The Commodity Futures Trading Commission (“CFTC”) accused a Washington rancher, Cody Easterday and Easterday Ranches, Inc., of defrauding beef and pork producers by billing for cattle that never existed. Easterday had a contract with the producers to raise and fatten over 100,000 cattle per year. The lawsuit (Commodity Futures Trading Commission v. Cody Easterday, Easterday Ranches, Inc., Case No. 4:21-cv-5050, 2021 WL 1217660 (Mar. 31, 2021, E.D.Wash.)), filed in federal court in Washington, also alleges that Easterday submitted fake cattle inventory information to the Chicago Mercantile Exchange (“CME”) in hedge exemption applications. The hedge exemption applications sought permission to exceed speculative position limits at the CME.
The CFTC alleges that the defendants came up with the scheme to meet margin calls after incurring more than $200 million in losses trading cattle futures. The scheme involved preparing fake invoices charged to the beef and pork producers for the purchase and grow costs of more than 200,000 cattle that did not exist. The CFTC referred to these nonexistent cattle as “ghost cattle.” The fraud allegedly caused the producers to overpay Easterday by $233 million. Easterday allegedly confessed to the CME and United States Department of Justice. The CFTC is an independent federal regulator responsible for administering and enforcing the Commodity Exchange Act and related regulations. The lawsuit alleges that the defendants violated the Commodity Exchange Act, 7 U.S.C. §§ 1–26 (2018) and 17 C.F.R 1-190 (2020).