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Source: US Commodity Futures Trading Commission

— The Commodity Futures Trading Commission today issued an order filing and settling charges against Marcus Schultz of Houston, Texas, for engaging in a fraudulent scheme to misappropriate his employer’s confidential information and enter into fictitious trades. Schultz is also charged with making false statements to the CFTC and ICE Futures US. 

The order requires Schultz to pay a civil monetary penalty of $669,750 and disgorge $427,067.45 in ill-gotten gains. In addition, the order bans Schultz, for a period of six years, from trading on or subject to the rules of any CFTC-registered entity and from engaging in any activities requiring registration with the CFTC. 

“Misappropriating material, confidential information in order to engage in fictitious trading undermines the integrity of the futures markets and will not be tolerated,” said Division of Enforcement Director James McDonald. “Further, the CFTC will aggressively pursue those who lie to the CFTC or the exchanges to conceal their fraudulent activity.” 

Related Criminal Action

In a related criminal action, the U.S. Attorney for the Southern District of Texas and the Department of Justice Criminal Fraud Section filed an information against Schultz on June 29, 2020. The CFTC order provides for offsets for certain payments Schultz must make in this related criminal action.

Case Background

According to the order, between April 2013 and February 2016, Schultz, an energy trader, engaged in a scheme to steal his employer’s material, confidential block trade order information to enter into fictitious trades for his and others’ personal profit. As part of this scheme, Schultz gave his employer’s block trade order information to a broker—also involved in the scheme—for the purpose of arranging a non-arm’s length block trade between Schultz’s employer and either the broker himself or other traders involved in the scheme. Schultz executed these block trades at prices that allowed either the broker or the other traders to make a profit on offsetting trades, rather than at prices that were in the best interest of his employer. The broker and/or traders shared their trading profits with Schultz. According to the order, Schultz further defrauded his employer by executing, documenting, and communicating about these trades in a manner to make them appear to be conducted in the ordinary course of his trading for his employer.        

The order also states that as part of this scheme, Schultz provided the same broker with additional material, nonpublic information of his employer, including information related to the U.S. Energy and Natural Gas Storage Report, anticipating that the broker would trade on this information. This broker shared his profits from this trading with Schultz.   

According to the order, to conceal the scheme, Schultz made false statements to both ICE and the CFTC in their respective investigations. For example, Schultz made false statements to ICE Market Regulation Department staff, including that he never gave any brokers permission to take the other side of his orders. Similarly, during an interview with CFTC Division of Enforcement staff, Schultz again falsely stated that he neither knew of or gave permission to a broker to take the other side of his orders and failed to disclose his involvement in the scheme.

The CFTC thanks and acknowledges ICE and the Fraud Section of the Department of Justice’s Criminal Division for their assistance in this matter.

The Division of Enforcement staff members responsible for this case are Alison Auxter, Lauren Fulks, Thomas Simek, Christopher Reed, and Charles Marvine.

 

MIL OSI USA News