CHICAGO CME Group on Monday banned a former Delta Air Lines fuel trading executive for using his wife's accounts to "front-run" the airline's hedging positions - trades that netted him a profit of more than $3 million.
Jon Ruggles was banned by the financial exchange operator, along with his wife, Ivonne for the front running, a practice in which an order is executed for personal gain using advance knowledge of pending orders from a company or clients. The two could not immediately be reached for comment.
In addition to the lifetime bans, the CME ordered Jon Ruggles to give up profits of $2.8 million, which covered a period from August to December of 2012. Ruggles, who worked for Delta for less than two years, was also ordered to pay a $300,000 fine, the exchange said.
The official action in this unusual case sheds some light on the opaque world of commodities futures markets, where producers and end users have a strong presence.
Jon Ruggles worked for Delta, the No. 2 U.S. airline by passenger traffic, from early 2011 to December 2012, according to the airline. It said he was a vice president of fuel management.
CME, in a disciplinary notice, said he "repeatedly abused his trading discretion given to him by his employer for personal gain" from April 2012 to December 2012.
What is unusual about the violations, according to Craig Pirrong, a professor of finance at the University of Houston's Bauer College of Business, is that Jon Ruggles' activity was in direct opposition to Delta's trades.
"It's usually a broker that does this. I really can't recall any cases where someone trading on behalf of the firm would do that against the interest of his firm," he said.
During that time, Jon Ruggles intentionally traded his employer's account opposite two personal accounts owned by his wife "to obtain a favorable execution price for Ivonne’s orders in blatant violation of exchange rules," according to the notice.
"This is an egregious kind of violation," said Pirrong.
CME rules prohibit traders from executing an order for their own benefit while in possession of an order from someone else for a transaction in the same market. The company also bars traders from disclosing other people's orders to anyone aside from designated regulatory officials.
According to the disciplinary notice, the chief financial officer of Jon Ruggles' employer said in an affidavit that he violated company policies prohibiting employees from using information on its commodity trades to benefit anyone other than the company.
The company considers such information to be confidential and proprietary, the notice said.
“Delta has the highest standards of ethics and expects all of its employees to maintain those standards," company spokesman Trebor Banstetter said.
CME, which owns the New York Mercantile Exchange and other markets, said it requested that the couple appear for interviews and both declined through legal counsel.
(Reporting by Tom Polansek; Additional reporting by Liz Hampton in Houston; Editing by Meredith Mazzilli and Andrew Hay)