May 9, 2019
CFTC Charges Former Natural Gas Head Trader with Fraudulently Mismarking Futures and Physical Trades
Washington, DC – The Commodity Futures Trading Commission (CFTC) filed a federal civil enforcement action today in the U.S. District Court for the Southern District of New York against defendant David Smothermon of Houston, Texas, charging him with defrauding the commodities-trading company where he worked as president and head trader of the company’s gas division by scheming to inflate the reported mark-to-market profit-and-loss value of the gas division’s overall trading book in order to conceal losses that ultimately grew to cause the company to suffer more than $100 million in realized losses.
James McDonald, CFTC’s Director of Enforcement, said, “Traders who fraudulently mismark their futures and physical commodity positions undermine market participants’ ability to understand and manage risk. By this action, the Commission shows its continued commitment to rooting out dishonesty and fraud in our markets.”
The CFTC’s complaint alleges that from approximately December 2015 to September 2016, Smothermon falsely inflated the value of the trading book he oversaw in his role as head trader of the company’s natural gas division in order to conceal his mounting trading losses from the company. According to the CFTC’s complaint, Smothermon engaged in a multifaceted scheme that, among other things, involved causing false and deceptive entries in the company’s internal recordkeeping system to exaggerate the value of the company’s positions in futures contracts and various physical natural gas trades, thereby disguising the true scope of his trading losses. The complaint alleges that Smothermon caused to be mismarked the daily mark-to-market value of his NYMEX futures positions, and that on several occasions, he directed gas division employees to make changes in the entries in the company’s system relating to the terms and values of physical trades by the gas division.
In its continuing litigation, the CFTC seeks, among other relief, restitution, and disgorgement of benefits from violations of the Commodity Exchange Act and CFTC Regulations, civil monetary penalties, trading bans, and a permanent injunction against future violations of federal commodities laws, as charged.
The CFTC appreciates the assistance of the United States Attorney’s Office for the Southern District of New York.
The CFTC Division of Enforcement staff members responsible for this case are Gates S. Hurand, Trevor Kokal, K. Brent Tomer, Lenel Hickson, Jr., and Manal M. Sultan.
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