Sugar Company Settles CFTC Charges for Wash Sale Violations

A Brazilian sugar company and its Swiss trading subsidiary settled CFTC charges for wash sales violations and "executing noncompetitive trades."

According to the Order, the company and its subsidiary entered into both physical sugar transactions and sugar derivatives transactions. The CFTC said that the two entities' trading accounts were controlled by the same traders and during the relevant period, the two entities executed forty-four sugar exchange for physical transactions ("EFPs"), totaling over 50,000 sugar futures contracts and valued at more than $1 billion. The CFTC found that these EFPs involved intercompany transfers of physical sugar and were used to offset futures positions taken to hedge price risks. 

As a result, the CFTC concluded that the company and its subsidiary violated CEA Section 4c(a)(l) ("Prohibited transactions") and (2)(A) ("Jurisdiction of Commission") and Regulation 1.38(a) ("Execution of transactions").  

The entities agreed to (i) cease and desist from violating CEA regulations and (ii) jointly and severally pay a $750,000 civil monetary penalty.

In a statement, CFTC Commissioner Caroline D. Pham criticized the decision not to grant recognition and cooperation credit for the entities' self-reporting of the violations. Ms. Pham reiterated ongoing concerns about the CFTC's inconsistent approach to self-reporting, describing it as a "bait-and-switch" tactic that undermines the incentive for market participants to come forward. She argued that the CFTC's unrealistic expectations for self-reporting, especially in cases of non-material operational issues, create a "Catch-22" for firms, risking legal liability even when they act in good faith. Ms. Pham called for clearer standards and internal governance improvements within the CFTC to ensure proper recognition of self-reporting efforts by market participants.