In re: 

UNI'mD STATES OF AMERICA 

Before the 

COMMODITY FUTURES TRADING COMMISSION 

Rockland P. McMahan, 

Respondent. 

08-07 

CFTCDocketNo. ~~- ro {f)(..,.._; 

COMPLAINT AND NO~iiloFJ>' ~0 c:::> HEARING PURSUANT tu- ·· 

SECTIONS.6(c) AND 6(d)~Tlii COMMODITY EXCHANGE ACT 

The Commodity Futures Trading Commission ("CFTC''. or "Commission") has 

received information from its staff that tends to show, and the Commission's Division of 

Enforcement ("Division") alleges, that: 

I. 

Summary 

1. On or about October 21 or 22, 2004, Rockland P. McMahan, a feeder 

cattle order buyer in western Texas, reported to a United States Department of 

Agriculture ("USDA") market price reporter in Amarillo, Texas, that he had purchased 

1,800 head of feeder steers weighing an average 725 pounds at $118.00 per hundredweight in the cash feeder cattle market. The USDA included this purchase in its weekly 

cash market feeder cattle report on Friday, October 22, 2004, which is used as a source of 

marketing information that is intended to aid producers, consumers, and distributors in. 

the sale and purchase of livestock, meat, grain and their related products. In fact, 

McMahan did not purchase or have a bona fide agreement to purchase any.feeder steers 
weighing between 700 and 849 pounds as he had reported. Thus, his report to the USDA 

was false. 

2. The Chicago Mercantile Exchange, Inc. ("CME") incorporated the 

purported "direct sale" of 1,800 head included in the USDA report in calculating the 

CME Feeder Cattle Index ("Index") price series for each of the days from October 22 

through October 28, 2004. 

3. Because the CME's Feeder Cattle futures contract cash settles to the value 

of the Index on the last trading day, and McMahan reported the sale during the last week 

of trading in the contract, the reported direct sale affected the settlement price of the 

October 2004 feeder cattle futures contract. 

4; In the course of performiri'g their normal surveillance activities, market 

surveillance staff from the Commission's Division ofMarket Oversight ("DMO") 

questioned McMahan about the direct sale of the 1,800 head that contributed to the value 

of the October 2004 Index. DMO informally asked McMahan for details about the direct 

sale. In addition, DMO sent McMahan formal requests for information about the cash 

market transaction pursuant to the authority conferred under Section 4i of the Commodity 

Exchange Act, as amended ("Act"), 7 U.S.C. § 6i (2002), and Commission Regulations 

("Regulations") 1.31 and 18.05, 17 C.F.R. §§ 1.31 and 18.05 (2007). 

5. McMahan failed to produce adequate records upon request, and provided 

false, misleading or materially in~omplete responses to these inquiries. 

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II. 

The Respondent and Other Relevant Entities 

6. Respondent Rockland Palmer McMahan, familiarly known as "Rock,'' is 

the self-employed owner and operator of McMahan Cattle Co., S&R Cattle Co., Ltd. and 

McMahan OrderBuying, Ltd., all of which he operates out of offices located at 1515 

South Capital of texas Highway in Austin, Texas 78746. Individually and through his 

companies, McMahan's primary business is buying and selling feeder cattle and calves to 

and from ranchers and feedlots as an "order buyer." Neither McMahan nor any of his 

entities have ever been registered with the Commission. At all relevant times, McMahan 

has been a reportable trader in the feeder cattle futures contract and has maintained a 

feeder cattle hedge exemption with the CME in connection with hedging his cash market 

activities. 

Other Relevant Entities 

7. The Chicago Mercantile Exchange, Inc. is a registered entity and a 

designated contract market for trading feeder cattle futures contracts pursuant to 

Section 5 of the Act, 7 U.S. C.§ 7. The CME's principal place of business is in Chicago, 

Illinois. The trading venues for the feeder cattle futures contract include the CME' s 

trading floor in Chicago, Illinois and the CME GLOB EX electronic trading platform. 

8. Bovina Cattle Feeders ("Bovina") is a 42,000-head capacity custom 

feedlot located in Farwell, Texas 79325, in which McMahan is a 10% owner. 

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III. 

