On February 1, 2021, John Ed James, a former natural gas trader at an investment and energy trading company in Houston, pleaded guilty in US District Court for the Southern District of Texas to one count of conspiracy to commit wire fraud and commodities fraud, in violation of 18 USC §§ 1348(a) and 1343.
James admitted to conspiring with several individuals, including Marcus Schultz, a natural gas trader charged in a related case, and the unnamed owner and president of a brokerage firm, to misappropriate material non-public information from “Company A,” a firm to whom the brokerage firm and its personnel owed a duty of non-disclosure. Schultz was head of Company A’s Southeast/Gulf Coast trading, and pursuant to his employment agreement, company policies and regulations of the Commodity Futures Trading Commission, had a duty not to disclose nonpublic information about Company A to unauthorized persons, and not to use such material for his own benefit of that of others. According to the factual basis of James guilty plea, the conspirators used Company A’s information to engage in fraudulent, non-competitive, pre-arranged trades in natural gas futures contracts for their personal gain, causing prices that were not bona fide to be reported and registered. James received a profit of $343,165 from the illicit trades, which were valued at $966,403.
The charges against Schultz, the insider, include Sections 6c(a) and 13(a)(2) under the Commodity Exchange Act for causing a non bona fide price to be recorded in a commodity futures transaction, and under 17 CFR Section 180.1 for using a manipulative contrivance in connection with the sale of a commodity in interstate commerce, or engaging in fraud or making misleading statements.
The case against James and Schultz represents the first insider trading or misappropriation prosecution by the US Department of Justice under the Commodity Exchange Act. Shultz pleaded guilty in July 2020. He and James are scheduled to be sentenced in June and April 2021, respectively.