The U.S. Commodity Futures Trading Commission (CFTC) has charged a Texas energy trader for allegedly mismarking trades to hide trading losses that ultimately saw his firm suffer more than US$100 million in losses, the derivatives regulator announced Thursday.
The CFTC has filed a federal civil enforcement action against David Smothermon of Houston, Texas, alleging that he defrauded the commodities-trading company where he was president and head trader of its gas division. The allegations have not been proven. Smothermon falsely inflated the value of his trading book to hide trading losses from the firm, the CFTC alleges. The allegations have not been proven.
The regulator says that the scheme involved mismarking certain futures positions, and ordering changes to the details of physical trades in the company’s own recordkeeping system to exaggerate the value of its trading positions.
“Traders who fraudulently mismark their futures and physical commodity positions undermine market participants’ ability to understand and manage risk,” said James McDonald, director of enforcement at the CFTC, in a statement.
The case, which was filed in the U.S. district court for the Southern District of New York, seeks restitution, disgorgement, monetary penalties, and trading bans.
Last year, Smotherman was also charged with wire fraud in connection with the scheme. Those allegations have not been proven.