CFTC Imposes $1.75m Penalty on Futures and Options Trader for Fraud

The US Commodity Futures Trading Commission (CFTC) today issued a statement announcing it had filed and settled charges against Florida resident Jon P. Ruggles for engaging in fraudulent, fictitious, and noncompetitive trades in crude oil and heating oil futures, and options and RBOB gasoline futures on the New York Mercantile Exchange Exchange An exchange is known as a marketplace that supports the trading of derivatives, commodities, securities, and other financial instruments.Generally, an exchange is accessible through a digital platform or sometimes at a tangible address where investors organize to perform trading. Among the chief responsibilities of an exchange would be to uphold honest and fair-trading practices. These are instrumental in making sure that the distribution of supported security rates on that exchange are effectiv An exchange is known as a marketplace that supports the trading of derivatives, commodities, securities, and other financial instruments.Generally, an exchange is accessible through a digital platform or sometimes at a tangible address where investors organize to perform trading. Among the chief responsibilities of an exchange would be to uphold honest and fair-trading practices. These are instrumental in making sure that the distribution of supported security rates on that exchange are effectiv Read this Term (NYMEX), a division of CME Group.

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Breach of Duties

According to the CFTC, Ruggles, who was responsible for developing his former employer’s fuel hedging strategies and executing the employer’s trades, owed a duty of trust and confidence to act in the employer’s best interest and to keep confidential the employer’s material, nonpublic information regarding its trading activity.

However, Ruggles breached those duties to the employer and misappropriated the employer’s confidential, material, nonpublic trading information for his own personal benefit by trading the same NYMEX products he traded for his former employer in personal accounts in his wife’s name, which he controlled.

CFTC Director of Enforcement Aitan Goelman commented: “The misappropriation of confidential, nonpublic information is fraud under the Commodity Exchange Act (CEA) and CFTC Regulations and undermines the integrity of the derivatives markets. We will continue to be vigilant in clamping down on such abuses.”

Personal Benefit

In its findings, the CFTC reported that on at least 71 days during the period from March 2012 to December 2012, Ruggles used his former employer’s trading information to trade for his own personal benefit in personal accounts he controlled.

During those days, Ruggles traded in the personal accounts the same crude oil and heating oil futures and options and RBOB gasoline futures that he traded in the employer’s accounts.

Ruggles sequenced the trades in the personal and employer accounts so that the majority of his personal orders were executed against the employer’s orders and the remaining personal orders were filled by other market participants at prices advantageous to Ruggles’s orders.

By trading in this manner, the CFTC found that Ruggles misappropriated the employer’s trading information for his own benefit and committed futures and options fraud in violation of the CEA and CFTC regulations.

Furthermore, for the trades in his personal accounts that were executed against trades in his former employer’s accounts, Ruggles was able to avoid competitive Execution Execution Execution is the process during which a client submits an order to the brokerage, which consequently executes it resulting in an open position in a given asset. The execution of the order occurs only when it is filled. There is typically a time delay between the placement of the order and the execution which is called latency.In the retail FX space, reliable brokers always strive to deliver best execution to their clients in order to maintain a solid business relationship with them. This is a co Execution is the process during which a client submits an order to the brokerage, which consequently executes it resulting in an open position in a given asset. The execution of the order occurs only when it is filled. There is typically a time delay between the placement of the order and the execution which is called latency.In the retail FX space, reliable brokers always strive to deliver best execution to their clients in order to maintain a solid business relationship with them. This is a co Read this Term, negate market risk, and all but guarantee that the trades would be executed at the prices he sought.

In so doing, Ruggles engaged in fictitious and noncompetitive trading, once again, in violation of the CEA and CFTC regulations.

Penalties

The CFTC requires that Ruggles repays his fraudulent gains totalling $3,501,306, and has imposed a penalty of $1.75 million. Ruggles has also been permanently banned from trading and registering with the CFTC.