September 26, 2018
CFTC Charges Two Commodity Traders with Attempted Manipulation of Agricultural Markets
Washington, DC — The Commodity Futures Trading Commission (CFTC) today issued an Order against Adam Flavin (Flavin) and an Order against Peter Grady (Grady), traders at a Commodity Merchandising Firm, filing and settling charges for their attempted manipulation of the price of certain wheat futures and options contracts that were traded on the Chicago Board of Trade (CBOT).
CFTC Director of Enforcement Comments
James McDonald, CFTC Director of Enforcement, commented: “This case shows the CFTC’s commitment to holding individual wrongdoers accountable for their misconduct. As this investigation shows, we will not stop at corporate charges but will work vigorously to ensure the individuals who carried out the wrongful acts are held accountable as well.”
Flavin’s Order requires him to pay a $125,000 civil monetary penalty (CMP) and Grady’s Order requires him to pay a $250,000 CMP. Further, Flavin’s Order finds that for four years, and Grady’s Order finds that for nine months, each is prohibited, from the date of their respective Orders, from: 1) entering into any transactions involving commodity interests; 2) having any commodity interests traded on his behalf; 3) controlling or directing the trading for or on behalf of any other person or entity in any account involving commodity interests; and 4) soliciting, receiving, or accepting any funds from any person for the purpose purchasing or selling any commodity interests. The two Orders also require Flavin and Grady to cease and desist from further violations of the Commodity Exchange Act, as charged.
According to the Order, Flavin was a Kansas resident and an employee at the Commodity Merchandising Firm responsible for buying and selling physical wheat and trading CBOT wheat futures contracts for both hedging and speculative purposes. According to the Order, Grady was a Colorado resident and an employee at a subsidiary of the Commodity Merchandising Firm and was responsible for trading CBOT wheat futures contracts and options for speculative purposes. Grady also communicated regularly with employees of the Commodity Merchandising Firm who traded physical wheat.
Both the Flavin and Grady’s Orders further find that from at least March 3 to March 11, 2015, Flavin and Grady, while acting with others, coordinated and executed a strategy to attempt to manipulate the price of certain wheat futures and options contracts that were traded on the CBOT. This strategy, according to each Order, centered on acquiring and loading-out for delivery, by train or barge, wheat with 3 parts per million deoxynivalenol (3 ppm Vomitoxin) through the purchase and cancellation of 250 wheat shipping certificates (Wheat Certificates). Through the cancellation of these Wheat Certificates, they intended to send a false or misleading signal to the market of a demand for 3 ppm Vomitoxin wheat in order to increase the value of certain wheat spread and options.
By this conduct, both Flavin and Grady attempted to manipulate the price of certain wheat futures and options contracts being traded on the CBOT. For example, both Orders find that on a March 6 telephone call, Flavin and Grady discussed that they were “gonna execute it” and “catch this sucker off-guard.” Flavin stated that “I think it will send a very potent signal if we did it all in one day [cancel the Wheat Certificates].”
The Grady Order also described another call on March 6 in which Grady explained his plan to other traders: “I think the important thing is just to get transportation in Chicago and get that s**t moving. Because what’s gonna be more impressive is when they start seeing things move.” . . . and if I need to donate something to the funds, I’ll gladly go through and do that.”
In order to maximize the potential influence of cancelling the Wheat Certificates on the Commodity Merchandising Firm’s wheat spread and options positions, the Flavin Order further finds that Flavin communicated with the writer of a market newsletter, who agreed to disseminate information about the Commodity Merchandising Firm’s intent to cancel and load-out the Wheat Certificates to the market. For example, in a March 6 telephone call, Flavin told the newsletter writer that the then-available receipts would not be available by night time but added that “I just wanted to make sure the market got lopsided first.” In a call later that day, Flavin further described his communications with the newsletter writer to another trader and said “Just a really good day man, and just this freaking market is just upside-down right now, and I’ve gotten so many calls about that in the f**k is going on in Chicago…Ah man, yeah, it’s just so lopsided, and I got (the newsletter writer), he’s gonna give it the gas tonight, and its gonna be good. He says I’m just gonna give it the gas.”
By such conduct, Flavin and Grady attempted to manipulate the price of certain wheat futures and options contracts being traded on the CBOT.
The CFTC’s investigation was conducted in conjunction with a related inquiry by the CME Group Inc. On September 26, 2018, the CME Group Inc. issued Notices of Disciplinary Action against Flavin (Flavin NDA) and Grady (Grady NDA), both of which arose out of the attempted manipulation of the wheat futures contracts that is the subject of the CFTC’s Order. The Flavin NDA orders Flavin to pay a fine of $125,000 and the Grady NDA orders Grady to pay a fine of $250,000. Further, Flavin’s NDA ordered that for four years Flavin’s access, and Grady’s NDA ordered that for nine months Grady’s access, to all CME Group trading floors and direct and indirect access to all electronic trading and clearing platforms owned or controlled by CME Group will be suspended.
The CFTC thanks the CME Group, Inc. for its assistance.
CFTC Division of Enforcement staff members responsible for this case are Michael Cazakoff, Michael Geiser, Lara Turcik, James G. Wheaton, Steven Ringer, Lenel Hickson, Jr., and Manal M. Sultan.