CFTC fines Cargill $10 million over misreporting swaps

Heavyweight agricultural trader and producer Cargill has been fined $10 million for misreporting on its derivatives business, the industry regulator said Monday.

Cargill provided “inaccurate information on swaps to protect its revenue,” and had also failed “to supervise the company’s swap dealers,” the Commodity Futures Trading Commission (CFTC) said in a statement.

Staff at Cargill Risk Management (CRM) concealed the size of their revenue from its clients, hiding up to 90% of their fee by falsely reporting the “mid-market mark,” in order to protect its earnings.

The mid-market market is intended to act as a transparent and unbiased reflection of the price of a swap, which according to the Dodd-Frank Act should exclude any “profit, credit reserve, hedging, funding, liquidity, or any other costs or adjustments.”

To conceal the true market value of a swap and its fee, CRM would price 10% of its mark-up on the first day of a 60-day swap, amortising the balance equally over the remainder of the swap’s life, the CTFC said.

Senior management at CRM met to discuss the implications of the firm’s registration as a swap dealer in 2013, with some expressing concern at the regulatory burden of mid-market reporting and exposure.

Staff then opted to pass on an opportunity to raise questions with the CFTC about mid-market mark requirement as the subject was deemed “too sensitive.”

Cargill, one of the world’s biggest agricultural traders, is the largest privately-held corporation in the US. It reported its revenues in the year to May 31 at $109.77 billion, with net profits of $2.84 billion.

In a prepared statement, Cargill said it will pay the $10 million fine, but would neither admit nor deny the findings.

“Management is immediately implementing revised customer reporting, as well as enhancing its internal controls and employee training programs,” it added.