Summit Energy Services, Inc.—a Louisville, Kentucky-based firm—was fined US $140,000 by the Commodity Futures Trading Commission for advising its clients regarding the benefit of entering into over-the-counter natural gas swaps and natural gas commodity futures for compensation without being registered from October 2012 to September 25, 2014. During the relevant period, Summit held itself out on its website as providing “risk management” services regarding the value or advisability of trading in natural gas swaps or futures and had more than 15 clients. Most of Summit’s clients apparently were commercial entities that purchased physical natural gas and electricity as part of their energy needs. Generally, persons who advise other persons for compensation or profit regarding the value or advisability of trading in futures or swaps must be registered with the CFTC as a commodity trading advisor; there is an exemption for persons advising 15 or less persons over the prior 12 months and who does not hold themselves out to the public as a CTA. Summit agreed to pay the fine, as well as consented to cease and desist from further violations.
Compliance Weeds: As I emphasized in the preceding article, the test for CTA exemption is two part: a person who advises no more than 15 persons and does not hold themselves out to the public as a CTA. For startups, it is important not to undercut the numerical basis for an exemption from registration by claiming on a website or other promotional literature to provide advisory or risk management services regarding the value or advisability of trading in swaps or futures for compensation.