This week the US Department of Justice (DOJ) announced (click here) that the former president of an unnamed energy trading firm, Matthew Clark, had pleaded guilty to an illegal commission kickback scheme involving trading in natural gas futures. This long running saga dates back to activity occurring in 2014-15. The broker involved, Classic Energy LLC, was initially fined by the CFTC (click here) in 2019 with follow-up charges in 2021 (click here).
This announcement deals with criminal charges against several individuals, including the former president, of the trading entity that conspired with the broker. The individual is accused of receiving USD $5.5 million in illegal kickbacks generated from commission fees paid by his former employer to the broker. The individual admitted to the illegal misappropriation of confidential inside information about his company’s planned commodities trades.
The individual also misappropriated his employer’s material nonpublic information engaging in prearranged trading in natural gas futures with several implicated counterparties. According to the CFTC’s announcement, Classic Energy and individuals such as Clark arranged fictitious, non-arm’s length block trades between themselves at prices that allowed the trader to make profits on offsetting trades which were shared with other co-conspirators. Taking a hard line on the case, the DOJ noted “The natural gas futures contract market is an integral part of Houston’s economy, and to preserve the integrity of that system, it is important that commodity traders who buy and sell those contracts not engage in illegal and unfair practices. That’s why my office is committed to holding those accountable, like Clark, who use kickbacks and inside information to enrich themselves at the expense of the public’s trust in the U.S. markets.”
The announcement notes that this is a first-of-its-kind criminal commodities insider trading case. The underlying charges to which Clark pleaded guilty to included honest services wire fraud, prohibited commodities transaction and commodities insider trading.
Several other cases are running in parallel with this one. The case involving Lee Tippett, a co-conspirator who also pleaded guilty to conspiracy to commit commodities fraud and honest services wire fraud, who was sentenced in February to two years and nine months in prison followed by three years of supervised release.
Sentencing for Clark will take place on 24 June and the defendant faces a maximum of 20 years in prison for the honest services wire fraud count and 10 years in prison on each of the prohibited commodities transaction and insider trading counts.
