The term “white-collar crime” encompasses a wide range of activities that generally involve the use of fraud or misrepresentation, rather than actual or threatened violence. One well-known example of white-collar crime, insider trading, involves the use of non-public or confidential information to gain an advantage in a financial market. “Insider trading” is not a distinct criminal offense under federal law but instead a term used to describe certain types of fraudulent or unfair financial practices. People generally associate insider trading with securities markets and exchanges. A recent case brought by the U.S. Commodity Futures Trading Commission demonstrates that laws targeting insider trading are not limited to securities. Matter of Ruggles, CFTC Docket No. 16-34, order (CFTC, Sep. 29, 2016). The respondent, a former airline executive, was also subject to disciplinary action by the New York Mercantiles Exchange (NYMEX).
The commodities market has many similarities to the stock market, in terms of how trades occur and how the government monitors and regulates trading activity. A “commodity future” is a contract to buy a specified amount of a commodity at a specified price on a specified date. It is similar to an option contract in the stock market, since both involve obligations to purchase something at a later date at a set price, regardless of the market price. The CFTC, as indicated by its name, regulates commodity futures trading through the Commodities Exchange Act (CEA), 7 U.S.C. § 1 et seq. Traders are also subject to regulations established by the exchanges where trading occurs, such as NYMEX.
The respondent in Ruggles was the vice president of fuel for a major airline from mid-2011 until near the end of 2012. He was in charge of the company’s fuel-hedging strategy, which partly involved trading fuel futures. According to the CFTC, the respondent used information that was only available to him as an airline executive to trade crude oil, heating oil, and gasoline futures for personal gain. He reportedly used a financial account registered in his wife’s name to trade the same futures and options that he was trading for his employer. The CFTC alleged that this “all but guaranteed that the orders he placed” for himself “would be filled at advantageous prices.” Ruggles, order at 4.
Before the CFTC initiated its action against the respondent, he faced a disciplinary action by NYMEX. The exchange found that he violated multiple rules, including those regarding fraud and placing personal orders ahead of customer orders. It further found that he had realized more than $3.3 million in profit from the scheme, although only $2.8 million in profit occurred while he was subject to NYMEX’s jurisdiction. It fined the respondent $300,000, ordered him to disgorge $2.8 million in profits, and barred him from membership or participation in any exchange owned by NYMEX’s parent company, CME Group, Inc.
The CFTC alleged multiple violations of the CEA, including the use of a “manipulative or deceptive device or contrivance.” 7 U.S.C. § 9(1), 17 C.F.R. § 180.1. In an agreed order, the agency found him in violation of the CEA. It ordered injunctive relief, a fine of $1.75 million, and disgorgement of $3.5 million. The latter amount most likely overlaps with NYMEX’s order.
These blog posts are meant to be illustrative only. Unless expressly stated to the contrary herein, these matters are not the result of any legal work of Michael J. Brown, but are used to communicate a particular point of view. Michael J. Brown does not claim credit for any legal work done by any lawyer or law firm either generally or specifically, with respect to the matters contained in this blog.
Board-certified white-collar crime attorney Michael J. Brown represents people facing state and federal charges, helping them assert their rights and challenge the state’s allegations in the courts of West Texas. To schedule a confidential consultation to discuss your case, contact us today online or at (432) 687-5157.
More Blog Posts:
Supreme Court Denies Government’s Petition in Major Insider Trading Case, Texas Criminal Lawyer Blog, February 19, 2016
Nine People Indicted for Alleged Insider Trading, Using Information Allegedly Obtained by Hacking, Texas Criminal Lawyer Blog, October 30, 2015
Federal Appellate Court Overturns Insider Trading Convictions, Texas Criminal Lawyer Blog, March 31, 2015.