The CFTC charged a former commodities trading company executive with attempting to conceal losses in a trading book.
According to the Complaint, the former president of the gas division of a commodities trading company, David Smothermon, caused false entries to be submitted into the company's internal trading and traffic recordkeeping system in order to hide more than $100 million in losses in the gas division's trading book. To hide these losses, Mr. Smothermon allegedly exaggerated the reported mark-to-market profit-and-loss value of (i) the gas division's positions in futures contracts and (ii) certain of the gas division's physical natural gas trades.
Mr. Smothermon resigned in September 2016 following the company's announcement that it planned to audit the gas division's trading book.
Commentary / Steven Lofchie
It is a lesson constantly repeated that trading companies run the risk of being blown up by their employees when they fail to separate the activity of trading from the activity of valuing the portfolio. See, e.g., BEHIND THE KIDDER SCANDAL: THE OVERVIEW; Kidder Scandal Tied to Failure Of Supervision (Aug. 5, 1994). No matter how criminal, it is a predictable behavior that a trader who has lost a boatload of money will try to hide the loss and will double down, hoping to make it back. (Sometimes the double down may succeed, and no one ever hears about it. Other times, the firm blows up.) Any firm that fails adequately to enforce a separation of the trading and valuation functions is at big-time risk.
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