Former Commodities Trading Executive Arrested For Scheme To Defraud Employer By Hiding Trading Losses
Geoffrey S. Berman, the United States Attorney for the Southern District of New York, and William F. Sweeney Jr., Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced today the unsealing of a criminal complaint charging DAVID SMOTHERMON 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. SMOTHERMON was arrested yesterday in Houston, Texas, and is expected to be presented in federal court in Houston today.
U.S. Attorney Geoffrey Berman said: “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. 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.”
FBI Assistant Director-in-Charge William F. 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.”
According to the allegations in the Complaint unsealed today in Manhattan federal court:
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”). SMOTHERMON ran a subsidiary of the Company, based in Houston, Texas, specializing in the trading of liquefied petroleum gas or “LPG” (the “Subsidiary”). 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 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. SMOTHERMON repeatedly caused others working for the Subsidiary to make false entries in the accounting systems. For example, in or about August 2016, SMOTHERMAN 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 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. 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.
In the face of an upcoming audit of the Subsidiary by the Company, SMOTHERMAN 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.
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SMOTHERMON, 48, of Houston, Texas, is charged in the Complaint 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.
Mr. Berman praised the investigative work of the FBI in this case.
The case is being prosecuted by the Office’s Complex Frauds and Cybercrime Unit. Assistant U.S. Attorney Katherine Reilly is in charge of the prosecution.
The charge contained in the Complaint is merely an accusation, and the defendant is presumed innocent unless and until proven guilty.
 As the introductory phase signifies, the entirety of the text of the Complaint, and the description of the Complaint set forth herein, constitute only allegations, and every fact described should be treated as an allegation.