Former Commodities Trading Executive Sentenced To Three Years In Prison For Scheme To Defraud Employer By Hiding Trading Losses

United States Attorney for the Southern District of New York, Jay Clayton, announced that DAVID SMOTHERMON was sentenced today by U.S. District Judge Alvin K. Hellerstein to three years in prison.  In May 2025, SMOTHERMON pled guilty to one count of wire fraud in connection with a scheme to defraud his employer by hiding trading losses. 

“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,” said U.S. Attorney Jay Clayton.  “That devastation cost hundreds of jobs, including in New York.  Our Office has no tolerance for insiders who like to enrich themselves at the expense of our fellow New Yorkers.”   

As reflected in the Indictment and other court filings:

From 2005 through early September 2016, SMOTHERMON worked for a privately owned firm, headquartered in Manhattan, that engaged in the international marketing, distribution, and trading of commodities products (the “Company”).  SMOTHERMON was the Chief Executive Officer of a subsidiary of the Company, based in Houston, Texas, specializing in the trading of liquefied petroleum gas or “LPG” (the “Subsidiary”).  SMOTHERMON was also on the Board of Directors of the Company. The Subsidiary engaged in two forms of LPG trading: entering into and executing contracts for the purchase and sale of barrels of LPG (the “Physical Trading”) and trading financial derivative products related to LPG in an over-the-counter market (the “Financial Trading”).

From at least in or about December 2015 up to and including in or about September 2016, SMOTHERMON caused false entries to be made into an electronic accounting system used by the Company in an effort to hide substantial trading losses.  Specifically, SMOTHERMON falsely inflated the marks, i.e., the values he assigned to individual trading positions in the Financial Trading book, and he directed other individuals to alter the terms of Physical Trading contracts in the company’s accounting system to make it appear as though those contracts were substantially more profitable than they were. In doing so, SMOTHERMON concealed over $240 million in trading losses.  SMOTHERMON took these steps in order to obtain a large, discretionary bonus that he knew the Company was considering in early 2016.  Ultimately, in May 2016, the Company awarded SMOTHERMON a bonus of approximately $15 million, of which approximately $11.6 million was paid immediately in cash.

In late August 2016, SMOTHERMON was contacted by a senior Company executive to alert him that the Company had unearthed a discrepancy between a Physical Trading contract and what was entered into the accounting system.  Thereafter, on or about September 1, 2016, SMOTHERMON resigned from the Company and admitted to a Company executive that he had been mispricing his trading book.  The Company ultimately concluded that SMOTHERMON had concealed more than $240 million in trading losses.  Upon this discovery, the Company realized considerable losses that resulted in the significant downsizing of the company and the layoffs of hundreds of employees.

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In addition to the prison term, SMOTHERMON, 55, of Houston, Texas, was sentenced to three years of supervised release and ordered to forfeit $11,600,000 and pay restitution in the amount of $19,550,081.  As a condition of his plea agreement, SMOTHERMON paid $8 million of this restitution amount in May 2025, after entering his guilty plea.  SMOTHERMON also paid an additional $300,000 prior to sentencing.

Mr. Clayton praised the investigative work of the Federal Bureau of Investigation in this case.

The case is being prosecuted by the Office’s Complex Frauds and Cybercrime Unit.  Assistant U.S. Attorneys Qais Ghafary and Matthew Weinberg are in charge of the prosecution.