Release: 4577-01 (CFTC Docket 02-01)
For Release: October 29, 2001

TWO TEXAS MEN SUED FOR DEFRAUDING FORMER EMPLOYER

CFTC Charges Clay Krhovjak and Paul Cochran in Fraudulent Allocation Scheme

WASHINGTON, D.C. – The United States Commodity Futures Trading Commission (CFTC) announced today the filing of an administrative action against Clay Krhovjak (Krhovjak) of Bellville, Texas, and Paul Cochran, of Houston, Texas. The CFTC complaint charges Krhovjak and Cochran with engaging in a fraudulent trading scheme that defrauded their former employer, Coastal Corporation (recently merged with El Paso Corporation).

Specifically, the complaint, filed on October 26, 2001, alleges that over a five-month period in 1996, Krhovjak and Cochran defrauded Coastal in a scheme to allocate profitable trades belonging to Coastal to accounts controlled by other unnamed scheme participants. In 1996, both Krhovjak and Cochran, who were Assistant Vice Presidents at Coastal’s commodity futures trading desk in Houston, Texas, were responsible for placing energy futures orders for Coastal with floor personnel at the New York Mercantile Exchange (NYMEX), according to the complaint. The complaint alleges that one of the NYMEX floor operations Coastal used in 1996 was Refined Energy, Inc. (Refined) of Red Bank, New Jersey, and it was through Refined that this scheme was conducted. This allocation scheme ensured Cochran, Krhovjak and other participants risk-free personal profits, according to the complaint.

In addition, the complaint charges Krhovjak and Cochran with defrauding Coastal by trading ahead of Coastal's futures trades, in that they used their advance knowledge of Coastal’s trades to obtain profits illegally for themselves and others.

The complaint alleges that Krhovjak and Cochran fraudulently allocated trades or traded ahead on nine different days between June and October 1996. From those misappropriated trades, Krhovjak, Cochran and their co-participants received $89,228 in stolen profits, according to the complaint.

Separately, in September 2001, Krhovjak and Cochran each pleaded guilty to one count of conspiracy to commit commodities fraud in violation of 18 U.S.C. Section 371 before the United States District Court for the Southern District of Texas. Sentencing is expected to occur in early 2002.

A public hearing has been ordered to determine whether the allegations are true, and, if so, what sanctions are appropriate and in the public interest. Possible sanctions include a cease and desist order, restitution, civil monetary penalties, and trading prohibitions.

A copy of the CFTC complaint can be found at http://www.cftc.gov.

Enforcement Contact:
Susan B. Bovee, Assistant Director, Division of Enforcement,
(202) 418-5409

THE CFTC APPRECIATES YOUR COVERAGE. SINCE WE DO NOT ALWAYS HAVE ACCESS TO YOUR FINAL STORY, WE ASK THAT YOU PLEASE SHARE IT WITH US BY ELECTRONICALLY MAILING OR FAXING A COPY TO OUR PUBLIC AFFAIRS OFFICE.

Dholden@cftc.gov
Public Affairs Facsimile: 202-418-5525
Attention: Dennis Holden