Fuel-Hedging Trader: Employer Orders and Trading Through a Spouse’s Accounts

The CFTC fuel-hedging case required an employee to return $3,501,306 in trading profits and pay a $1.75 million civil penalty to resolve allegations that he used his employer’s hedging information and orders to benefit personal accounts. The Commodity Futures Trading Commission’s announcement described accounts in his spouse’s name that he controlled. He also controlled the employer orders that allegedly filled most of his personal trades. For a hedging or operations insider, the telling connection is between those accounts and the person giving both sets of instructions.

The Commission entered its settlement order on September 29, 2016. This CFTC enforcement action concerned the employee’s alleged misuse of his employer’s fuel-hedging business. According to the Commission, the employer’s confidential plans supplied the information, and its orders supplied most of the trades on the other side.

What the Fuel-Hedging Role Exposed

According to the Commission’s order, the employee had broad authority to develop the employer’s fuel-hedging strategy and execute it. He traded crude oil futures and options, heating oil futures and options, and RBOB gasoline futures on the New York Mercantile Exchange, a division of CME Group.

The order describes more than a view of the employer’s general outlook on fuel prices. According to the Commission, he knew the specific contracts it planned to trade, the order types it would use, when or at what prices it would place orders, and how many contracts it intended to buy or sell. He could place the orders himself.

The alleged scheme turned execution prices into a personal advantage. The Global Integrity Anti-Corruption Evidence 2022 report on commodity trading and corruption, Merchants of Integrity?, explains why those prices matter:

The Commission’s account puts that attention to price inside an employment relationship. The employee was entrusted with executing the company’s strategy, while the alleged arrangement directed favorable fills into accounts he controlled personally. As the Commission described it, the authority to trade for the employer became the means of trading against it.

According to the order, the employer’s conduct policies required him to protect confidential and proprietary information and avoid using it for personal benefit. The Commission alleged that he never disclosed his plan to use that information for his own trades. Those duties and that undisclosed use were central to the fraud allegation.

How the Personal Orders Met the Employer Orders

The Commission described two trading patterns, both built around personal limit orders followed by employer orders on the opposite side of the market. It alleged that the conduct occurred on at least 71 days from March through December 2012, in personal accounts the employee had established in his spouse’s name.

The account names and the trading decisions told different stories. The Commission’s allegation was that the same employee controlled the personal accounts and the employer’s accounts, chose the contracts and sequenced the orders. Both sides of the trade. One employee.

Closing a Personal Position at a Profit

In the most common pattern described in the order, the employee first opened a personal position in a contract he planned to trade for his employer. He then placed a limit order to close that position at a profit, at a price the market was not currently offering. The personal order waited unfilled.

Next came the employer’s order, on the opposite side, for the same or a larger quantity of the contract. According to the Commission, that order either matched the personal limit order immediately or traded through the market’s better bids or offers before reaching it. The resulting trades typically closed all or most of the personal position at a profit.

We see the abuse in that alleged sequence: the employee chose the profitable exit, then used the employer’s trading authority to reach it. On the Commission’s account, the employer was on the other side of the fill its employee wanted for himself.

Opening a Personal Position at a Better Price

The second alleged pattern used the employer’s orders to obtain a favorable entry price. The Commission alleged that the employee first entered a personal limit order to open a position at a price unavailable in the market. He then placed an employer order in the same contract on the opposite side.

Again, the employer’s order either matched immediately or worked through existing bids or offers before reaching the personal order. The Commission said this let the personal account open at a better price and later close at a profit.

The order also described occasions when the employee combined the patterns. Employer orders allegedly filled the personal account’s opening trade, and additional employer orders filled its profitable closing trade. In that alleged arrangement, the company’s trading authority served the personal account at both ends.

Other Traders Filled Part of the Orders

According to the order, the employer supplied most of the matching orders, but other market participants filled the remainder at the same personal limit prices. The Commission described those participants entering orders after the personal limit orders began matching against the employer’s orders.

The alleged benefit extended to the portions filled by other traders, while the employer orders helped bring execution to the selected prices. The order history across both sets of accounts shows how those fills fit together.

Why the CFTC Alleged Fraud and Noncompetitive Trading

The Commodity Futures Trading Commission addressed both the misuse of entrusted information and the way the trades were executed. Its fraud allegation concerned the employee’s use of confidential employer information for personal benefit, in breach of his duties to the business.

The fictitious and noncompetitive trading allegations concerned the matching orders. In its settlement order, the Commission said the employee arranged personal and employer trades so that he avoided competitive execution and removed market risk on the trades matched between those accounts. According to the order, the transactions appeared to go to the open market, but the employee controlled the order waiting for a fill and the employer order that would supply it.

The confidential information explained what he knew. Trading authority explained what he could make happen. The Commission alleged that he used both to secure favorable personal executions. For an insider, those are separate parts of the same story: the trading plans entrusted to the employee, the obligations attached to that access, and the actual orders placed with it.

What the CFTC Order Required

The order required him to hand back the trading profits the Commission tied to the scheme and pay a separate civil penalty. We see the imbalance: the penalty was smaller than the profits the employee was ordered to surrender. The Commission also permanently banned him from trading and registering with the CFTC.

What Connects the Accounts to the Desk?

For this trading pattern, the useful evidence connects access to employer information, control of the personal accounts, and the sequence of orders and fills. We examine those connections with the insider who understands how the desk worked.

We use the trading records required by recordkeeping rules to examine those events together. A personal account statement shows the profitable trade. The employer’s order history can explain how the price became available. Your knowledge of who gave the instructions can connect the two.

The Commission’s account also makes disclosure a concrete question: what did the employer know about the employee’s intended use of its trading information? We work through that question with you alongside the account records and executions, so the account of the conduct reflects how the business actually operated.

When Entrusted Trading Information Benefits Another Account

Other Commission actions show how confidential trading information can reach the account that benefits. In a December 2015 energy-trader settlement, the Commission addressed alleged misuse of employer information and prearranged trades that shifted value into the employee’s personal accounts. That case shares the employer-information connection with the fuel-hedging matter.

A separate Commission complaint against NYMEX and exchange employees alleged a disclosure route. The employees allegedly supplied an unauthorized broker with customer identities, trade sides, contract quantities, prices and trading strategies.

According to the complaint, one market participant complained after the broker repeatedly proposed trades that would offset its existing positions. Those offers appeared to reveal knowledge of positions the broker should not have known. The commercial conversation itself exposed the suspected information leak.

The fuel-hedging allegations put the information and the execution authority in the same employee’s hands. The exchange complaint alleged that information moved to an outside broker. Both make the insider’s understanding valuable: who had access, how the information was used, and which account stood to benefit.

Whistleblower Rewards for Trading Information

Under the CFTC whistleblower program, qualifying whistleblowers can share 10% to 30% of the money the Commission collects in an enforcement action. We assess how your information about trading conduct could support a CFTC enforcement action.

The False Claims Act is a separate whistleblower program. A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers.

You Know Who Gave the Orders

If you understand how employer orders reached a personal account, speak to one of our Whistleblower Experts about the trades you saw. We build the case around your knowledge of the desk and bring in CFTC whistleblower lawyers who understand confidential information and order execution. We stay beside you as the trading story becomes a case and through the pursuit of any whistleblower award.