For Release: September 25, 2002
TWO TEXAS MEN SETTLE FEDERAL CHARGES OF
FRAUDULENT COMMODITY SCHEME
CFTC Imposed Penalties and Trading Bans
WASHINGTON, D.C. – The U.S Commodity Futures Trading Commission (CFTC) announced today that it had settled an administrative enforcement action with Clay Khrovjak of Belleville, Texas, and Paul Cochran of Houston, Texas. The CFTC administrative action, filed on October 26, 2001, charged Khrovjak and Cochran with defrauding their former employer, Coastal Corporation (which has since merged with El Paso Corporation), by engaging in a fraudulent trade allocation scheme (see CFTC News Release 4577-01, October 29, 2001).
According to the September 19, 2002, CFTC settlement order, between June 28, 1996, and October 29, 1996, the respondents engaged in a fraudulent trade allocation scheme with another individual to defraud Coastal of profits from its trading of commodity futures on the New York Mercantile Exchange (NYMEX). Respondents allocated profitable Coastal trades on the NYMEX to another account controlled by their confederates and used their advance knowledge of Coastal’s impending trading activity in the futures market to trade ahead of the anticipated resultant price movements, according to the order. They also made false reports to Coastal regarding its trading activity and willfully deceived Coastal regarding the handling of its commodity futures orders, the order finds.
Also, according to the order, Krhovjak and Cochran misappropriated Coastal’s trades by means of wrongful allocations -- or trading ahead on nine different days in 1996. As a result of their scheme, respondents and other scheme participants jointly profited by $89,228.
The CFTC order requires the respondents to cease and desist from further violations of the Commodity Exchange Act, imposes permanent registration bans and trading bans, and orders Krhovjak and Cochran to pay civil monetary penalties of $40,000 and $30,000, respectively. The respondents neither admitted nor denied the underlying facts.
The CFTC’s Division of Enforcement and the Department of Justice, Fraud Section, cooperated in investigating this matter. Based on the same conduct, both Krhovjak and Cochran pled guilty to one count each of conspiracy to commit commodities fraud in violation of 18 USC Section 371. Krhovjak was sentenced on December 13, 2001, to two years probation, a fine of $2,500, and ordered to pay restitution of $89,228, jointly and severally with Cochran. Cochran awaits sentencing.
A copy of the order may be found at www.cftc.gov.
The following CFTC Division of Enforcement staff are responsible for this case: Susan B. Bovee, W. Derek Shakabpa, and Patricia Gomersall.
Media Enforcement Contact
Susan B. Bovee
CFTC Division of Enforcement (202) 418-5409
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