A US investment firm has been fined $1.5m and its senior staff $3.5m by the US regulator for illegally trying to influence the cattle futures market.
McVean Trading & Investments of Memphis, Tennessee was found to have “intentionally or recklessly used a manipulative or deceptive device to inject false information into the market, which had the potential to affect the live cattle futures market”.
Futures positions allow businesses to plan ahead, fixing the prices of commodities for a set period of time in contracts between suppliers and manufacturers. However, these contracts are bought and sold freely on the futures market, with prices changing daily.
Incorrect information about the availability of commodities can enable traders to benefit by buying contracts at artificially low prices and then selling high when the market recovers.
Influencing the market
With 11 million cattle in the US as of May 1 this year, according to statistics from the National Agricultural Statistics Service, the potential for influencing the cattle futures market is huge.
According to the US Commodity Futures Trading Commission (CTFC), McVean Trading secretly used four cattle feedyards as a front, or 'straw purchasers', to buy hundreds of long live cattle futures contracts – which at various points more than doubled spot month position limits.
By using these straw purchasers, the company was able to control substantial portions of the market without disclosing that control.
This caused other market participants, including live cattle traders with open short positions, to “see wider market interest, participation, and fragmentation on the long side of the market than actually existed”, said the CFTC.
CFTC director of enforcement James McDonald said: “For markets to have integrity, market participants must be able to trust that the markets operate free of manipulative or deceptive conduct.”
Mr McDonald said McVean Trading had tried to “game the markets by injecting false information, which distorts the view of that market seen by other participants”.
In addition to McVean Trading’s fine of $1.5m, company chairman and CEO Charles Dow McVean, Sr. was fined $2m, company president Michael J Wharton was fined $1m, and employee Samuel C. Gilmore, who was charged with aiding and abetting Charles McVean’s position limits violations, was fined $500,000.