When there is no oversight associated with an important corporate function, sooner or later poor decision making or unethical behavior is bound to occur. This fact was reaffirmed just this past week with Delta Airlines and the man who was in charge with the important fuel hedging program, Jon Ruggles.
As there was apparently little to no oversight, Ruggles set up a personal commodities trading account for jet fuel, alongside the huge corporate trading account he ran for Delta. When major corporate traders such as a multi-billion dollar airline take a position in any commodity it naturally affects the prices of that commodity. It is, after all, a supply and demand scenario.
Though the trades actually took place in 2011 and 2012, the final disposition of the case didn’t occur until September 2016.
Insider trading
The illegal trades were discovered by the security team at the CFTC, or the (U.S.) Commodity Futures Trading Commission. As the case proceeded, the CFTC found accounts not only in his (Ruggles) name but in his wife’s name.
In the world of legalize, Ruggles negotiated agreement, after the investigation, was to give back more than $3.5 million in trading profits plus pay a $1.75 million penalty for the unlawful behavior, but it is not an admission of guilt! Ruggles is also permanently banned from registering with the CFTC or trading on the various platforms it regulates.
If anyone knew of how major commodity trades affected jet fuel pricing, it was Ruggles. Ruggles, who had vast experience in professional trading world with his work trading at oil and gas companies. In his first year with Delta, his trading acumen was excellent and he was a strong contributor to the company’s financial stability.
However, over time his success became less than stellar. Strangely, the CFTC found that at the same time he was “failing” at his trades for Delta, he was making trades into his personal account that were impacted by his insider knowledge of what trades he was going to make for Delta. In other words, his trades were based on his choice to benefit for his own account.
Though commodities trading is somewhat complex, what is not difficult to understand is that at some point Ruggles decided that the trades he was making on behalf of Delta Airlines should drive the profit in his personal accounts. It was the consummate insider trading scam.
Of course, his choices have led to many negative consequences, but the larger issue is the set of conditions in which he was obviously able to create personal accounts that profited from his daily trading activity for Delta Airlines.
He was ethically unsupervised
Though his trading abilities were subject to performance parameters, Jon Ruggles was undoubtedly able to explain away his business decisions, even though his decisions absolutely impacted the airline’s bottom-line. What no one ever discussed were his ethical responsibilities to the management, employees and even the passengers of Delta Airlines.
A person as experienced as Jon Ruggles obviously had to know that his “dual accounts” were unethical, especially when he was more concerned with making trades for his personal gain than for his employer’s benefit.
The issue begs the question of why no “firewall?” Was there no ethics training, and why no ethical expectations for the company employing him? Why no oversight of his trades or his decision making processes?
My experience is that quite often ethics are put on the back burner in favor of expediency. Delta Airlines needed an experienced trader – they got one. However it appears that at no point did the airlines demand that each trade required an ethical screen, or at least the prohibition against personal gains from corporate trading decisions.
It is also worth noting that this man apparently dragged his wife into the scandal by creating an account for her. Even if she is absolutely innocent, he has managed to dirty her reputation as well.
Yes, the CFTC got its money back, and Delta terminated him, but the damage he may have done could have impacted Delta to hundreds of millions of dollars. Poor ethical oversight can cost any company its very strength and health.
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