In a settled administrative proceeding brought partly under the CFTC's new anti-manipulation authority, the CFTC found that a Memphis-based futures commission merchant, through its President, its CEO and a consultant (collectively, the "respondents"), manipulated the live cattle futures market illegally, exceeded position limits for cattle futures contracts unlawfully, and committed reporting violations by failing to disclose their control over those positions.
As detailed in an Order, the CFTC found that the respondents (i) bought live cattle positions "at or near the stop month position limits imposed by the Chicago Mercantile Exchange," and (ii) paid cattle feedyards to buy additional futures on respondents' behalf in order to secretly increase positions. As a result of this conduct, the respondents allegedly were able to create the false appearance of market interest. The CFTC alleged that by using the cattle feedyards as "straw purchasers," the respondents effectively were able to control a significant portion of the live cattle market while concealing the full scope of their holdings and avoiding disclosure requirements. The CFTC also alleged that as a result of the respondents' activities, other market participants were subject to a distorted view of market conditions.
The CFTC found that the respondents violated Sections 6(c)(1), 4a(e), and 4i of the Commodity Exchange Act. Collectively, the respondents must pay $5 million in penalties.
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