Release Number 8642-22
CFTC Orders Minnesota Futures Commission Merchant to Pay $6.5 Million for Anti-Money Laundering, Risk Management, Recordkeeping, and Supervision Violations
December 20, 2022
Washington, D.C. — The Commodity Futures Trading Commission announced today it has issued an order simultaneously filing and settling charges against registered futures commission merchant (FCM) CHS Hedging LLC, of Inver Grove Heights, Minnesota, for anti-money laundering (AML), risk management, recordkeeping, and supervision violations. These violations are primarily a result of CHS Hedging failing to implement an adequate AML program, particularly as applied to a futures and options trading account controlled by one of its customers. In addition, CHS Hedging failed to implement risk-based limits concerning trading by that customer.
The order requires CHS Hedging to pay a civil monetary penalty of $6.5 million and to undertake certain remedial measures relating to the violations.
“The Commodity Exchange Act and accompanying regulations require FCMs to have and actually implement adequate AML and risk management policies and procedures,” said Acting Director of Enforcement Gretchen Lowe. “These are critical components to ensure customers are protected from fraud, and the CFTC will not hesitate to take action and require significant sanctions and remediation.”
The order finds that from January 2017 through December 2020, one of CHS Hedging’s customers (Customer A) owned and controlled a ranching company and other related businesses, and engaged in speculative trading that sustained millions of dollars in losses in the ranching company’s account at CHS Hedging. Customer A and the ranching company made net margin payments of more than $147 million to CHS Hedging over the course of those four years. According to the order, CHS Hedging accepted the margin payments from Customer A without adequately investigating the source of Customer A’s funds or reporting Customer A’s transactions in a Suspicious Activity Report to the Department of the Treasury.
The order finds that Customer A’s trading losses were facilitated by CHS Hedging’s failure to impose and enforce appropriate trading limits on his account. The trading limits CHS Hedging imposed on Customer A’s account were inconsistent with Customer A’s financial resources and hedging needs. Customer A frequently exceeded his trading limits. CHS Hedging, at times, raised those limits, which allowed Customer A to continue his speculative trading and sustain more losses.
Moreover, the order finds that CHS Hedging failed to maintain certain required records for pre-trade communications and failed to produce certain required records promptly or in the form requested by CFTC staff.
The Division of Enforcement staff responsible for this matter are Ashley J. Burden, Joseph Patrick, Ben Sedrish, Allison V. Passman, Scott R. Williamson, and Robert Howell.
The Division of Enforcement charged Cody Easterday and Easterday Ranches with fraud and other violations of the Commodity Exchange Act (CEA) and regulations in Case No. 4:21-cv-5050, currently pending in the U.S. District Court for the Eastern District of Washington. [See CFTC Press Release No. 8372-21]
Cody Easterday pled guilty to criminal charges arising from the aforementioned scheme and was sentenced to 11 years in prison.
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Customers and other individuals can report suspicious activities or information, such as possible violations of commodity trading laws, to the Division of Enforcement via a toll-free hotline 866-FON-CFTC (866-366-2382), file a tip or complaint online, or contact the Whistleblower Office. Whistleblowers are eligible to receive between 10 and 30 percent of the monetary sanctions collected paid from the CFTC Customer Protection Fund financed through monetary sanctions paid to the CFTC by violators of the CEA.