Two former Coastal Corp. futures traders agreed to pay fines totaling $70,000 and have been permanently banned from trading commodity futures on the New York Mercantile Exchange, according to settlement agreements reached with the Commodity Futures Trading Commission (CFTC). Clay Krhovjak of Belleville, TX, and Paul Cochran of Houston were charged in October 2001 with engaging in a fraudulent scheme to misappropriate and trade ahead of Coastal Corp. futures trades. The respondents neither admitted nor denied the underlying facts in the case.

The two former assistant vice presidents in Coastal’s commodity futures trading operation were responsible for entering Coastal’s large volume of natural gas, heating oil and crude oil futures orders. Between June 28, 1996 and Oct. 29, 1996, Krhovjak, Cochran and an individual who owned Nymex floor brokerage Refined Energy agreed to misappropriate profitable Coastal Corp. futures trades by allocating profitable trades to their own accounts, unprofitable trades to Coastal’s accounts and using advance knowledge of Coastal’s impending trading activity to trade ahead of anticipated resulting price movements on nine different days in 1996.

As a result of the scheme, the participants obtained about $89,228 in stolen profits from trades belonging to Coastal. They also made false reports to Coastal regarding its trading activity and willfully deceived Coastal regarding the handling of its commodity futures orders, the order finds.

The CFTC order requires the respondents to stop violating the Commodity Exchange Act. It also imposes permanent registration bans and trading bans, and orders Krhovjak and Cochran to pay civil monetary penalties of $40,000 and $30,000, respectively.

Both Krhovjak and Cochran pled guilty last September in the U.S. District Court for the Southern District of Texas to one count each of conspiracy to commit commodities fraud in violation of 18 USC Section 371. Krhovjak was sentenced on Dec. 13, 2001, to two years probation, a fine of $2,500, and ordered to pay restitution of $89,228, jointly and severally with Cochran. Cochran awaits sentencing.

This case follows another similar case involving Steven G. Soule, Kyler F. Lunman II and Hold-Trade Inc. who worked together with Thomas F. DeMarco, a Refined Energy telephone clerk on the Nymex floor, in a scheme in which energy futures trades made on behalf of Coastal were misappropriated and wrongfully allocated to accounts controlled by Lunman from Sept. 4, 1993 through Dec. 31, 1994, according to the CFTC. Both cases against former Coastal employees involved Refined Energy, whose owner Robert Rossi is now behind bars in Miami, FL.

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