The CFTC has settled charges that Cargill’s swaps dealer business provided counterparties and a swaps data repository (SDR) with inaccurate data, hiding most of Cargill’s mark-up.
The CFTC reports that it has simultaneously filed and settled charges against Cargill, alleging that the Minnesota-based agricultural, commodity, and financial services giant sent swaps counterparties and a swaps data repository (SDR) “inaccurate marks” that obscured “up to ninety percent of Cargill’s mark-up.”
The settlement order means that Cargill, Inc. will pay a $10 Million civil monetary penalty for its alleged violations of “swap dealer business conduct and reporting requirements, and for failing to supervise swap dealer employees,” according to the CFTC.
The CFTC’s case is focused on the activities of the Cargill Risk Management (CRM) unit, the company’s swap dealer business. The company says that it provides “agricultural, food, financial and energy customers around the world with risk management and financial solutions.”
Cargill acknowledges that it came to an agreement with the CFTC “to change its customer reporting for products provided by its swap dealer, Cargill Risk Management,” according to a prepared statement from company officials.
“Cargill Risk Management is immediately implementing revised customer reporting, as well as enhancing its internal controls and employee training programs,” Cargill officials say. “The CFTC’s inquiry into these matters is now concluded, and Cargill neither admits nor denies the findings.”
The CFTC’s case stems from 2013 to the present and alleges that Cargill’s mid-market marks “recognized only ten percent of its mark-up on the first day of the swap and amortized the remaining mark-up equally over the next sixty days. The result was that Cargill provided mid-market marks to counterparties that concealed up to ninety percent of Cargill’s mark-up,” CFTC officials say.
In addition, the regulator charged that CRM officials used this non-compliant mark methodology even through there were “concerns within Cargill” that these practices violated the Commodity Exchange Act (CEA) and commission regulations.
The CFTC order also offers details about how Cargill officials “deliberately avoided raising questions about the mid-market mark with the Commission to avoid ‘tip[ing Cargill’s] hand.’ ”
CFTC officials also discovered that for “certain swaps executed based on prices derived by Cargill’s ProPricing grain marketing program, Cargill on occasion inaccurately reported certain information to swap counterparties.”
Specifically, CRM officials allegedly misled swap counterparties about “the percentage that accounts for particular enrolled commodities were hedged. … In those instances, rather than reporting to counterparties the actual percent the accounts were hedged, Cargill employees would inaccurately report to swap counterparties that the account was exactly 100% hedged or exactly zero percent hedged, respectively. Despite the occurrence of these inaccurate communications since 2013, Cargill failed to develop systems or procedures to prevent inaccurate communications with swap counterparties,” according to the CFTC.
The regulator’s findings include a failure to “diligently supervise” swaps trading employees allegedly responsible for “inaccurate marks and inaccurate statements made to swap counterparties,” which were done “because of a concern that providing accurate marks would reduce Cargill’s revenue,” according to CFTC officials.
“Participants in our markets are entitled to trust that information they receive from counterparties complies with governing laws and regulations. Thanks to the hard work of the team in this case, we uncovered the misconduct and brought this action to ensure the marks on the swaps will be accurate going forward,” according to statement from James McDonald, CFTC director of enforcement.
Cargill officials say that the CRM division “is a strong advocate for open, competitive and efficient swap markets. Cargill takes its legal obligations and market integrity seriously and makes every effort to ensure compliance with all laws and regulations relevant to its businesses.”
The company reaffirms its commitment to “providing its customers with the timely and accurate information they need to make risk management decisions with confidence. Customers will experience no interruption in the risk management products and services available to them,” according to Cargill.
The CFTC’s Enforcement Division benefitted from the cooperation of the overseer of the French stock market, L’Autorité des marchés financiers (AMF), the regulator adds.
Read the full text of the CFTC’s order here.
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