The Commodity Futures Trading Commission fined Cargill Inc. $10 million Monday for concealing its full mark-up on certain swaps in violation of the Commodity Exchange Act and CFTC rules.
The CFTC said the practice allowed Cargill to show more trading revenue.
Cargill concealed “up to ninety percent” of its markup, the CFTC said.
The practice continued for several years even though employees at Cargill knew about it, according to the CFTC.
The firm “failed to diligently supervise its employees in connection with these inaccurate marks, and in connection with inaccurate statements made to swap counterparties,” the CFTC said.
Cargill is based near Minneapolis. It specializes in trading agricultural commodities. By revenue ($109 billion in 2017) it’s the biggest privately held company in the United States. Profits last year were $2.8 billion. The company has about 150,000 employees.
The CFTC settled the case through an internal administrative proceeding and didn’t go to court. Cargill settled without admitting or denying the CFTC’s findings and conclusions.
Cargill used “non-compliant mark methodology,” the CFTC said. It didn’t report the true value of its swaps to counterparties or regulators.
Since Cargill registered as a swap dealer in 2013, it “failed to develop systems or procedures to prevent inaccurate communications,” the CFTC said.
In a swap, two parties agree to exchange payments based on changes in benchmark prices. Swaps are used to hedge market risks or to trade based on speculation about future commodity price moves.
“Cargill failed to have in place systems, controls, policies, or procedures that were reasonably designed to detect and prevent the misreporting of ‘percent hedged’ values to swap counterparties in the update communications,” the CFTC said.
In addition to paying the $10 million fine, Cargill agreed to enhance its compliance program and step up training for employees.
The CFTC’s November 6, 2017 order In the Matter of Cargill, Inc. is here (pdf).
Richard L. Cassin is the publisher and editor of the FCPA Blog.