John Ed James, 51, of Katy, has pleaded guilty to conspiracy to commit commodities fraud and wire fraud for his role in an insider trading scheme.
James was a natural gas trader and owner of his own trading firm. He worked with Marcus Schultz, who was a natural gas trader at a large company in Houston. Two other unnamed individuals, a broker and an energy trader, were also involved in the scheme.
Instead of trading futures contracts openly and competitively, Schultz disclosed to James and the unnamed broker material non-public information that he would be willing to accept on behalf of the company. The broker would arrange offsetting trades with James and the other individual. The group would net the difference between the price of these trades and the price that would have been obtained in arms-length transactions. Illicit gains totaling $966,403 were split among the group.
The scheme began in 2013 and ran until June 2016.
Schultz pleaded guilty in July 2020 and is scheduled to be sentenced in June 2021. In September, the Commodity Futures Trading Commission ordered Schultz to pay a penalty of $669,750 and disgorge $427,067 in ill-gotten gains. If the Federal court imposes fines or penalties on Schultz, the CFTC amounts would be offset.
Sentencing for James is set for April 2021.
The case is the first time that the Department of Justice has prosecuted insider trading in the commodity markets since the relevant law was passed as part of the Dodd-Frank Act in 2011.