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id: 346, Created by Stan Vick, Scout
WTI Generic Future
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On April 27, 2020, the WTI contract for June delivery dropped more than 25%, seriously damaging investors, after the USO fund’s administrator, said that it will sell all its WTI June contracts over the next 3 days.
USCF reported in its filing to the SEC that position changes came after the USO received letters from CME instructing it not to exceed new position and accountability limits for the remaining contract months in the second and third quarters. But according to the original new requirements, CME did not set either selling off all June positions or doing it in a prescribed short period. Thus, USCF made such a decision to sell off the whole WTI June position under tough deadlines discretionally without any regulatory pressure, damaging both investors in USO and WTI June Futures.
Given all the public facts, the chronology of events, and the future USO charges and penalties from regulators, investors in USO and WTI June Futures have every reason to suspect that there had been either intentional price manipulation or gross negligence by the USO’s administrators and managers.
Going back to the week before, WTI May Future plunged into negative territory for the first time in history as holders of the contract for May delivery — which was set to expire the next day — scrambled to sell their contract.
Later, on May 29, 2020, Bloomberg reported that USO Oil ETF Faces U.S. Probes Over Investor Risk Disclosures with SEC and CFTC examining whether shareholders knew potential risks.
Later, on November 08, 2021, The Commodity Futures Trading Commission simultaneously filed and settled charges against the United States Commodity Funds LLC, a registered commodity pool operator, for failing to fully disclose certain position limits that its futures commission merchant imposed on one of the commodity pools it managed, United States Oil Fund, LP (USO). The order imposed a $2,5 million civil monetary penalty on U.S. Commodity Funds and ordered it to cease further violations of the Commodity Exchange Act and CFTC regulations, as charged. Specifically, the order found that from about April 22, 2020, to June 12, 2020, U.S. Commodity Funds failed to fully disclose to commodity pool participants that USO’s only futures commission merchant had imposed certain position limits on USO that would render the pool unable to purchase additional futures contracts in connection with the future offering of new exchange-traded fund shares. This failure to disclose material information to commodity pool participants operated as a fraud on those participants.
In a parallel matter, the SEC announced that it has entered an order simultaneously filing and settling charges against U.S. Commodity Funds and USO and imposing a civil monetary penalty. Collectively, U.S. Commodity Funds together with USO have agreed to pay $2.5 million in penalties to settle the parallel cases as the CFTC order will recognize and offset a portion of any civil monetary penalty payment made to the SEC in connection with this action.
Failure to Disclose,
Breach of Fiduciary duty,
Derivative (Futures, Option, SWAP)
Shock Event Date
27 April 2020