The Commodity Futures Trading Commission charged Robert McMahon with orchestrating a scheme to allocate better-priced futures trades to himself, and worse-priced futures trades to a customer. The alleged transactions involved natural gas futures contracts traded on the New York Mercantile Exchange during July 2010. As a result of two such transactions on July 28, 2010, Mr. McMahon achieved profits of US $171,800, claimed the Commission. According to the Commission, Mr. McMahon, with the assistance of an unnamed NYMEX-based floor-trading clerk, first placed a market order for natural gas futures contracts as requested by a customer. At approximately the same time as a fill was reported for the market order, the floor clerk reported a non-competitive block trade between the customer and Mr. McMahon, at a price worse than the market price for the customer (and a better-than-market price for Mr. McMahon). The floor clerk then allocated both the market fill and the better-than-market fill price offsetting block trade to Mr. McMahon’s account ensuring Mr. McMahon a profit, said the Commission. To settle this matter, Mr. McMahon agreed to pay a fine of US $171,800 and be barred from trading on any CFTC-registered entity. Mr. McMahon was previously ordered by CME Group business conduct committees to pay a fine of US $100,000, disgorge profits of US $178,490, pay restitution of$188,960 and be permanently barred from trading any CME Group product in connection with similar activity on the Commodity Exchange, Inc. on seven different trade dates from July 2007 through April 2010, and on three occasions on two trade dates between June 2010 and July 2010 on NYMEX. (Click here and here to access relevant CME Group Notices of Disciplinary Action.)
My View: It would not be surprising if some question the appropriateness of the Commodity Futures Trading Commission bringing this me-too enforcement action against Mr. McMahon, given the CFTC’s limited resources and the fact that the CME Group has previously prosecuted and sanctioned Mr. Mahon for apparently the identical conduct – and more of it! However, given the egregiousness of the alleged violations, it is not surprising that the CFTC would seek a broader trading ban – beyond just CME Group markets – for Mr. McMahon. Although the commencement of a CFTC enforcement action on the heels of a virtually identical exchange action most likely does not violate the double jeopardy prohibition of the US constitution (because it does not subject a person twice in jeopardy for “life or limb” for the same offense; click here to review the Fifth Amendment to the US Constitution), it reasonably strikes many as fundamentally unfair and a questionable allocation of scarce CFTC resources. The CFTC should rarely and only in the most egregious circumstances exercise its authority to bring “me too” cases and make clear, when it does, why it is doing so.