The Chicago Mercantile Exchange's Feeder Cattle Futures Contract 

9. 

.,.·I Feeder cattle are young steers (castrated males) that are sent to feedlots for 

finishing into "fed" or "fat" cattle for eventual slaughter. The CME's feeder cattle 

futures contract enables cattle producers to manage their price risk more effectively and 

fosters price discovery in the livestock industry. 

10. ACME feeder cattle futures contract consists of 50,000 pounds of feeder 

steers, with a minimum price fluctuation or "tick" of $0.00025 per pound, which equates 

to $12.50 per contract. In practice, the feeder cattle futures contract is quoted in dollars 

per hundred-weight (''CWT"). The CME's feeder cattle futures monthly listings include: 

January, March, April, May, August, September, October and November. During the 

relevant time, to meet the specifications for inclusion in the CME feeder cattle futures 

contract, cattle were required to be steers of average weight between 700 and 849 pounds 

that were USDA graded #1 muscling, Medium or Medium/Large frame. 

11. The CME' s feeder cattle futures contract is cash-settled based on the CME 

feeder ~attle Index; accordingly, there is no physical delivery of feeder steers. The final 

settlement price for the contract is the value of the Index on the last trading day of the 

futures contract, which, with certain exceptions not relevant here, is the last Thursday of 

the contract month in this case, Thursday, October 28,2004. 

12. The CME calculates the Index on a daily basis using a weighted average 

of feeder cattle sales publicly reported by the USDA for the previous seven (7) days for 

an area covering twelve contiguous western and southwestern states of the United States 

where most of the nation's cash feeder cattle are traded. Texas is one of the twelve states 

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surveyed. More specifically, the CME extracts from the USDA reports information 

pertaining to reported sales of cattle meeting the specifications for inclusion in the Index. 

Under the CME's rules, the Index includes all eligible sales reported by the USDA- i.~., 

cattle identified as feeder steers of average weight between 700 and 849 pounds, USDA 

grade #1 muscling, Medium or Medium/Large frame. 

13. The CME posts this Index daily on its website, W\VW.cme.com. The CME 

also posts the contract specifications for the feeder cattle futures contract and the rules 

regarding the feeder cattle contract on its website. 

14. Various commercial services publish price quotations of the Index and the 

CME feeder cattle contract. McMahan and other participants in the cattle industry 

observe these quotations and USDA reports in the ordinary course of business, and use 

them in making cash market, hedging and speculative trading decisions. 

15. The primary function of USDA's Livestock and Grain Market News 

("LGMN") branch is to compile and disseminate information that will aid producers, 

consumers, and distributors in the sale and purchase of livestock, meat, grain, and their 

related products nationally and internationally. The LGMN' s mission is to provide to the 

agricultural industry accurate and unbiased marketing information depicting current trade 

conditions that will promote orderly marketing and enhance competition. 

16. Among the reports LGMN prepares are daily and weekly reports of feeder 

cattle sale activity. These reports identify sales of cattle by sex, weight range, muscling 

score, frame size, and other descriptive information. The USDA generally reports 

auction sales on a daily basis, but reports "direct sales", which are privately negotiated 

transactions, on a weekly basis on Fridays. The prices at which direct sales occur, unlike 

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auction prices, are voluntarily reported to the USDA at the discretion of the parties to the 

transaction. 

McMahan Reported a Purchase oflzBOO Head o[Feeder Cattle Weighing an 

Average of 725 pounds to the USDA 

17. Over a period of several years, it was a practice of the USDA LGMN 

Market News reporters ("reporter") to telephone industry sources, including McMahan, 

and collect information about any cattle purchases or sales during the preceding week for 

purposes of preparing the weekly Texas Weekly Direct Feeder Cattle Summary. 

McMahan was under no obligation to respond to these inquiries, but, until April 2005, he 

regularly provided information to the USDA in response to the inquiries. 

18. On or about Thursday, October 21 or Friday, October 22,2004, a reporter 

telephoned McMahan and asked whether McMahan had purchased or sold any cattle that 

week. The reporter was collecting the "direct sale" information for purposes of preparing 

the Texas Weekly Direct Feeder Cattle Summary for the week ending October 22,2004 

(the "Summary"). 

