A former chief executive in the commodities trading sector, David Smothermon, has been handed a three-year prison sentence for a fraud that led to massive company losses and hundreds of layoffs. As reported by the U.S. Attorney’s Office for the Southern District of New York, Smothermon's deceit involved the concealing of trading deficits and bloating of fiscal performance to the detriment of his Manhattan-based employer.
U.S. Attorney Jay Clayton remarked on the sentencing, detailing the consequences of Smothermon's actions, "David Smothermon engaged in a fraudulent scheme that always ends badly: he concealed trading losses and inflated performance, induced his firm to award him a $15 million bonus, and when the losses were discovered, his firm was devastated." Clayton's comments highlighted the fallout, which included numerous job cuts in New York, as Smothermon fraudulently bagged a substantial bonus based on falsified achievements, as per the U.S. Attorney’s Office.
The heart of the scheme, as outlined by legal documents, centered around Smothermon’s manipulation of an electronic accounting system to conceal over $240 million in trading losses at the firm where he was once CEO of a subsidiary specializing in liquefied petroleum gas trading. By inflating value marks and altering physical contract terms, he painted a misleadingly profitable picture, influencing the company to award him with a $15 million bonus — $11.6 million of which he received in cash upfront.
This elaborate deception came to a head in September 2016, when a senior executive unearthed discrepancies between actual trading contracts and the electronic records. Upon being confronted, Smothermon resigned and conceded to mispricing his trading book. This revelation obliged the company to downsize significantly, casting hundreds into unemployment. In addition to the prison term, the court ordered Smothermon to forfeit $11.6 million and pay $19,550,081 in restitution, of which he has already paid $8.3 million, as he entered his guilty plea and prior to sentencing.
The FBI received commendation from Mr. Clayton for their thorough investigative work, which brought the case to a close. The prosecution was managed by the Office’s Complex Frauds and Cybercrime Unit with Assistant U.S. Attorneys Qais Ghafary and Matthew Weinberg leading the charge. This case punctuates the government's stance on white-collar crime: insiders seeking to enrich themselves through deception will find no safe harbor within the intricate web of the law.
