United States Commodity Futures Trading Commission (CFTC) Fines French Commodities Giant Trafigura Group $55 Million for Fraud, Manipulation & Impeding Whistleblower Communications with CFTC, Traded Gasoline Between 2014 to 2019 with Non-Public Information Misappropriated from Mexico Trading Entity, Manipulated Fuel Oil Benchmark to Benefit Futures, Swaps & Derivatives in 2017, Required Employees to Sign Non-Disclosure Agreements Between 2017 to 2020 Including Non-Disclosures to Law Enforcement Agencies or Regulators
20th June 2024 | Hong Kong
The United States Commodity Futures Trading Commission (CFTC) has fined French commodities giant Trafigura Group $55 million for fraud, manipulation & impeding whistleblower communications with CTFC. Trafigura Group traded gasoline between 2014 to 2019 with non-public information misappropriated from a Mexico trading entity, manipulated fuel oil benchmark to benefit futures, swaps & derivatives in 2017, and required employees to sign non-disclosure agreements between 2017 to 2020 including non-disclosures to law enforcement agencies or regulators. United States CFTC (17/6/24): “The Commodity Futures Trading Commission today issued an order simultaneously filing and settling charges against Trafigura Trading LLC, a global commodities merchant with its principal place of business in Houston, Texas, for multiple violations of the Commodity Exchange Act (CEA) and associated CFTC regulations. The order requires Trafigura to pay a $55 million civil monetary penalty and implement certain remedial measures to ensure future compliance with the CEA. The order includes three violations: 1) Between 2014 and 2019, Trafigura traded gasoline while in knowing possession of material nonpublic information it knew or should have known had been misappropriated from a Mexican trading entity (MTE). 2) In February 2017, Trafigura manipulated a fuel oil benchmark to benefit its futures and swaps positions, including derivatives traded on United States registered entities. 3) Between 2017 and 2020, Trafigura required its employees to sign employment agreements, and requested that former employees sign separation agreements containing non-disclosure provisions prohibiting them from disclosing company information, with no exception for law enforcement agencies or regulators, which illegally impeded individuals from voluntarily communicating with Division of Enforcement (DOE) staff during the investigation.” See below for more info:
“ United States Commodity Futures Trading Commission (CFTC) Fines French Commodities Giant Trafigura Group $55 Million for Fraud, Manipulation & Impeding Whistleblower Communications with CFTC, Traded Gasoline Between 2014 to 2019 with Non-Public Information Misappropriated from Mexico Trading Entity, Manipulated Fuel Oil Benchmark to Benefit Futures, Swaps & Derivatives in 2017, Required Employees to Sign Non-Disclosure Agreements Between 2017 to 2020 Including Non-Disclosures to Law Enforcement Agencies or Regulators “
Director of Enforcement Ian McGinley: “As reflected in today’s Order, Trafigura misappropriated material non-public information and engaged in manipulative conduct that affected published benchmark rates. 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: “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, directly and through intermediaries, Trafigura improperly obtained nonpublic information material to the gasoline market from an MTE employee in breach of the employer’s rules. Among other things, Trafigura received MTE’s pricing formulas used to sell its physical gasoline to another trading entity in Mexico, as well as the MTE’s monthly import “program,” meaning the volumes, types, and destination ports for gasoline the MTE planned to import in the next month. Trafigura also sometimes received competitor pricing information in the context of bilateral negotiations. The MTE considered this information confidential and material to its own business, while the information was material to Trafigura’s trading and business decisions, such as its negotiation and pricing strategies for gasoline products. Trafigura traders in Houston, Texas entered into physical and derivative gasoline transactions while knowing this confidential information.
- Manipulative Conduct – The order further finds that Trafigura manipulated the benchmark price of U.S. Gulf Coast high-sulfur fuel oil throughout the month of February 2017. From approximately January to March 2017, Trafigura developed and deployed a large fuel oil export program designed to export fuel oil from the U.S. Gulf Coast to Singapore in order to profit from an observed open arbitrage for fuel oil. In connection with its arbitrage strategy, Trafigura established a long derivative position in U.S. Gulf Coast high-sulfur fuel oil, in part as an economic hedge for its anticipated purchases of physical fuel oil to export to Singapore. However, the long derivative position Trafigura entered was in excess of its short physical position that resulted from its intent to buy fuel oil in the U.S. Gulf Coast for arbitrage—the excess essentially constituting a long speculative bet on fuel oil prices in February 2017. Beginning on February 1, 2017, and continuing through the end of the month, Trafigura bid heavily for and bought cargoes of fuel oil in the benchmark’s trading window, in an amount much larger than it had ever previously purchased in the window in a single month. Trafigura’s heavy bidding and buying activity in that short period tended to increase prices paid in the window, and ultimately created artificially high benchmark values, which benefited Trafigura’s long derivatives position. This impact on the fuel oil benchmark was to the detriment of market participants who looked to rely on the benchmark as a fair price reference.
- Impeding Voluntary Communications with the CFTC – Finally, the order finds that between July 31, 2017 and 2020, Trafigura required its employees to sign employment agreements, and requested that former employees sign separation agreements, with broad non-disclosure provisions that prohibited the sharing of Trafigura’s confidential information with third parties. These non-disclosure provisions did not contain carve-out language expressly permitting communications with law enforcement or regulators such as the CFTC. The provisions caused confusion that resulted in an impediment to voluntary and direct communications with the CFTC about possible violations of the CEA and CFTC regulations in violation of the CEA’s prohibitions against impeding direct communications with the CFTC.
The order finds that Trafigura’s conduct defrauded its counterparties, harmed other market participants, and undermined the integrity of U.S. and global oil markets. This case is brought in coordination with the DOE’s Corruption Task Force and Insider Trading Task Force.
