Cargill, Inc.’s website says it is “committed to helping the world thrive,” but at what expense?

That’s what the Commodity Futures Trading Commission (CFTC) wondered when it ordered Cargill to pay a $10 million civil penalty for a host of infractions, including:

• providing inaccurate mid-market marks on swaps which concealed the company’s full markup from counterparties;
• violation of swap dealer business conduct and reporting requirements; and for
• failing to supervise swap dealer employees

Specifically, the CFTC Order finds that Cargill provided counterparties and the swap data repository (SDR) inaccurate marks which had the effect of concealing up to 90 percent of Cargill’s markup. Cargill also failed to diligently supervise its employees in connection with these inaccurate marks, and in connection with inaccurate statements made to swap counterparties. And why did Cargill do all these things? The company was concerned that it providing accurate information, its revenue would suffer.

Was concealment worth the risk?

Maybe…maybe $10 million is a drop in Cargill’s food bucket. But what about you? And your firm?

According to CFTC Director of Enforcement James McDonald, “Participants in our markets are entitled to trust that the information they receive from counterparties complies with governing laws and regulations. [The company’s actions undermined] the fairness and integrity of our markets. Cargill provided its counterparties and SDR inaccurate information about its swaps, and did so because of a concern that disclosing its full markup—as it was required to do—could reduce its revenue…We uncovered the misconduct and brought this action to ensure the marks on the swaps will be accurate going forward.”

Truth in advertising?

The CFTC Order finds that from 2013 to the present, Cargill, a provisionally registered swap dealer, provided hundreds of counterparties and its SDR with mid-market marks on thousands of complex swaps that failed to comply with the Commodity Exchange Act (CEA) and Commission Regulations.

Specifically, Cargill chose to provide counterparties a mid-market mark that failed to disclose Cargill’s full markup, as required. Instead, the company provided a mid-market mark that recognized only 10 percent of its markup on the first day of the swap and amortized the remaining markup equally over the next 60 days.  It hid up to 90 percent of its markup to maintain earnings.

And even when those inside Cargill expressed concern, it quashed the conversation and deliberately avoided raising questions about the mid-market mark with the Commission to avoid “tipping Cargill’s hand.” Moreover, although Cargill employees were aware that Cargill’s mid-market marks for complex swaps did not reveal Cargill’s full markup, Cargill took no steps to bring its marks into compliance before they were provided to counterparties or the SDR.

Despite the occurrence of these and other and a host of other inaccurate communications ongoing since 2013, Cargill failed to develop systems or procedures to prevent inaccurate communications with swap counterparties.

Compliance is so much cheaper!

So was the potential upside worth the risk? Hmmmm…Let’s think a minute. Okay. Maybe for Cargill…supermarket to the world. But for the rest of us? The answer is, “No!” $10 million is not exactly chump change. But, keeping your organization on the “straight and narrow” can be. Let’s talk (212-233-1155). Ask about Patrina’s cost-effective and comprehensive, 8-module compliance solution and compliant data capture, file storage, and records archiving specifically designed for the financial services community. Be smart. Be covered.