Chicago Gasoline Trader: The Employer’s Orders, the Trader’s Profits

A Chicago gasoline trader agreed to pay $216,956 in restitution in a CFTC insider trading settlement over allegations that he used employer information to profit through prearranged trades and front running. The Commodity Futures Trading Commission alleged that the employee placing the company’s futures orders also controlled the personal accounts benefiting from them. For someone who knows a trading desk, the connection is concrete: who knew the next order, who entered it, and whose account got there first.

The Commission’s December 2, 2015 announcement described a civil administrative settlement involving gasoline and crude-oil futures. The order describes conduct from September 3 through November 26, 2013, when the trader worked in the Chicago office of a large publicly traded corporation.

Employer Information Behind the Personal Trades

The employer information at the center of this CFTC case was specific: the timing, amounts and prices of intended energy-futures trades. According to the consent order, the gasoline trader routinely received that information through his job and allegedly used it for undisclosed personal trades.

According to the order, the company traded through a proprietary account, putting its own money into the market. The employee traded RBOB gasoline physical futures and light sweet crude-oil futures on the New York Mercantile Exchange through the Globex electronic platform. Alongside the company account, he controlled two individual futures accounts. He owned one of them. Looking only for an account bearing an employee’s name would miss the question the order answers: who could direct the trades?

The Commission alleged a breach of the trader’s duty to keep the employer’s information confidential. It described company trading guidelines that prohibited misuse of proprietary information, personal transactions creating an actual or potential conflict of interest, and personal financial transactions in energy commodities. The alleged advantage came from access the employer had entrusted to him, coupled with his ability to place its orders.

Prearranged Trades Made the Employer Buy High and Sell Low

The Commission alleged 34 prearranged trades in which the trader deliberately matched personal-account orders with company orders at times, prices and quantities he selected. The accounts took opposite sides, with prices arranged to favor the personal accounts.

The order alleges this sequence: the company bought futures at a high price while a personal account sold. On some occasions, the trader then arranged an offsetting transaction in which the company sold the same number of contracts back at a lower price. The personal accounts took the profitable side of the exchange in both directions.

Some transactions were allegedly round trips: successive purchases and sales left neither account with a net change in its open position. Same position. Less money. A position snapshot would miss what the purchases and sales reveal together.

The exchange setting makes the allegation especially pointed. The orders went through Globex, but the Commission alleged that the trader arranged them to match each other and avoid competitive execution. The order explains that open competition lets buyers and sellers participate in setting the futures price. Here, the employee allegedly chose both the match and which account would benefit.

We see the absurdity in that arrangement: the employer paid someone to trade its account, and allegedly became the losing side of his personal trades. An exchange screen did not make those interests line up.

Front Running Put Personal Orders First

The order separately describes 12 front-running occasions: the trader allegedly placed personal orders immediately before company orders for the same futures contract on the same side of the market. The Commission said he hoped to benefit from price movements caused by the company’s subsequent execution. The employer could receive a less favorable price because its order came after the personal order. Knowledge of the company’s planned timing, size and price gave the trader information he could use before placing the order he was entrusted to execute.

The sequence differs from the matched trades. In the alleged prearranged transactions, the personal and employer accounts traded against each other. In the front-running allegations, their orders went in the same direction, with the personal account positioned ahead of the company.

For an insider, the useful connection is between the intended employer trade and the personal order that preceded it. The timing makes sense only alongside the contract, side, size and person controlling each account.

Restitution to the Employer, a Separate Civil Penalty

The settlement required restitution to the former employer and a separate $100,000 civil monetary penalty payable to the Commission. The government’s penalty was smaller than the losses and reduced profits the order attributed to the trading.

The order also permanently prohibited trading on registered markets and imposed permanent restrictions on personal commodity-interest trading, directing other people’s commodity accounts and registration with the CFTC. The order states that he had never been registered with the Commission.

What Evidence Is Required to Prove Fraud?

For employer-information misuse, the evidence connects access to confidential trading plans with control of the personal accounts and the actual order sequence. We examine those connections with the insider who understands how the desk operated.

We connect trading records and communications because the orders and the instructions behind them explain different parts of the sequence. Timestamps, contract, side, price and quantity let us compare the personal execution with the employer’s execution. Account control and the employee’s access to planned trades give that comparison its meaning.

The Commission’s Fiscal Year 2021 President’s Budget, published in 2020, describes forensic economists analyzing trading data to develop evidence of unlawful trading. It also identifies front running and unlawful prearranged trades as forms of confidential-information misuse. Your knowledge of who could see an order and who directed an account can give meaning to the trading data.

The Same Information Problem Through Family Accounts

A separate Commission settlement in September 2016 concerned an employee responsible for developing and executing his employer’s fuel hedges. The agency alleged that he used employer information to trade through his wife’s accounts on 71 days during March through December 2012.

That parallel brings the account-control issue into focus. The agency alleged that the job supplied knowledge of the employer’s intended trades, while personal trading took place through accounts held in a family member’s name. The connection between the employee and the orders mattered alongside the account holder’s identity.

Across these allegations, the employer’s information had a practical use: it told the employee what the company intended to do in the market. Access to that information and authority over orders put the employee in a position to exploit the company’s trading. The documents that connect those responsibilities to the personal accounts are where we focus with an insider.

Can I Get Paid for Being a Whistleblower?

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. Under the Commodity Exchange Act, the separate CFTC Whistleblower Program provides awards totaling 10% to 30% of monetary sanctions collected in qualifying enforcement actions. Your information and its contribution to an enforcement action are matters we assess with you.

You Know Whose Order Came First

If you saw personal trades lining up with confidential employer orders, speak with our whistleblower experts about the trading you know. We connect your knowledge of the desk to the account and execution evidence, bring in CFTC whistleblower lawyers who understand futures trading, and stay beside you to build your strongest whistleblower case.