Commodity Futures Trading Commission Imposes $91 Million Penalty on Freepoint Commodities for Fraudulent Conduct

The Commodity Futures Trading Commission (CFTC) has issued an order while simultaneously filing and settling misappropriation-based fraud charges against Freepoint Commodities LLC, a commodities merchant headquartered in Stamford, Connecticut. The fraudulent activities, spanning from 2012 to 2018, involved deceptive conduct aimed at obtaining material non-public information from a South American state-owned enterprise (SOE) concerning the purchase and sale of fuel oil. The CFTC's order mandates Freepoint to pay more than $91 million in civil monetary penalties and disgorgement.

The order reveals that Freepoint's fraudulent conduct included the improper acquisition and trading on the SOE's material non-public information, constituting a breach of the Commodity Exchange Act (CEA). This misconduct, described as a misappropriation scheme, not only violated the law but also compromised the integrity of U.S. and global oil markets. The case has been pursued in coordination with the Division of Enforcement’s Corruption and Insider Trading Task Forces.

Director of Enforcement Ian McGinley emphasized the broader impact of misappropriation in the oil and gas markets, stating, “Misappropriation in the oil and gas markets harms not only physical and related derivative market participants, but the integrity of these markets. 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.”

Simultaneously, the Department of Justice's (DOJ) Fraud Section announced the 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 DPA's terms, Freepoint agreed to pay a criminal penalty and forfeiture. The CFTC's order acknowledges and offsets a portion of any criminal penalty or forfeiture made to the DOJ.

Case Background

The order details how Freepoint, through one or more traders, engaged in fraud by offering bribes to employees and agents of a South American SOE. These bribes were aimed at obtaining material non-public information related to the purchase and sale of fuel oil, primarily for delivery to or from the United States. The traders, based in Connecticut, improperly obtained highly confidential market intelligence, including the SOE's oil production and shipping plans and bids from Freepoint's competitors for oil cargoes. This information was acquired through millions of dollars in improper payments facilitated by an intermediary.

Freepoint's oil trading team, aware of the illicit nature of the information, took steps to conceal the fraud. These measures included using code words, fake names, and private email addresses. The scheme was orchestrated to secure unlawful competitive advantages in trading physical oil products, resulting in more than $30 million in improper gains.

The CFTC's actions underscore the commitment to maintaining the integrity of financial markets and preventing fraudulent activities that undermine fair competition and trust in the commodities trading landscape.‍

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