CFTC Orders Staten Island-Resident Michael Pucciarelli And His Company, Badge Trading LLC, To Pay A $280,000 Penalty For Engaging In Unlawful Noncompetitive Exchange For Physical Transactions

The U.S. Commodity Futures Trading Commission (CFTC) today issued an Order filing and simultaneously settling charges against RespondentsMichael Pucciarelli of Staten Island, New York, and Badge Trading LLC, for noncompetitively entering into and reporting numerous non-bona fide exchange for physicals transactions (EFPs) to ICE Futures U.S., Inc. and ICE Clear U.S., Inc. (collectively, ICE). Pucciarelli personally owns Badge Trading.

The CFTC Order requires the Respondents jointly to pay a $280,000 civil monetary penalty and imposes four-year trading and registration bans. The Order also requires the Respondents to cease and desist from further violations of the Commodity Exchange Act (CEA) and a CFTC regulation, as charged.

The Order finds that, from at least January 2010 to August 2012, Pucciarelli (then a Director of Purchasing for a coffee roasting business) and Badge Trading executed numerous EFPs that were non-bona fide and violated exchange rules because the EFPs lacked a corresponding and related cash position executed by the parties to the transaction. Specifically, Pucciarelli purchased green coffee beans from various importers on behalf of his employer, but then executed EFPs, substituting Badge Trading in the futures leg of the transaction. This structure secured advantageous prices for his personal company’s futures trades, according to the Order.

As the Order states, CFTC Regulation 1.38 generally requires all futures contracts to be executed openly and competitively, though an exception permits transactions that are executed non-competitively if they accord with the applicable written rules of the contract market. Here, applicable ICE rules required that for cleared EFPs, one party must be both the buyer of the related position and seller of the futures contract, or seller of the related position and buyer of the futures contract. Because Respondents entered into unlawful, non-completive EFPs that lacked related cash positions executed by the same parties as required by ICE rules to constitute valid EFPs, the trades constituted “fictitious sales” and resulted in non-bona fide prices being reported in violation of Section 4c(a) of the CEA and CFTC Regulation 1.38(a).

The CFTC acknowledges and appreciates the assistance of ICE Futures U.S., Inc. in this matter.

CFTC Division of Enforcement staff members responsible for this case are Gates S. Hurand, Trevor S. Kokal, Michael P. Geiser, K. Brent Tomer, Lenel Hickson Jr., and Manal M. Sultan.

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