CFTC Sanctions Firm for Trading on MNPI and Market Manipulation
A global commodities firm settled CFTC charges for (i) misappropriating material nonpublic information ("MNPI"), (ii) engaging in manipulative conduct and (iii) using non-disclosure agreements to limit the ability of employees to voluntary communicate with the CFTC.
According to the Order, the firm obtained material non-public information concerning pricing formulas of a Mexican trading entity from an employee of the trading entity. The CFTC said that the firm "understood the sensitivity of the improperly obtained confidential information, and took steps to maintain it in confidence and ensure that the [trading entity] would not learn they had it in their possession." The CFTC found that the information was "material to some of [the firm's] trading and business decisions, such as formulating business and negotiation strategies and determining prices to offer for gasoline products," and that firm traders "entered into physical and derivative gasoline transactions while in knowing possession of this information."
The CFTC also found that the firm engaged in certain manipulative trading activities which artificially increased a published commodity benchmark, and "consequently, the value of [the firm's] derivative positions that were priced by reference to the benchmark." The CFTC found that the firm's trading activity was "an extreme departure from the standards of ordinary care ... and presented a danger of misleading market participants who traded in that window or looked to rely on the ... benchmark."
In addition, the CFTC said the firm required current employees to sign non-disclosure agreements which contained overly broad confidentiality provisions and did not contain exemptions for sharing confidential information with regulators or law enforcement.
As a result, the CFTC found that the firm violated Sections 6(c)(1) ("Prohibition regarding manipulation and false information") and 23(h)–(j) of the Commodity Exchange Act and Commission Regulations 165.19 ("Nonenforceability of certain provisions waiving rights and remedies or requiring arbitration of disputes"), 180.1(a)(1) and (3) ("Prohibition on the employment, or attempted employment, of manipulative and deceptive devices").
To settle the charges, the firm agreed to (i) cease and desist from future violations, (ii) pay a civil penalty of US$55 million and (iii) comply with undertakings established in the firm's settlement offer.
Statements
CFTC Commissioner Summer K. Mersinger opposed "empowering the [CFTC] to line-item edit non-disclosure agreements," when the regulations do not impose "an affirmative duty to include carveout language."
CFTC Commissioner Caroline D. Pham warned that the CFTC's holdings on the non-disclosure agreement issue "fail[ed] to include important details about what contractual language the CFTC thinks violated Regulation 165.19." The failure to include these details, she said, creates uncertainty for lawyers and companies who draft these agreements.