Traders-Secrets in the Commodity Game Part XV How Trammo was shut down in 2016.

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Built around being a reliable marketing and logistics partner for producers of raw materials, Trammo, Inc., was for years among the world’s largest independent marketers and transporters of ammonia and one of the largest independent traders and marketers of gas liquids and fertilizer products.

A Sleazy trader took advantage of his position. He manipulated the system to conceal his losses from his employer in order to save his own skin.

He made a lot of money for himself and for Trammo over the years, and now faces jail but Trammo is out of business…** (deja vu).

It is very rare to see pursuit of criminal activity but perhaps because Trammo went down** so there is nothing to lose, and in fact, maybe some clawback of his ill-gotten gains…

ADDENDUM

**Transammo is now back to core products (Ammonia, sulfur and sulfuric acid and back in an office, Pfäffikon (Schwytz)**.

**It’s a Shame.**

** real loss was in the order of $200,000,000 to $250,000,000. **

An ex-liquefied petroleum gas trader at the now-defunct Trammo Inc. has been
charged in U.S. federal court with wire fraud in connection with a scheme to
hide from his employer trading losses he incurred, by causing false entries to
be made in the employer’s accounting system.

David Smothermon was arrested in Houston, Texas, on Tuesday, and is expected to be presented in federal court in Houston today, according to the Department of Justice.

Smothermon, 48, of Houston, Texas, is charged with one count of wire fraud,
which carries a maximum sentence of 20 years in prison. The maximum potential sentence is prescribed by Congress and is provided here for informational
purposes only, as any sentencing of the defendant will be determined by the
judge.

“As alleged, David Smothermon lied to his employer to conceal trading losses.
He allegedly caused others to make false entries in his company’s accounting
system to cover up the losses and reap substantial compensation,” according to
U.S. Attorney Geoffrey Berman.

“Smothermon’s actions allegedly caused his employer significant financial harm.
Thanks to the FBI, David Smothermon has been apprehended and awaiting
prosecution for his alleged self-dealing,” he said.

FBI Assistant Director-in-Charge William Sweeney Jr. said, “As alleged, after
incurring significant trading losses, Smothermon took advantage of his position
and manipulated the system to hide those losses from his employer and save his own skin.”

“As a direct result of his selfish and criminal actions, the company lost
millions of dollars, and other workers lost their livelihoods. We don’t take
these crimes lightly, and we will continue to investigate and bring to justice
any individual who criminally misuses his or her position for personal gain,”
he said.

According to the allegations in the criminal complaint, from 2005 through early
September 2016, Smothermon worked for a privately owned firm, headquartered in
Manhattan, engaged in the international marketing, distribution, and trading of
commodities products (the Company).

The DOJ complaint did not list the Company’s name, but industry sources said it
was Trammo, which was shut down in 2016 due to heavy losses. Some sources
estimated the Company lost about $70 million to $200 million, causing it to
shut down**. Trammo owned waterborne LPG terminals in both Newington, N.H., and Tampa, Fla.

Privately owned Trammo, founded in 1965, was a global commodities merchandising and distribution company headquartered in New York City, with offices around the world. In addition to gas liquids, Trammo was engaged in the purchase, sale, distribution and transportation of a wide variety of products, including sulfur, sulfuric acid, ammonia, fertilizers, petroleum coke, coal and rice.

Smothermon ran a subsidiary of the Company, based in Houston, Texas,
specializing in the trading of liquefied petroleum gas or LPG (the Subsidiary),
according to DOJ.

The Subsidiary engaged in two forms of LPG trading: entering into and executing
contracts for the purchase and sale of barrels of LPG, and trading financial
derivative products related to LPG in an over-the-counter market.

From December 2015 up to and September 2016, Smothermon allegedly caused false
entries to be entered into an electronic accounting system used by the Company
in an effort to hide substantial trading losses generated by the Subsidiary’s
derivatives trading.

{There’s little liquidity in the market. Oil, gas and power are traded in well-developed liquid markets (both exchange cleared and OTC products), but ammonia, sulphur and sulfuric acid have virtually no financial derivatives to manage price risk}.

Smothermon allegedly caused others working for the Subsidiary to make false
entries in the accounting systems. For example, in or about August 2016,
according to the complaint, Smothermon instructed an employee to make a change in the accounting system to make it appear that a contract for the purchase of LPG entitled the Subsidiary to purchase twice as much LPG as was in fact contracted for, at the same price, essentially doubling the Subsidiary’s
profits.

Smothermon allegedly caused these false entries to be made in an effort to
retain his job and the significant compensation due to him in connection with
his employment, including a bonus of more than $14 million awarded to him in
May 2016.

According to the complaint, as a result of the false entries made at
Smothermon’s direction, the Company overestimated the Subsidiary’s potential
profits by in excess of approximately $35 million.

The trader position in a such setup becomes a risk-free arbitrage between the cost of capital and the risk- getting the equity holder returns without the risks.

In the face of an upcoming audit of the Subsidiary by the Company, Smothermon
resigned in or about September 2016.

In part as a result of the false entries discovered by the Company in the period that followed, the Company liquidated the derivatives positions held by the Subsidiary at a substantial loss and laid off workers.

–Edgar Ang, eang@opisnet.com

Most humans follow a “pattern”, whether the leader is good or bad and in the trading world, most employees follow the company’s mantra dictated by the manager (s) and manager (s) of this company.

When times are good, companies don’t want the embarrassment or reputation risk and simply fire a fraudulent trader and move on.

Internationally, so rarely in world of commodity trading we have seen Criminal prosecution of a trader employee for Corruption and embezzlement of company funds.

TRAMMO IS GONE**, it is the Bureau and U.S Attorney going after Smothermon.
****************************************************************************

How the financing/banks should approach the setting of their risk tolerance with a trader ?

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INTERNAL MEMO

1) The U.S Justice is tightening the screws and is pushing the houses engaged into the trading of commodities to perform the internal investigations to disclose violations.

2) Trade finance becomes an high interest area for the regulators.  

In that regard, we can hear more and more noise on the actions taken by different U.S. regulators against well-known international banks.

Risk Physical Commodity Trading

I’m Simon Jacques, Certified Energy Risk Professional, “the gold standard of Energy Markets” as distinguished but the prestigious Global Association of Risk Professionals.

I master the art of commodity marketing and I’m obsessed with the details of this art.

I advise a clientele of energy marketers and producers on defining and imparting the knowledge and skill sets necessary for their professional staff to function effectively.

https://jacquessimon506.wordpress.com/simon-jacques/commodity-merchant-trading-and-shipping-advisory-services/
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