The Commodity Futures Trading Commission (CFTC) has charged a former natural gas head trader in Houston with fraudulently mismarking futures and physical trades in order to conceal losses that ultimately cost the commodities-trading company where he worked more than $100 million.
In a federal civil enforcement action filed Thursday in the U.S. District Court for the Southern District of New York, CFTC charged David Smothermon with defrauding the company, where he worked as president and head trader of the gas division, "by scheming to inflate the reported mark-to-market profit-and-loss value of the gas division's overall trading book in order to conceal losses that ultimately grew to cause the company to suffer more than $100 million in realized losses."
For approximately 10 months beginning in late 2015, Smothermon is alleged to have falsely inflated the value of the trading book he oversaw in order to conceal his mounting trading losses from the company, CFTC said. The complaint alleges that Smothermon caused to be mismarked the daily mark-to-market value of his NYMEX futures positions, and directed gas division employees to make changes in the entries in the company's system relating to terms and values of physical trades.
CFTC said it is seeking restitution, disgorgement of benefits from the alleged violations, civil monetary penalties, trading bands and a permanent injunction against future violations of federal commodities laws.
Separately, Smothermon was arrested in Houston Nov. 6 and the U.S. Attorney for the Southern District of New York and the FBI announced the unsealing of a criminal complaint charging him with wire fraud in connection with a scheme to hide from his employer trading losses he incurred, "by causing false entries to be made in the employer's accounting system."
The privately-held Manhattan-headquarter firm for which Smothermon worked was not identified by CFTC, the FBI or the U.S. Attorney's Office. Smothermon began working for the company in 2005, running a subsidiary specializing in the trading of liquefied petroleum gas. With an audit of the subsidiary by the company looming, Smothermon resigned in September 2016, according to the U.S. Attorney's Office.