Bringing to a close a case that has spanned over 10 years, the U.S. Commodity Futures Trading Commission (CFTC) announced Wednesday two orders, which together find that Steven G. Soule, Kyler F. Lunman II and Lunman’s company, Hold Trade, Inc., participated in a trade allocation scheme to defraud Coastal Corp., which has since become part of El Paso Corp.

From its investigation, the CFTC found that the fraudulent scheme generated at least $276,557 in profits for Soule, Lunman, Hold Trade and other scheme participants. In April 2000, the men pleaded guilty in Houston to one count each of wire fraud charges (see Daily GPI, April 24, 2000).

The CFTC’s order against Soule, a former Coastal employee, finds that from November 1993 through November 1994, he engaged in a scheme with Lunman, Hold Trade and others to defraud Coastal of profits from its trading of commodity futures contracts on the New York Mercantile Exchange (Nymex).

The commission stated that during that time Soule and a floor clerk working for another participant in the scheme “misappropriated” numerous Coastal futures transactions and then wrongfully allocated the misappropriated trades to brokerage accounts controlled by other scheme participants. In addition, the order found that Soule made false internal reports to Coastal regarding its trading activity, and “willfully deceived” Coastal regarding the handling of its commodity futures orders.

The second order stated that during the same time frame, Lunman and Hold Trade knowingly aided and abetted Soule in the fraudulent trade allocation scheme by allowing profits from the scheme to be deposited into commodity futures trading accounts in Lunman’s and Hold Trade’s names. Following the scheme, the CFTC found that Lunman and Hold Trade then distributed those profits among the scheme’s participants, including themselves.

While none of the parties admitted or denied the allegations in the order, Soule, Lunman and Hold Trade agreed to accept a cease and desist order from further violations of the Commodity Exchange Act (CEA) and to repay Coastal a total of $276,557.

Under the order, the CFTC said Soule has agreed to pay a monetary penalty of $276,000, and be subject to a permanent trading ban, while Lunman and Hold Trade have agreed to pay a civil monetary penalty totaling $250,000 and be subject to a 10-year trading ban for Lunman, and permanent trading ban for Hold Trade. As a final stipulation, all of the respondents have agreed never to seek registration with the CFTC or act in a registered capacity.

The settlements arise from an amended enforcement complaint filed before the CFTC in February 1999. The commission noted that in April 2000, Soule and Lunman pleaded guilty to federal wire fraud charges in a separate criminal action based on the same fraudulent scheme. Each served various terms as a result.

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