Regulators Accuse Brokerage of Cattle-Futures Scheme

By Jacob Bunge and Benjamin Parkin Features Dow Jones Newswires

Regulators accused a Memphis brokerage of a scheme they said may have influenced prices in the largest U.S. cattle-futures market.

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The Commodity Futures Trading Commission alleged that McVean Trading & Investments LLC and its senior executives used trading agreements with feedlots to accumulate bets on cattle futures that circumvented exchange-set limits. In some cases, the regulators said, the bets added up to a fifth of open trades on a market that is currently worth $19 billion.

The commission said Wednesday that McVean and its officials settled the civil charges without confirming or denying its findings and agreed to pay $5 million in fines. McVean said it was pleased to resolve the matter.

The accusations come as ranchers and traders have struggled with rapid price swings in U.S. live cattle futures, which are used to hedge the price that feedlots pay for steers and heifers. The volatility has prompted CME Group Inc., the Chicago-based exchange operator, to revamp aspects of the market.

Ranchers have also tried to sell more cattle through an online auction to provide direction for futures prices. That venture has struggled with declining participation and technical hiccups.

The CFTC alleged that Charles McVean, chairman and chief executive of the Memphis brokerage, and Michael Wharton, its president, in late 2012 and early 2013 placed live cattle futures trades that would profit if the contracts' price moved higher. After establishing those positions, the CFTC alleged in its order, a consultant for the firm, Samuel Gilmore, called cattle feedlots to arrange swap agreements that involved the feedlots buying more futures contracts, also betting on higher prices. McVean Trading compensated the feedlots for those trades and controlled the positions, according to the CFTC, giving the firm and its executives control over positions that amounted to about 20% of the market.

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Officials alleged that McVean's bets, which ranged from two to four times beyond limits set by the CME, gave "a false appearance of wide investor interest" in the contracts, potentially influencing prices.

McVean Trading, in a statement on behalf of the firm, its executives and the consultant, said that the settlement wouldn't impact on its clients or capital. A CME spokesman said the CME continually monitors and enforces market regulations, but doesn't comment on individual disciplinary actions.

Craig Uden, president of the National Cattlemen's Beef Association, said more regulatory oversight is needed to protect cattle feeders from increasingly fast-paced swings in the futures market. Mr. Uden wouldn't comment on McVean's alleged manipulative tactic.

Write to Jacob Bunge at jacob.bunge@wsj.com

(END) Dow Jones Newswires

June 21, 2017 17:30 ET (21:30 GMT)