Recently, the CFTC brought an enforcement action against a proprietary gasoline and energy contract trader for, among other things, insider trading violations. This marks the first enforcement action brought by the CFTC that makes use of new powers granted to the Commission under the Dodd-Frank Act. This authority is basically the same as used by the SEC in pursuing insider trading enforcement cases.
The enforcement action was brought against Arya Motazedi, a Chicago-based trader in gasoline and energy contracts. According to the CFTC, Motazedi traded in energy commodity contracts based on confidential information he gained through his employer. Specifically, the trader used that confidential information to (i) enter opposite orders to the employer’s orders at least 34 times, which gained profits for the trader but caused the employer’s account to suffer losses; and (ii) to “front run” his employer’s orders on at least 12 occasions, which allowed the Motazedi to benefit from price movements caused by the execution of the employer’s orders.
To resolve the matter, Motazedi entered into an agreement with the CFTC to (i) the issuance of a cease and desist order; (ii) pay restitution in the amount of $216,955; (iii) pay a civil penalty in the amount of $100,000; (iv) agree to a permanent ban from trading commodity interests; and (v) agree to a permanent ban from registering with the CFTC as a futures professional in any capacity.
The main lessons to be learned from this enforcement action are that the CFTC now has the authority to take action against those persons who take advantage of material non-public information and use that information to their gain; and that the CFTC is not reluctant to investigate such activities and administer enforcement action against inside traders.