CFTC orders Cargill, Inc. to pay $10 million penalty

November 6, 2017 02:09 PM

The CFTC Order finds that from 2013 to the present Cargill, a provisionally registered swap dealer, provided hundreds of counterparties and its SDR with mid-market marks on thousands of complex swaps that failed to comply with the CEA and Commission Regulations.  Specifically, Cargill chose to provide counterparties a mid-market mark that failed to disclose Cargill’s full mark-up, as it was required to do.  Instead, Cargill provided a mid-market mark that recognized only ten percent of its mark-up on the first day of the swap and amortized the remaining mark-up equally over the next sixty days.  The result was that Cargill provided mid-market marks to counterparties that concealed up to ninety percent of Cargill’s mark-up.

The CFTC Order further finds that Cargill used this non-compliant mark methodology because of its concern that providing counterparties marks that disclosed Cargill’s full mark-up would reduce Cargill’s earnings.  The CFTC Order also finds that Cargill undertook this course of conduct despite concerns within Cargill that this mark methodology did not comply with the requirements of the CEA and Commission Regulations.  And the CFTC Order finds that Cargill deliberately avoided raising questions about the mid-market mark with the Commission to avoid “tip[ing Cargill’s] hand.” 

Additionally, the CFTC Order finds that for certain swaps executed based on prices derived by Cargill’s ProPricing grain marketing program, Cargill on occasion inaccurately reported certain information to swap counterparties.  Specifically, Cargill would disclose to swap counterparties the percentage that accounts for particular enrolled commodities were hedged.  On a number of occasions since Cargill provisionally registered as a swap dealer in 2013, the accounts for particular commodities were over 100% hedged (i.e., short more than the amount of the particular enrolled commodity for that account) or less than zero percent hedged (i.e., long the particular enrolled commodity).  In those instances, rather than reporting to counterparties the actual percent the accounts were hedged, Cargill employees would inaccurately report to swap counterparties that the account was exactly 100% hedged or exactly zero percent hedged, respectively.  Despite the occurrence of these inaccurate communications since 2013, Cargill failed to develop systems or procedures to prevent inaccurate communications with swap counterparties.

Finally, the CFTC Order also finds that Cargill failed to diligently supervise its officers, employees, and agents relating to its business as a swap dealer.  Among other failures, Cargill had no systems or procedures in place that could have prevented or corrected its inaccurate communications about ProPricing-related swaps with counterparties.  Moreover, although Cargill employees were aware that Cargill’s mid-market marks for complex swaps did not reveal Cargill’s full mark-up, Cargill took no steps to bring its marks into compliance before they were provided to counterparties or the SDR. 

The CFTC’s Enforcement Division thanks the French L’Autorité des marchés financiers (AMF) for its cooperation.

The CFTC Division of Enforcement staff members responsible for this case are Gabriella Geanuleas, Trevor Kokal, John Buffington, Candice Aloisi, and Manal Sultan. 

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