Release #4229-99 (CFTC Docket # 99-5)
For Release: January 12, 1999
CFTC FINDS THAT THE ANDERSONS, INC. OF MAUMEE, OHIO, OFFERED TO ENTER AND ENTERED INTO ILLEGAL FUTURES AND OPTION CONTRACTS; CFTC Order Accepting Settlement Offer Finds Convertible HTA Contracts and Option Features Contracts Violated the Commodity Exchange Act
WASHINGTON – The Commodity Futures Trading Commission (CFTC) announced today that it issued an order instituting proceedings and simultaneously accepting an offer of settlement from The Andersons, Inc. (Andersons), an Ohio corporation headquartered in Maumee, Ohio, finding that Andersons offered to enter into and entered into illegal futures and option contracts in violation of sections 4(a) and 4c(b) of the Commodity Exchange Act (CEA) and CFTC regulation 32.2. Andersons operates 14 grain elevators in Ohio, Indiana, Michigan, and Illinois.
The CFTC's order, issued on January 12, 1999, finds that from January 1, 1994, through December 31, 1995, Andersons' commercial grain marketing program included Convertible Hedge to Arrive (HTA) contracts that constituted illegal futures contracts because they were not traded on a designated contract market. The order finds that these were contracts for the purchase or sale of a commodity for delivery in the future at a price or pricing formula that was agreed upon when the contract was initiated and undertaken principally to assume or shift price risk without delivery either to or from Andersons of the underlying commodity. Most significantly, the contract provided an effective means of liquidating the contract for cash. Because these contracts were thus used to shift price risk, they operated as futures contracts that, under the CEA and CFTC regulations, had to be traded on designated exchanges.
In addition, according to the CFTC's order, Andersons offered contracts that included option features that under certain circumstances could result in additional grain delivery obligations. The CFTC's order finds that these option features contracts had all of the characteristics of commodity options of a type that was prohibited at the time by the CEA and CFTC regulations.
Andersons, without admitting or denying the CFTC's findings, consents to the entry of the order that directs it to cease and desist from further violations of the CEA and Commission regulations, and directs it to pay a $200,000 civil monetary penalty. Under the settlement, Andersons also agrees to maintain its newly established procedures whereby a committee co-chaired by the President of its Agricultural Group and the Vice President of its Grain Division has the responsibility to review all new proposed types of HTA contracts and any type of contract involving option features for the legality of such contracts under the CEA and CFTC regulations.
CFTC Commissioner Barbara P. Holum dissented.
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