The Commodity Futures Trading Commission brought and settled charges against Jon Ruggles, a former trader for Delta Airlines, for trading accounts in his wife’s name based on his knowledge of trades he anticipated placing for his employer. The CFTC claimed that this constituted trading on illicitly misappropriated information, and based its action, in part, on a theory equivalent to the securities concept of insider trading. According to the CFTC, Mr. Ruggles frequently placed a trade for accounts of his wife, and subsequently placed a limit order to liquidate the position at a price not then currently available in the relevant market but designed to achieve a profit. Mr. Ruggles would then place an order for his employer on the opposite side of the market for the same or greater quantity of the order for his wife’s accounts. Either his employer’s order would be totally executed against his personal order, or it would induce other traders to trade opposite his personal order. The CFTC said that Mr. Ruggles engaged in this and other types of similar illicit trading activity on 71 days from March 2012 through December 2012, achieving a profit of over US $3.5 million. (He mostly traded energy products listed on the New York Mercantile Exchange.) Mr. Ruggles’s conduct was alleged by the CFTC to constitute the employment of a manipulative or deceptive device based on his trading of material, nonpublic information that he inappropriately obtained from his employer, and fraud. To resolve the CFTC’s charges, Mr. Ruggles agreed to pay a fine of US $1.75 million; disgorge all trading profits on a specified schedule over 42 months; and never again trade on a market overseen by the CFTC. In June 2016, NYMEX brought and settled a disciplinary action against Mr. Ruggles based on similar allegations. NYMEX imposed a fine of US $500,000 against Mr. Ruggles; ordered disgorgement in excess of US $2.8 million (reduced by any amount disgorged to the CFTC); and imposed a permanent CME Group all-products trading prohibition. (Click here for details of the NYMEX disciplinary action against Mr. Ruggles, as well as an action against his wife, in the article, “Trader Sanctioned Over US $3 Million by CME Group for Trading on Confidential Employer Information; Both He and Wife Barred From Exchange Trading” in the June 19, 2016 edition of Bridging the Week.)

Legal Weeds: This is the second time the CFTC has brought and settled an enforcement action that sounds in the securities concept of insider trading, relying on the relatively new provision of law and CFTC rule that prohibits employment of a manipulative or deceptive device or contrivance in connection with futures or swaps trading. (Click here to access Commodity Exchange Act Section 6(c)(1), US Code § 9(1), and here to access CFTC Rule 180.1.) In the first action brought in 2015, the CFTC alleged that Arya Motazedi, a gasoline trader for an unnamed large, publicly traded corporation, similarly misappropriated trading information of his employer for his own benefit. The CFTC charged that Mr. Motazedi breached his duty of confidentiality to his employer by trading opposite the firm on 34 occasions to effectively transfer funds from his employer to himself, and in front of his employer’s orders on 12 other occasions. (Click here for information regarding the CFTC’s enforcement action against Mr. Motazedi in the article, “CFTC Brings First Insider Trading-Type Enforcement Action Based on New Anti-Manipulation Authority” in the December 6, 2015 edition of Bridging the Week.) The CFTC has used its manipulative or deceptive device or contrivance authority in a wide range of enforcement actions stemming from its first use in the JP Morgan “London Whale” episode to subsequent allegations of illegal off-exchange metals transactions, claims of more traditional manipulation of wheat, allegations of spoofing and insider trading. The CFTC has made clear it sees its new authority “as a broad, catch-all provision reaching fraud in all its forms – that is, intentional or reckless conduct that deceives or defrauds market participants” and will use it whenever possible – including for allegations of trading on the basis of material nonpublic information obtained as a result of a breach of a duty of confidentiality, or through fraud or deception. (Click here to access the CFTC’s views on the reach its authority under CFTC Rule 180.1 in the Federal Register adopting release for this provision.)