The CFTC issued an order filing and simultaneously settling charges against Pinemore, L.P. and Birchmore, L.P. , two Canadian limited partnerships based in Calgary, Alberta, Canada, for engaging in unlawful wash sales in the natural gas futures contract on the New York Mercantile Exchange (NYMEX) during November and December of 2006.
The order imposes a $250,000 civil monetary penalty each on Pinemore and Birchmore, two limited partnerships controlled by the same general partner and with substantially identical ownership. Additionally, the firms were ordered to cease and desist from future violations of the Commodity Exchange Act (CEA).
According to the order, on one or more occasions in November and December 2006, Pinemore and Birchmore ordered through their broker certain natural gas futures trades on the NYMEX that were wash sales. The trades were part of a strategy involving the purchase and sale of the same quantity of NYMEX natural gas futures contracts by Pinemore and the opposite sale and purchase of the same quantity of NYMEX natural gas futures contracts by Birchmore.
Because the trades ordered by Pinemore and Birchmore were designed to give the appearance of submitting trades to the open market, while negating the risk incident to the market and producing a virtual financial nullity, they constituted wash sales in violation of the CEA.