The Commodity Futures Trading Commission (CFTC) has issued a ruling against Raizen Energia SA, a major Brazilian energy and sugar company, and its Swiss affiliate, Raizen Trading SA. The companies have been ordered to pay a combined $750,000 penalty for engaging in illegal wash sales and non-competitive transactions within the sugar futures market. A wash sale is a transaction in which an investor sells or trades a security at a loss for tax benefits and purchases a substantially similar one within 30 days. .  

According to the CFTC’s findings, between March and September 2022, Raizen Energia and Raizen Trading executed 44 illegal exchanges for physical transactions (EFPs) involving sugar futures contracts on ICE Futures U.S. An EFP is a transaction involving a simultaneous exchange of a futures position for a corresponding cash position, i.e., one party buys the physical commodity and simultaneously sells or gives up a long futures contract, and the other party sells the physical commodity and simultaneously buys or receives a long futures contract. . 

In this case, the transactions were deemed illegal because they were conducted between accounts that were not independently controlled, effectively constituting the wash sales. These trades were not legitimate market transactions but were designed to transfer physical sugar between Raizen entities and offset futures positions taken to hedge against price risks. The scope of these transactions was substantial, involving over 50,000 sugar trading contracts valued at more than $1 billion. 

The CFTC isn’t sugar-coating the accusations. The order also noted that the respondents have taken remedial actions in response to the violations, though the specifics of these measures were not disclosed. The companies have admitted to the factual findings laid out by the CFTC and are required to cease and desist from further violations of the Commodity Exchange Act and CFTC regulations. 

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Read Not-So-Sweet Deal for Brazilian and Swiss Sugar Companies as CFTC Orders $750,000 Fine for Wash Sales   at constantinecannon.com