A "madman" ConAgra oil trader who plotted for months to become the first to claim a $100 oil trade has instead helped land the firm a much more costly print: a $12 million fine for artificially bidding up the price of crude.
Regulators used taped phone calls and e-mails to document how the company's traders bagged the historic trade on Jan. 2, 2008, known as a "print," which they compared to collecting fine art.
The company's trader bought a $100 oil contract on the New York Mercantile Exchange at a time when the electronic market was trading 40 cents lower, and then ordered his broker to continue bidding at $99.90 a barrel in order to avoid the original trade being voided by exchange officials, the U.S. Commodity Futures Trading Commission said.
"Within freakin' 25 cents, I'm just gonna be a madman," the trader told a clerk that day, explaining his strategy to get the price, the CFTC said in its order settling the case.
One of the company's traders bragged that "some people collect art prints, we collect price prints."
While the circumstances surrounding the Jan. 2 trophy trade appear to be isolated, this is the third fine over $10 million this year from the CFTC, which is stepping up its efforts to crack down on market manipulation and disruptive trading practices.
Two of the CFTC's five commissioners disagreed with the fine.
The fine was "extremely high" compared to other settlements for disruptive trading practices, said Scott O'Malia, a Republican commissioner at the CFTC. But he argued the agency should have been tougher, and pursued manipulation charges against the traders "to send the appropriate message to the marketplace."
But Jill Sommers, also a Republican commissioner, said the penalty is greater than authorized by the Commodity Exchange Act.
ConAgra Foods sold the unit to Ospraie Fund and other investors later in 2008 and it was renamed Gavilon LLC. ConAgra said in a separate regulatory filing that it will pay Gavilon $4.3 million to eliminate any potential liability dispute over the fine.
ConAgra said in a statement that it had "appropriate" financial controls and risk oversight over its former trading unit, but did not approve the former unit's trades.
A Gavilon official and a spokesperson declined to comment on whether the trader or traders in question were still employed.
"We are pleased that this matter has been resolved and believe that this agreement is in the best interests of our customers and suppliers," the company said in a statement.
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