Jun 27, 2024 The Commodity Futures Trading Commission (“CFTC”) has issued an order that both files and settles charges against Trafigura Trading LLC, a global commodities merchant based in Houston, Texas. Trafigura was found to have committed multiple violations of the Commodity Exchange Act (CEA) and related CFTC regulations. As a result, the order mandates that Trafigura pay a $55 million civil monetary penalty and implement specific remedial measures to ensure future compliance with the CEA. The order includes three violations: Between 2014 and 2019, Trafigura traded gasoline while knowingly possessing material nonpublic information that had been misappropriated from a Mexican trading entity (MTE). In February 2017, Trafigura manipulated a fuel oil benchmark to benefit its futures and swaps positions, including derivatives traded on U.S. registered entities. Between 2017 and 2020, Trafigura required its employees to sign employment agreements, and asked former employees to sign separation agreements containing non-disclosure provisions that prohibited them from disclosing company information. These agreements lacked exceptions for law enforcement agencies or regulators, illegally preventing individuals from voluntarily communicating with Division of Enforcement (DOE) staff during the investigation. “As reflected in today’s Order, Trafigura misappropriated material non-public information and engaged in manipulative conduct that affected published benchmark rates,” said Director of Enforcement Ian McGinley. “This enforcement action is yet another example of the CFTC’s commitment to ensuring the derivatives markets remain free from trading abuses that undermine their integrity.” Director of the Whistleblower Office Brian Young commented, “This is the first CFTC action charging a company under regulations designed to prevent interference with whistleblower communications. This groundbreaking action demonstrates the CFTC’s commitment to protecting potential whistleblowers and puts the market on notice that the CFTC will not tolerate contractual arrangements that could impede communication by potential witnesses.” Case Background Misappropriation of Material Nonpublic Information The order finds that between 2014 and April 2019, Trafigura, both directly and through intermediaries, improperly obtained nonpublic information critical to the gasoline market from an MTE employee, violating the employee’s company rules. This information included MTE’s pricing formulas for selling physical gasoline to another Mexican trading entity and MTE’s monthly import program detailing the volumes, types, and destination ports for gasoline to be imported the following month. Trafigura also occasionally received competitor pricing information during bilateral negotiations. MTE considered this information confidential and essential to its business, while Trafigura used it for trading and business decisions, including negotiation and pricing strategies for gasoline products. Trafigura traders in Houston, Texas, engaged in physical and derivative gasoline transactions while knowing this confidential information. Manipulative Conduct The order also finds that in February 2017, Trafigura manipulated the benchmark price of U.S. Gulf Coast high-sulfur fuel oil. From approximately January to March 2017, Trafigura launched a significant fuel oil export program to export fuel oil from the U.S. Gulf Coast to Singapore to profit from an open arbitrage for fuel oil. In connection with this strategy, Trafigura established a long derivative position in U.S. Gulf Coast high-sulfur fuel oil, partly as a hedge for its anticipated purchases of physical fuel oil for export to Singapore. However, Trafigura’s long derivative position exceeded its short physical position from its intent to buy fuel oil in the U.S. Gulf Coast for arbitrage, essentially creating a long speculative bet on fuel oil prices in February 2017. Starting February 1, 2017, and continuing through the month, Trafigura aggressively bid for and bought cargoes of fuel oil during the benchmark’s trading window, purchasing much larger amounts than ever before in a single month. This heavy bidding and buying activity tended to increase prices paid in the window, creating artificially high benchmark values, which benefited Trafigura’s long derivatives position. This manipulation harmed market participants who relied on the benchmark as a fair price reference. Impeding Voluntary Communications with the CFTC The order further finds that between July 31, 2017, and 2020, Trafigura required employees to sign employment agreements and requested former employees to sign separation agreements with broad non-disclosure provisions prohibiting sharing Trafigura’s confidential information with third parties. These non-disclosure provisions lacked explicit language allowing communications with law enforcement or regulators like the CFTC. This caused confusion and impeded voluntary and direct communications with the CFTC about possible violations of the CEA and CFTC regulations, violating the CEA’s prohibitions against obstructing direct communications with the CFTC. The order concludes that Trafigura’s actions defrauded its counterparties, harmed other market participants, and undermined the integrity of U.S. and global oil markets. This case was brought in coordination with the DOE’s Corruption Task Force and Insider Trading Task Force.