WASHINGTON, D.C. – Cargill, Inc., a Minnesota-based provisionally registered swap dealer, has been slapped with a $10 million penalty by the Commodity Futures Trading Commission (CFTC) for allegedly concealing markups on thousands of complex swaps. The charges, announced November 6, 2017, center around a scheme to provide inaccurate mid-market marks to counterparties and a swap data repository (SDR).
According to the CFTC, from 2013 through the present, Cargill systematically underreported its markups – the profit added to the underlying price of a swap – by as much as 90%. Instead of disclosing the full markup immediately, Cargill allegedly spread the remaining markup over sixty days, effectively hiding the true cost from those it traded with.
The CFTC order states Cargill’s motivation was purely financial. The company feared that full disclosure of its markups would reduce its revenue. Internal concerns about the legality of this practice were reportedly dismissed, and Cargill actively avoided raising the issue with the CFTC to prevent scrutiny.
“The Commission will vigorously pursue those who undermine the fairness and integrity of our markets,” stated James McDonald, CFTC Director of Enforcement. “Cargill provided marks that concealed its full mark-up on the swaps at issue in this case…Participants in our markets are entitled to trust that information they receive from counterparties complies with governing laws and regulations.”
As part of the settlement, Cargill is required to cease and desist from violating specific sections of the Commodity Exchange Act and Commission Regulations related to swap valuation and reporting. The company must also implement remedial measures to ensure accurate marks going forward. The case highlights the CFTC’s ongoing efforts to ensure transparency and integrity in the swaps market.
Source: CFTC.gov
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