Washington, D.C. — The Commodity Futures Trading Commission today announced that it has issued an order filing and settling charges against former introducing broker Classic Energy LLC and its owner, Mathew D. Webb of Houston, Texas for participating in a scheme to misappropriate the confidential block trade order information of Classic’s brokerage customers and facilitate fictitious trades. Webb and Classic are also charged with a scheme to defraud these brokerage customers by paying kickbacks to certain individual traders of these customers, as well as supervision violations and making false statements to ICE Futures US (ICE).

Webb and Classic admit the facts of their misconduct and acknowledge that their conduct violated the Commodity Exchange Act (CEA) and CFTC regulations.

This is the CFTC’s second enforcement against Webb and Classic. On September 30, 2019, the CFTC charged Webb and Classic with misappropriation of information, supervision, and recordkeeping violations between April 2014 and September 2015. [See CFTC Press Release No. 8030-19] Today’s order finds that Webb and Classic continued violate the CEA and CFTC regulations for an additional four years between September 2015 and November 2019. 

“This enforcement action demonstrates the CFTC’s commitment to pursuing those who misappropriate information and facilitate fictitious trading for their personal profit,” said Acting Director of Enforcement Vincent McGonagle. “Further, the CFTC will not tolerate registrants that engage in and allow such misconduct to occur and continue unabated within their firms.”

The order requires Webb and Classic to disgorge $585,000 in ill-gotten gains, to comply with undertakings to never apply for CFTC registration or engage in any activity requiring CFTC registration, and permanently bans both Webb and Classic from trading commodity interests. The order recognizes the respondents’ entry into a formal cooperation agreement with the Division of Enforcement and reserves the CFTC’s determination as to monetary sanctions based on the respondents’ agreement to cooperate.

Case Background

The order finds that from September 4, 2015 through at least January 22, 2019, Webb engaged in a scheme to misappropriate material, nonpublic block trade order information belonging to Classic’s customers. Webb did so by working in concert with certain individual traders employed by Classic’s brokerage customers to disclose block trade order information to another individual trader involved in the scheme. According to the order, this trader then used the information disclosed by Webb to arrange fictitious, non-arm’s length block trades between himself and the Classic customer at prices that allowed this trader to make a profit on offsetting trades. This trader shared these profits with Webb and the other traders involved in the scheme.

The order also finds that between at least September 4, 2015 and at least August 2019, Webb and Classic also defrauded one of their brokerage customers by paying a portion of the commissions Classic charged to the customer to certain of its traders as a kickback. According to the order, in exchange for these kickback payments, the traders directed more of the customer’s block trade business to Classic, which resulted in more commission revenue for Classic and higher profits for Webb.

The order further finds that Webb and Classic failed to diligently supervise other Classic brokers and allowed these brokers both to misappropriate material, nonpublic block trade order information from Classic’s customers and to defraud a Classic brokerage customer through kickback payments, in a manner similar to Webb. In addition, according to the order, Webb lied to ICE in the course of ICE’s investigation into the trades that were the subject of the CFTC’s September 30, 2019 order against Webb and Classic. 

Separate Criminal Action

In a separate, parallel matter, the Department of Justice’s Fraud Section today announced that Webb pleaded guilty to one count of conspiracy both to confirm the execution of fictitious trades and engage in a scheme to defraud in violation of the CEA and CFTC Regulations and to violate 18 U.S.C. § 1348(1) and 18 U.S.C § 1343. The CFTC order will recognize and offset a portion of any criminal forfeiture paid to DOJ.

The Division of Enforcement staff members responsible for this case are Alison Auxter, Clemon Ashley, Lauren Fulks, Thomas Simek, Christopher Reed, and Charles Marvine. 

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