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In an unusual case that underscores the complexity of overseeing commodities trading, the CME Group has sanctioned a former airline fuel executive for front-running his own employer's exchange orders, among other things, and generating market gains of more than $3 million in the process.
Jon Ruggles, who was the vice president of fuel at Delta Airlines from the middle of 2011 until late in 2012, was disciplined today by CME regulators for using his position at the time "to obtain a favorable execution price" for commodity trading orders "in blatant violation of Exchange rules," according to a written finding.
Using an account registered in his wife's name, Ruggles put on at least 82 trades that either opposed or offset orders that Delta had, or placed orders for personal profit ahead of trades intended for Delta, the finding stated. As a result, Ruggles is permanently barred from membership on the CME and must pay $3.11 million in fines and restitution.
"Delta has the highest standards of ethics and expects all of its employees to maintain those standards. Our values-based culture is essential to Delta's success," an airline spokesman said in an e-mailed statement while declining to comment on the specifics of the CME sanction against Ruggles or his wife, Ivonne. Separately, Jon and Ivonne Ruggles did not immediately respond to requests for comment.
Ed Hirs, a professor of energy economics at the University of Houston, said that although commodity regulation may be a murky world, Ruggles's alleged conduct deserved punishment.
"At the very least, it's unethical, and I'm surprised it's not just completely illegal, because that is trading with insider information, and it's trading for his own benefit," said Hirs in a telephone interview late Monday. In addition, he said, "This is clearly an issue of internal controls for Delta."
Ruggles, an outspoken energy trader who worked on Wall Street as well as for the secretive European firm Trafigura before landing at Delta, had a mixed stint there.
Hired in early 2011 to help right a fuel-hedge book that had been losing the airline money, Ruggles managed to generate impressive trading returns with a trading style atypical for an airline — for instance, through a complex heating-oil contract trade late in 2011 that generated some $100 million. He also played a role in the airline's controversial purchase of a Pennsylvania oil refinery the following year, an attempt at vertical integration that was scoffed at by some industry observers.
But by the second half of 2012, Delta's hedge book was struggling and Ruggles was on the outs with management.
Late that year, as described in this writer's book "The Secret Club that Runs the World," Delta received a subpoena from the Commodity Futures Trading Commission, which wanted records pertaining to Ruggles's personal and corporate commodity contract trades. Confronted by Delta management about the inquiry, Ruggles was nonplussed, telling them "it was not a big deal."
Yet Ruggles never returned to Delta after the subpoenas came to light, and the CFTC probe continued. In a conversation about a year later, Ruggles denied that the Justice Department, which was rumored at that time to be looking into the case itself, was involved.
Monday's CME finding alluded to the ongoing CFTC probe, noting that "if Ruggles reache[s] a settlement with the CFTC" or is forced to disgorge profits as the result of a court order, the money he repays will be credited against the amount the CME has demanded. A spokesman for the CFTC did not immediately respond to a request for comment.
There are a number of oddities in the CME's case against Ruggles.
For one thing, at the time in question — a seven-and-a-half-month period in late 2012 — Ruggles himself was not a member of the exchange. In fact, in order to bring the disciplinary action against Ruggles, NYMEX's Business Conduct Committee held an evidentiary hearing to determine that, indeed, Ruggles was subject to the CME's regulatory jurisdiction.
Then, based on his alleged violation of various rules, including those governing fraud and bad faith, the banned disclosure of non-public order information, and a failure to appear before exchange staff, the CME imposed its sanction.