Kohn added.

 

In light of this award, the Chairman of the CFTC, J. Christopher Giancarlo, issued the following statement: 

The Whistleblower Program has become an integral component in the agency’s enforcement arsenal.   We hope that an award of this magnitude will incentivize whistleblowers to come forward with valuable information and provide notice to market participants that individuals are reporting quality information about violations of the Commodity Exchange Act [CEA].”

 

James McDonald, Director of the CFTC Division of Enforcement, stated: “Whistleblower submissions have become a significant part of our enforcement program, allowing us to pursue violations we might otherwise have been unable to detect.  That’s one reason why we’ve worked hard to expand our Whistleblower Program, including by increasing the protections afforded to whistleblowers that come forward.  I expect the Whistleblower Program to contribute even more substantially to our enforcement efforts going forward.”

 

The CFTC’s Whistleblower Program, established as part of the Dodd-Frank Act, pays monetary awards to eligible whistleblowers who voluntarily provide the CFTC with original information on violations of the Commodity Exchange Act that leads to a successful enforcement action resulting in monetary sanctions exceeding $1,000,000.   Rewards under the program are mandatory for qualified whistleblowers, and must be paid in the range of 10-30% of the collected proceeds.

 

 

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Related Development

 

CFTC Orders Commodity Trading Firm To Pay $3.4 Million Penalty For Attempted Manipulation Of Agricultural Markets

 

The Commodity Futures Trading Commission (CFTC) yesterday, issued an Order filing and settling charges against Lansing Trade Group, LLC (Lansing), a commodity merchandising firm with headquarters in Overland Park, Kansas, for the attempted manipulation of the price of certain wheat futures and options contracts that were traded on the Chicago Board of Trade (CBOT) and for aiding and abetting the attempted manipulation of the cash price for yellow corn from Columbus, Ohio (Columbus Corn).

 

The CFTC Order requires Lansing to pay a $3.4 million civil monetary penalty, to undertake remedial measures to implement and strengthen its internal controls and procedures relating to compliance with the anti-manipulation provisions of the Commodity Exchange Act (CEA) and CFTC Regulations, and to cease and desist from further violations of the CEA and CFTC Regulations, as charged.

 

James McDonald, CFTC Director of Enforcement, commented: “This Order shows the CFTC’s relentless commitment to preventing manipulation in our agricultural markets.  The CFTC will continue to work with our law enforcement partners and other regulators to fight manipulation and to preserve market integrity.”

 

According to the CFTC Order, Lansing is largely focused on the purchase, handling, storage and sale of physical commodities including grains, feed ingredients, and certain energy products within North America and internationally.  Lansing has locations throughout North America, as well as the United Kingdom.  In addition to their transactions in the physical or cash grain markets, Lansing’s traders hedge their physical grain trading activity and take speculative positions by trading related commodity futures, including CBOT wheat futures and options contracts.

 

The CFTC Order further states that from at least March 3, 2015, to March 11, 2015, Lansing coordinated and executed a strategy to attempt to manipulate the price of certain CBOT wheat futures and options contracts.  Lansing’s strategy centered on acquiring and loading-out for delivery wheat with 3 parts per million deoxynivalenol (3 ppm Vomitoxin) through the purchase and cancellation of 250 wheat shipping certificates (Wheat Certificates).  Through the cancellation of these Wheat Certificates, Lansing intended to send a false or misleading signal to the market of a demand for 3 ppm Vomitoxin wheat in order to attempt to influence the price of certain wheat futures and options contracts being traded on the CBOT.  Lansing intended by these actions to increase the value of its wheat spread and option positions. 

 

In order to maximize the potential influence of cancelling the Wheat Certificates on Lansing’s wheat spread and options positions, the CFTC Order further states that a Lansing trader communicated with the writer of a market newsletter, who agreed to disseminate information about Lansing’s intent to cancel and load-out the Wheat Certificates to the market.  For example, in a March 6 telephone call, a Lansing trader told the newsletter writer that the then-available receipts would not be available by night time but added that “I just wanted to make sure the market got lopsided first.”  In a call later that day, a Lansing trader further described his communications with the newsletter writer and said “I got (the newsletter writer), he’s gonna give it the gas tonight, and its gonna be good.” By such conduct, Lansing attempted to manipulate the price of certain wheat futures and options contracts being traded on the CBOT. 

 

Separately, on February 19, 2015, according to the CFTC Order, a Commodity Broker (“Broker”) contacted a trader at Lansing by phone and requested that Lansing enter into a transaction with its counterparty, a Grain Company (Grain Company), for Columbus Corn at a price below the market price.  The CFTC Order further states that the Broker told the Lansing trader that the Grain Company wanted this reduced price for the Columbus Corn put “out there” to the market, and that this transaction would be used by the Grain Company to spread false or misleading information about the price of Columbus Corn.  Written confirmations from Lansing confirm that Lansing entered into two transactions with the Grain Company on that day at the exact lower prices discussed with the Broker.  By such conduct, Lansing aided and abetted an attempt to manipulate downward the price of Columbus Corn.

 

The CFTC’s investigation was conducted in conjunction with a related inquiry by the CME Group Inc.  Today, the CME Group Inc. issued a Notice of Disciplinary Action (NDA) in which Lansing agreed to pay a fine of $3.15 million arising out of the attempted manipulation of the wheat futures contracts that is the subject of the CFTC’s Order.  In imposing its civil monetary penalty, the CFTC took into account the fine imposed by the CME in its related action.  The CFTC thanks the CME Group, Inc. for its assistance. 

 

CFTC Division of Enforcement staff members responsible for this case are Michael Cazakoff, Michael Geiser, Lara Turcik, James G. Wheaton, Steven Ringer, Lenel Hickson, Jr., and Manal M. Sultan. 

 

Related Link

·         Order: Lansing Trade Group, LLC

 

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