NFA fines introducing broker Classic Energy, suspends its president from membership
The penalties stem from an NFA examination of Classic Energy which found that its president Mathew Webb engaged in a deceptive trading scheme.
The United States National Futures Association (NFA) today announces that it has ordered introducing broker Classic Energy LLC to pay a $200,000 fine and has suspended its president, Mathew Webb from NFA membership through January 3, 2022.
The Decision, issued by an NFA Hearing Panel, is based on a Complaint issued by NFA’s Business Conduct Committee (BCC), and a settlement offer submitted by Classic Energy and Webb.
The vast majority of Classic Energy’s customers are large commercial entities and market makers that are eligible contract participants (ECPs) engaging in block trading of futures and options in energy markets, including natural gas. Classic Energy touts itself as “neutral intermediary” that acts as a broker for block trades by showing bids and offers in particular instruments to its ECP customers and then submitting their executed block trades to the appropriate exchange (ICE, CME, etc.) for reporting purposes.
Webb also owned and operated MDW Consulting LLC, doing business as MDW Capital LLC. MDW operated out of Classic Energy’s office. MDW is a proprietary trading firm which Webb used for his personal investments.
Classic Energy also employed Lee Parsons Tippett II as an AP of the firm. Tippett previously worked as a trader for MDW.
In 2015, NFA conducted an examination of Classic Energy which found that Webb engaged in a deceptive trading scheme that misused critical block order information of certain Classic Energy customers to benefit himself and his personal company MDW.
As a part of the deceptive scheme, Webb would discuss a natural gas block trade with a Classic Energy customer, including a specific execution price. After getting essential order information (for instance, buy/sell and price) from the Classic Energy customer, he would then enter futures orders for MDW on ICE’s electronic trading system in the same futures contract and on the same side of the market as the Classic Energy’s customer’s block trade.
At the time MDW’s futures order was submitted, the market price offered on ICE’s ETS was better than the price Webb had discussed with Classic Energy’s customer to execute the block trade. Then, Webb arranged for MDW (via Tippett’s ICE user ID) to take the opposite side of the customer’s block trade.
To carry out the scheme, Webb would report to ICE the block trade for Classic Energy’s customer around the time MDW’s futures order was executed. MDW’s block trade position would be offset by MDW’s prior futures trade that was executed before the time Webb reported to ICE the block trade for Classic Energy’s customer.
The key to the scheme was ensuring that MDW took the opposite side of block trades with Classic Energy’s customers.
Webb never discloser to Classic Energy’s customers that his personal company – MDW – was the counterparty to their block trades.
The Hearing Panel found that Classic Energy and Webb failed to uphold high standards of commercial honor and just and equitable principles of trade. The Hearing Panel also found that Classic Energy failed to maintain adequate and complete records and failed to adequately supervise.