CHS Hedging LLC, a registered futures commission merchant based in Inver Grove Heights, Minnesota, has been penalized $6.5 million by the Commodity Futures Trading Commission (CFTC) for violations of anti-money laundering (AML) regulations, risk management protocols, recordkeeping requirements, and supervisory failings. The CFTC announced the settlement on December 20, 2022.
The investigation revealed that between January 2017 and December 2020, CHS Hedging failed to implement an adequate AML program, specifically regarding an account controlled by a customer identified as “Customer A.” This customer, owning a ranching company and related businesses, incurred millions of dollars in losses while engaging in speculative trading through the CHS Hedging account. Over four years, Customer A and the ranching company made net margin payments exceeding $147 million to CHS Hedging.
According to the CFTC, CHS Hedging accepted these substantial margin payments without proper investigation into the source of funds or filing Suspicious Activity Reports to the Department of the Treasury as required. Furthermore, the firm failed to establish and enforce appropriate trading limits on Customer A’s account, despite the customer’s financial situation and stated hedging needs. Existing limits were frequently exceeded, and CHS Hedging, on occasion, raised those limits, allowing the speculative trading – and subsequent losses – to continue.
The order also found that CHS Hedging did not maintain required records of pre-trade communications and failed to promptly provide requested records to CFTC staff. In addition to the $6.5 million penalty, CHS Hedging is required to undertake remedial measures to address the identified deficiencies.
This case is related to a separate action brought by the CFTC against Cody Easterday and Easterday Ranches, charging them with fraud and violations of the Commodity Exchange Act. Easterday pleaded guilty to criminal charges stemming from the scheme and was sentenced to 11 years in prison.
The CFTC encourages individuals with information regarding potential violations of commodity trading laws to report suspicious activity via its toll-free hotline at 866-FON-CFTC or through its online tip/complaint portal.
Source: CFTC.gov
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