Cargill Inc. agreed to pay a $10 million penalty for concealing the full value of certain swap trades to protect its own revenue, the U.S. Commodity Futures Trading Commission announced Monday.
Beginning in 2013, Cargill provided hundreds of customers with information on thousands of complex swaps that effectively hid as much as 90 percent of Cargill’s expected revenue, including expected profits and other costs Cargill used when setting the price. Swaps are a financial tool used to manage risk and exist in a variety of forms.
Wayzata-based Cargill, one of the world’s largest traders of agriculture commodities, agreed to pay the fine, but “neither admits nor denies the finding.” The company agreed “to change its customer reporting for products provided by its swap dealer, Cargill Risk Management,” Cargill said in a statement.
Not only did Cargill mislead its customers, or counterparties, but also the data repositories where all swap dealers must file their trades, the CFTC said.
Cargill was the first major nonfinancial company to register as a “swaps dealer” in 2013 after tighter government regulations of the financial industries were imposed in the wake of the 2008 financial crisis.
Cargill Risk Management provides over-the-counter swaps to customers in the agriculture, energy and metals markets.
“These are mid-to-large customers who deal with commodity price volatility in their supply chains,” the company said.
The agency found that Cargill employees knew their methodology failed to reveal full markup value of its swaps to counterparties. When the opportunity arose to seek clarification from the commission, the employees “ultimately decided not to raise the topic because it was ‘too sensitive’ and asking questions might ‘tip [Cargill’s] hand’ and result in an answer from the Commission that Cargill did not like,” according to the agency’s order.
The CFTC order also said that Cargill failed to supervise its officers and employees in its business as a swap dealer, and lacked procedures that could have prevented or corrected the mistakes.
In addition to paying the fine, Cargill said it is enhancing its internal controls and employee training programs.