Washington, D.C. — The Commodity Futures Trading Commission today issued an order simultaneously filing and settling misappropriation-based fraud charges against Freepoint Commodities LLC, a commodities merchant in Stamford, Connecticut. The fraudulent and deceptive conduct spanned from 2012 to 2018 and involved unlawful misconduct designed to obtain material non-public information from a South American state-owned enterprise (SOE) in connection with the purchase and sale of fuel oil. The order requires Freepoint to pay more than $91 million in civil monetary penalties and disgorgement.

The CFTC’s order finds that Freepoint’s fraudulent conduct, by which it improperly obtained and then traded on the SOE’s material non-public information, undermined the integrity of U.S. and global oil markets. These actions violated the Commodity Exchange Act (CEA). This case is brought in coordination with the Division of Enforcement’s Corruption and Insider Trading Task Forces.

“Misappropriation in the oil and gas markets harms not only physical and related derivative market participants, but the integrity of these markets,” said Director of Enforcement Ian McGinley. “As demonstrated today, the CFTC uses its authority under the CEA to ensure that the market is not influenced by whichever company is willing to pay the biggest bribes.”

Related Criminal Action

In a parallel matter, the Department of Justice’s (DOJ) Fraud Section today announced entry of a deferred prosecution agreement (DPA) with Freepoint, deferring criminal prosecution on a charge of conspiracy to violate the Foreign Corrupt Practices Act. Under the terms of the DPA, Freepoint agreed, among other things, to pay a criminal penalty and forfeiture. The CFTC order recognizes and offsets a portion of any criminal penalty or forfeiture made to the DOJ. 

Case Background

The order finds that Freepoint, through one or more traders, committed fraud by paying bribes to employees and agents of a South American SOE to obtain material non-public information related to the purchase and sale of fuel oil, primarily for delivery to or from the United States. According to the order, one or more Freepoint traders in Connecticut improperly obtained highly confidential market intelligence, including an SOE’s oil production and shipping plans, as well as certain bids submitted by Freepoint’s competitors for oil cargoes, by paying millions of dollars in improper payments to and through an intermediary. Freepoint used this information to purchase fuel oil bound for the United States, among other places. One or more members of Freepoint’s oil trading team knew this information was obtained by the payment of bribes, and they took steps to conceal the fraud, including by using code words, fake names, and private email addresses in connection with the scheme. Freepoint engaged in this scheme to secure unlawful competitive advantages in trading physical oil products, including more than $30 million in improper gains.

The Division of Enforcement (DOE) staff responsible for this matter are:  Ben Sedrish, Heather Dasso, Matthew Edelstein, Allison V. Passman, Margaret Aisenbrey, Gates Hurand, Scott Williamson, and Robert Howell. The DOE Corruption and Insider Trading Task Forces also provided assistance.

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CFTC’s Foreign Corrupt Practices Advisory

The Division of Enforcement issued an advisory on March 6, 2019 [See CFTC Press Release No. 7884-19] on self-reporting and cooperation for Commodity Exchange Act (CEA) violations involving foreign corrupt practices. As set forth in the advisory, where a company or individual not registered or required to be registered with the CFTC voluntarily discloses violations of the CEA involving foreign corrupt practices, provides full cooperation and appropriately remediates, DOE will apply a presumption that it will not recommend the CFTC impose a civil monetary penalty in resolution of an action, absent aggravating circumstances.

Customers and other individuals can report suspicious activities or information, such as possible violations of commodity trading laws, to DOE via a toll-free hotline 866-FON-CFTC (866-366-2382), file a tip or complaint online, or contact the Whistleblower Office. Whistleblowers may be eligible to receive between 10 and 30 percent of the monetary sanctions collected paid from the CFTC Customer Protection Fund financed through monetary sanctions paid to the CFTC by violators of the CEA.