One of the Commission’s core functions is to ensure that derivatives markets have integrity and that there is no market manipulation and excess speculation that can artificially increase prices.  This function is particularly important since the pandemic when families have faced hard choices at the grocery store given increased costs of food.  In order to prevent excessive speculation, the Commission requires limits on trader positions—limits set by exchanges, and enforced against market participants.

In October 2022, Chief Judge Bastian sentenced defendant Cody Easterday to 11 years in prison and $244 million in restitution, saying that the case involves “the biggest theft or fraud I’ve seen in my career—and the biggest I ever hope to see.”[1]  Easterday was a rancher who defrauded Tysons Food, Inc. out of more than $230 million by charging it for approximately 200,000 head of cattle that did not exist (aka “ghost cattle”) between approximately 2016 and November 2020, including during the pandemic.[2]  In addition to the criminal case, the CFTC brought a civil case.

In 2021, the CFTC charged Easterday and Easterday Ranches, Inc. for fraud, making false statements to an exchange, and violating exchange-set position limits.[3]  Easterday accumulated more than $200 million in losses over a 10-year period from speculative trading in the cattle futures markets.[4]  Easterday devised the ghost cattle fraud scheme to generate money to cover margin calls on his millions in losses.[5]  The CFTC also charged him with defrauding the Chicago Mercantile Exchange (“CME”) in 2017 and 2018 to avoid disciplinary actions after exceeding position limits on cattle markets, and with violating position limits.[6]

I support the Commission’s settlement with Easterday because it bans him from trading in commodity interests (directly or indirectly), requires him to pay a $1 million penalty, defers to the criminal court’s restitution order, and requires him to admit to his wrongdoing.  I support the Commission requiring Easterday to pay a penalty in addition to his prison sentence.  This penalty would be in addition to a $30 million penalty as part of the Commission’s settlement with Easterday Ranch.

I wholeheartedly support the Commission requiring Easterday to admit “to all of the findings made in this Consent Order and all of the allegations in the Complaint.”  Requiring defendant admissions in CFTC enforcement actions serves the critical public interest goals of federal law enforcement programs—justice, accountability, and deterrence.[7]  In September, I proposed the Heightened Enforcement Accountability and Transparency test (HEAT Test) to assist the Commission in assessing whether specific cases demand heightened justice for victims, heightened accountability, and heightened deterrence that would accompany defendant admissions.  This would include cases with one or more of the following factors:

• Egregious conduct;
• The presence of a criminal scheme;
• Significant harm or risks of harm to investors and/or market participants;
• Significant harm or risks of harm to market integrity;
• A recidivist defendant;
• Obstruction, lying or concealment, in an investigation/examination by the CFTC, other federal authority on the same conduct, or a self-regulatory organization; and/or
• The need to send a pronounced message about particular conduct or practices.

Every factor exists in this case except that Easterday is not a recidivist.  Easterday engaged in a criminal scheme that was egregious.  There was significant harm to the market, market participants, and market integrity.  He lied to CME to avoid disciplinary action.  There is a significant need for the CFTC to send a pronounced message about violating CFTC requirements to prevent excessive speculative trading.

I previously issued a statement that the CFTC must ensure that excessive speculation does not distort and worsen existing challenges in commodities markets.[8]  Out of concern that families and businesses may pay artificially increased prices for commodities, I called for the CFTC to conduct deep dive studies into market manipulation and excessive speculation in commodities markets.  Easterday engaged in exactly the type of illegal conduct that poses harm to markets, and ultimately to families at the grocery store.[9]