Yumin Li and Kering Capital Fined $1.2m for Prearranged Trading Fraud

Li and Kering have been charged with fraudulent transactions engineered by Li on the CME's trading platform.

The US Commodity Futures Trading Commission (CFTC) has announced in a statement that an Illinois district court has charged Yumin Li for stealing in excess of $300,000 from his former employer by trading the employer’s account non-competitively against an account belonging to Kering Capital Ltd, a British Virgin Islands (BVI) company formed by Li’s mother.

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Case History

The court order stems from a CFTC complaint filed in July 2015 which charged Li and Kering with fraud, fictitious sales, and non-competitive transactions in connection with a series of transactions engineered by Li on the CME Group’s electronic trading platform. These resulted in ‘money passes’, whereby Li moved money from her former employer’s trading account to Kering’s trading account.

The court found that on six separate occasions between 17 March and 6 May, 2015, Li intentionally engineered and engaged in commodity futures trades that were designed to give the appearance of taking place on the open market, while in reality they were structured to avoid market risk, and resulted in a gain to Kering at the expense of Li’s former employer.

Furthermore, Li prearranged trades by trading her employer’s account opposite an account she controlled at Kering, while concentrating the trading in illiquid eurodollar contracts outside normal trading hours.

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Fled the US

Using this strategy, Li stole over $300,000 from her employer and moved it to Kering. The court found that Li was not authorised by her employer to enter into any of the transactions and that Kering is vicariously liable for Li’s trading. Li fled the United States after her employer discovered the trading activity and confronted Li about the trades.

The court rejected Li’s argument that her employer’s alleged mistreatment of her provided any mitigating basis for her conduct, and found that Li’s belief that executing the illegal trades was the only way in which she would receive the compensation that she believed her employer owed her did not absolve her of the theft.

According to the court: “Li’s actions have undermined public confidence in the commodities markets and that the market harm she inflicted is even more insidious and damaging than the stolen funds themselves.”

Penalties

The court requires the defendants to repay over $300,000 to Li’s former employer and has imposed a penalty of over $900,000, representing three times the defendants’ unlawful gains.

Li has also been banned from trading in the commodity futures markets for five years and Kering in prohibited from allowing Li access to its trading accounts and from relying upon Li for trading advice and direction for the same period.

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