CFTC Fines Company for Execution of Non-Bona Fide EFPs

The CFTC fined a trading company and one of its employees a total of $280,000 for executing numerous non-bona fide exchange-for-physicals transactions ("EFPs").

The CFTC alleged that the employee, who at the time was the director of purchasing for a coffee roasting business, executed EFPs that were non-bona fide and that violated exchange rules because the EFPs lacked a corresponding and related cash position executed by the parties to the transaction. Specifically, the employee purchased green coffee beans from various importers on behalf of his employer and then substituted his personally owned trading company for those of the importers in the futures leg of the EFP transactions. Applicable exchange rules require that in such transactions, one party must be both the buyer of the related position and the seller of the futures contract, or the seller of the related position and the buyer of the futures contract. The CFTC alleged that in failing to comply with these requirements, the respondent was able to secure advantageous prices for his personal company's futures trades. The CFTC held that the trades constituted "fictitious sales" and resulted in the reporting of non-bona fide prices, which violated the CEA and CFTC rules.