The CFTC thanks the Comisión Nacional Bancaria y de Valores of Mexico and the Swiss Financial Market Supervisory Authority for their assistance in this matter. The DOE staff responsible for this matter are Doug Snodgrass, Matthew S. Edelstein, Patrick Marquardt, Joe Patrick, Ben Sedrish, Allison V. Passman, Scott Williamson, and Robert Howell. Additional DOE staff who provided assistance are Gates S. Hurand and former staff Elise Kent Bernanke and Ilana Waxman. Customers and other individuals can report suspicious activities or information, such as possible violations of commodity trading laws, to the Division of Enforcement via a toll-free hotline 866-FON-CFTC (866-366-2382), file a tip or complaint online, or contact the Whistleblower Office. Whistleblowers may be eligible to receive between 10 and 30 percent of the monetary sanctions collected paid from the CFTC Customer Protection Fund, which is financed through monetary sanctions paid to the CFTC by violators of the CEA.
French Commodities Giant Trafigura Group Sent Letter to Current & Previous Employees to Propose Share Clawbacks for Breaches in Confidentiality & Code of Conduct, Trafigura Group is Employee-Owned
20th June 2024 – Switzerland & Singapore-based French commodities giant Trafigura Group had sent a letter to current & previous employees to propose share clawbacks for breaches in confidentiality & code of conduct. Trafigura Group is employee-owned. In 2023 March, the United States Department of Justice started investigating Trafigura Group for commodity price manipulation, with the group reporting a $577 million loss earlier in February 2023 on nickel fraud for containers found with missing nickel. In 2022, ex-Trafigura trader Charlotte Bamber had admitted to charges of wire fraud & commodity price manipulation (United States Department of Justice). See below for more info.
United States Investigating French Commodities Giant Trafigura Group for Commodity Price Manipulation, Reported $577 Million Loss in February 2023 on Nickel Fraud for Containers Found with Missing Nickel
25th March 2023 – United States Department of Justice is investigating Switzerland & Singapore-based French commodities giant Trafigura Group for commodity price manipulation, with the group reporting a $577 million loss earlier in February 2023 on nickel fraud for containers found with missing nickel. In 2022, ex-Trafigura trader Charlotte Bamber had admitted to charges of wire fraud & commodity price manipulation (United States Department of Justice). See below for more info.
Citi Ends Financing of Trafigura on 27th October 2023 Triggered Trafigura to Send Inspectors to Check Nickel Containers, Reports $577 Million Loss in February 2023 on Nickel Fraud & Won UK Judgement to Freeze $625 Million of India Counterpart Prateek Gupta & Companies
18th February 2023 – Citigroup ends financing of Switzerland & Singapore-based French commodities giant Trafigura Group on 27th October 2023 triggered Trafigura Group to send inspectors to check nickel containers and uncovered missing nickel in the containers. Trafigura Group reported a $577 million loss in February 2023 on the nickel fraud & also won a UK judgement to freeze $625 million of India counterpart Prateek Gupta & companies. In February 2023, Trafigura Group reported a $577 million provisional loss on fraud for containers found with missing nickel valued at around $577 million, and commencing legal actions against India businessman Prateek Gupta & his companies (TMT Metals and related companies to UD Trading Group). More info below.
Switzerland & Singapore-Based French Commodities Giant Trafigura Group Reports $577 Million Loss on Nickel Fraud for Containers Found with Missing Nickel, Commenced Legal Actions Against India Businessman Prateek Gupta & Companies Including TMT Metals & UD Trading Group
11th February 2023 – Switzerland & Singapore-based French commodities giant Trafigura Group has reported a $577 million provisional loss on fraud for containers found with missing nickel valued at around $577 million, and commencing legal actions against India businessman Prateek Gupta & his companies (TMT Metals and related companies to UD Trading Group). Trafigura Statement on 9th Feb 2023: “Trafigura recently discovered a systematic fraud committed by a group of companies connected to and apparently controlled by Mr Prateek Gupta including TMT Metals and companies owned by UD Trading Group. Trafigura has commenced legal proceedings against Mr Gupta and the companies involved. The fraud concerns containerised nickel in transit during 2022 and involved misrepresentation and presentation of a variety of false documentation. The fraud is isolated to one specific line of business. We have seen no evidence to suggest that anyone at Trafigura was involved or complicit in this illegal activity. A thorough review is ongoing. Since late December 2022, a small proportion of the containers purchased from these companies have been inspected as they reached their destination, and were found not to contain nickel. The majority of the shipments remain in transit awaiting further inspection. Nonetheless, the Group recorded a $577 million charge in the first half of 2023 for Trafigura Group Pte Ltd., estimated to be the maximum loss exposure related to this fraud. The Group’s net profits in the first half of its 2023 financial year are expected to exceed first half 2022 net profits, notwithstanding this impairment. The Group remains committed to building its presence in the fast-growing battery metals markets.” Trafigura is one of the world’s leading independent commodity trading and logistics houses, and has been trading with Prateek Gupta companies since 2015.
About Trafigura
Trafigura is a leading commodities group, owned by its employees and founded 30 years ago. At the heart of global supply, Trafigura connects vital resources to power and build the world. We deploy infrastructure, market expertise and worldwide logistics network to move oil and petroleum products, metals and minerals, gas and power from where they are produced to where they are needed, forming strong relationships that make supply chains more efficient, secure and sustainable. We invest in renewable energy projects and technologies to facilitate the transition to a low-carbon economy, including through joint ventures H2Energy Europe and Nala Renewables.
The Trafigura Group also comprises industrial assets and operating businesses including multi-metals producer Nyrstar, fuel storage and distribution company Puma Energy, and our Impala Terminals joint venture. The Group employs over 12,000 people and is active in 156 countries.
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