September 29, 2013 / 1:59 PM / 4 years ago

CFTC alleges $42 million ethanol futures fraud against bank

NEW YORK, Sept 27 (Reuters) - The U.S. Commodity Futures Trading Commission (CFTC) on Friday accused a Texas man of defrauding a bank of $42.4 million using ethanol futures contracts.

John Aaron Brooks of Houston, Texas allegedly masked growing losses on the contracts from his employer, the commodities arm of a large commercial bank, by increasingly inflating their value, the CFTC said in a lawsuit filed Friday. The agency did not name the bank involved.

The alleged fraud, which took place from 2010 to 2011, began to unravel in October 2011 when Brooks exceeded internal trade limits on cattle futures. Brooks’s boss directed him to exit all of his trades, which he did except for ethanol. That exposed the losses and soon after Brooks was fired, the CFTC said.

Brooks and his lawyer both declined to comment. The CFTC also declined to comment.

The bank lost about $42.4 million because of Brooks’s schme, the CFTC said. The agency is seeking a monetary penalty from Brooks as well as trading and CFTC registration bans, among other penalties.

The case is U.S. Commodity Futures Trading Commission v. John Aaron Brooks, U.S. District Court, Southern District of New York, No. 13 CV 6879.

Reporting by Cezary Podkul; editing by Clive McKeef

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