David Smothermon of Houston, Texas, is facing federal charges after the Commodity Futures Trading Commission (CFTC) filed a civil enforcement action against him on May 9, 2019, in the U.S. District Court for the Southern District of New York. Smothermon, the former president and head trader of the gas division of a commodities-trading company, is accused of a scheme to inflate the reported mark-to-market profit and loss value of the division’s trading book.
According to the CFTC’s complaint, Smothermon intentionally concealed mounting losses, which ultimately totaled over $100 million in realized losses for the company. The alleged fraudulent activity took place between December 2015 and September 2016.
The CFTC alleges Smothermon engaged in a multifaceted scheme involving false entries into the company’s internal recordkeeping system. These deceptive entries were designed to exaggerate the value of futures contracts and physical natural gas trades, effectively masking the true extent of his trading losses. Specifically, he is accused of mismarking the daily mark-to-market value of NYMEX futures positions and directing employees to alter entries related to physical trade terms and values.
James McDonald, CFTC’s Director of Enforcement, stated that such fraudulent mismarking “undermine[s] market participants’ ability to understand and manage risk.” He emphasized the Commission’s commitment to combating dishonesty and fraud within the commodities markets.
The CFTC is seeking restitution, disgorgement of ill-gotten gains, civil monetary penalties, a trading ban, and a permanent injunction against future violations of federal commodities laws as part of its continuing litigation. The agency received assistance from the United States Attorney’s Office for the Southern District of New York in pursuing the case.
Source: CFTC.gov
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