The agency accused Chairman and CEO Charles Dow McVean, Sr., President Michael J. Wharton and long-time MTI consultant Samuel C. Gilmore of secretly using feedlots to buy long, live cattle futures contracts, which in some cases doubled the CME spot month position limits.
In a news release announcing the action, CFTC explained that “… McVean and Wharton intentionally or recklessly used a manipulative or deceptive device to inject false information into the market, which had the potential to affect the live cattle futures market. By using these straw purchasers, McVean and Wharton were able to control substantial portions of the market without disclosing that control, which caused other market participants, including live cattle traders with open short positions, to see wider market interest, participation, and fragmentation on the long side of the market than actually existed.”
The CFTC said that the company and the executives agreed to settle civil charges without “… denying, directly or indirectly, any findings or conclusions…” reached by the agency. Also, McVean was ordered to pay a civil monetary penalty of $2,000,000. Additionally, the CFTC ordered MTI to pay a civil monetary penalty of $1,500,000, Wharton to pay a civil monetary penalty of $1,000,000, and Gilmore, who was charged as an aider and abettor of McVean’s position limits violations, to pay a civil monetary penalty of $500,000.
“For markets to have integrity, market participants must be able to trust that the markets operate free of manipulative or deceptive conduct,” James McDonald, CFTC’s director of enforcement, said in a statement. “The Commission will always act to address those threats to the markets it regulates. That includes cases like this one, where market participants try to game the markets by injecting false information, which distorts the view of that market seen by other participants.”
Livestock groups have expressed concerns in the past about volatility in the cattle futures market. In May 2016, The US Government Accountability Office accepted a request by the Senate Judiciary Committee to review cattle pricing and the impact of high-frequency trading on cattle futures contracts.
CME Group also announced improvements to its livestock market trading, including reduced livestock trading hours to better align trading periods with the greatest liquidity in the markets. CME Group also pledged to conduct a public review with cattle customers to study if a discount is necessary at designated delivery points for live cattle futures.