Brokerage Firm Fined with $6.5 Million Civil Penalty for Failing to Stop “Ghost Cattle” Fraud Scheme

The Commodity Futures Trading Commission (Commission) settled an enforcement action against CHS Hedging, LLC (CHS) with a $6.5 million civil penalty for the brokerage firm’s alleged violations of the Commodity Exchange Act. The Commission alleges that CHS failed to implement an adequate anti-money laundering program, particularly as applied to a futures and options trading account controlled by Cody Easterday, who recently was sentenced to eleven years in federal prison and ordered to pay $244 million restitution for his “ghost cattle” fraud scheme. The Commission also alleged that CHS failed to implement risk-based limits on Easterday’s trading and failed to comply with recordkeeping obligations, thereby enabling Easterday to carry out his scheme to bill Tyson Foods for cattle that did not exist.