19. In response to the reporter's inquiry, McMahan stated that he had 

purchased 1,800 head of feeder steers that he identified as weighing an average of 725 

pounds at an average price of$118.00/CWT. 

20. The USDA's LGMN included this direct sale reported by McMahan in 

compiling the Summary, listing the transaction as 1,800 head of medium and large frame 

#1 feeder steers at a price of$118.00/CWT. 

21. In calculating the value of the Index for each day from October 22 through 

28, 2004, the CME included all eligible transactions reported by the USDA in the 

Summary, including the 1,800 head reported by McMahan. 

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22. The settlement price for the October 2004 feeder cattle futures contract 

was based, each day, on the Index value of that day. 

McMahan Knew or Should Have Known that His Purported Direct Sale Would 

Be Reported bv the USDA and Incorporated Into the CME's Index, and Would 

Affect the Feeder Cattle Futures Settlement 

23. McMahan did not, in fact, purchase any feeder steers weighing between 

700 and 849 pounds in the week preceding the Summary. 

24. McMahan never advised the reporter that the direct sale of 1,800 head of 

feeder steers at $118.00/CWT was not a completed sale at the time McMahan reported it 

or that the 1 ,800 head did not actually comprise any feeder steers weighing between 700 

and 849 pounds. 

25. McMahan knew or should have known that the reporter collected 

information concerning direct sales in order to report cash market feeder cattle 

transactions and that the direct sale he reported would be included by the USDA in its 

weekly cash market feeder cattle report on Friday, October 22, 2004. 

26. McMahan also knew or should have known that because he reported a 

purchase of feeder steers that averaged 725 pounds, the sale information likely would be 

included by the CME in calculating the value of the Index and thereby factored into the 

pricing of the October 2004 Feeder Cattle contract. 

McMahan Failed to Produce Adequate Cash Market and Other Records To The 

Commission, As Requested Under Section 4i o(the Act and Regulations 1.31 

and 18.05 

27. On Wednesday, November 3, 2004, DMO Market Surveillance Branch 

Chief William Kokontis and Senior Industry Economist David A. Kass contacted and 

spoke with McMahan. The DMO staff advised McMahan that they were conducting 

routine surveillance and had questions about the direct sale of 1 ,800 head that they 

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understood McMahan had reported to the USDA. They advised McMahan that they 

would be sending a letter calling for documentation to put the trade into context and 

validate the transaction. 

28. In a letter dated Friday, November 5, 2004, Kokontis formally asked 

McMahan to provide information on any transactions of physical cattle at any time 

during the month of October 2004 pursuant to the Commission's authority to obtain 

information under Section 4i of the Act and Regulations 1.31 and 18.05. The letter 

enclosed a notice warning against making false or fraudulent statements or submitting 

any false writing or document, knowing it to contain false, fictitious or fraudulent 

information. 

29. As a result of subsequent telephone discussions between McMahan and 

DMO staff, on or about November 8 and 10, 2004, McMahan agreed to provide DMO 

with details on the 1,800 head that McMahan had reported to the USDA, plus a sample of 

the monthly statement of cash market activity to McMahan's banks.- DMO staff 

requested McMahan to supply the details as requested in the 18.05 letter- i.e., the buyer, 

seller, transaction date, price, number of head, location, weight, plus any other details 

McMahan thought would corroborate the transaction and support its validity- and 

McMahan promised to do so. 

30. On Monday, November 22, 2004, McMahan provided DMO with an 

invoice dated October 26, 2004, purporting to reflect that he had purchased 1,750 steers 

of average weight of705 pounds at $118.00/CWT from Bovina. The purchase price 

shown on the invoice was $1,455,855. McMahan also supplied a copy of the livestock 

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bill of sale draft dated October 27, 2004 in the same amount that he used to pay for the 

cattle. 

31. Bovina did not create the invoice in the ordinary course of business. 

McMahan did not disclose to DMO that the invoice specifying the purchase of 1,750 

steers averaging 705 pounds at $118.00/CWT was created by Bovina's bookkeeper at 

McMahan's request. 

32. In fact, Bovina had not sold cattle fitting the description in the invoice. 

Bovina instead sold McMahan approximately 930 steers weighing an average of 

approximately 900 pounds and 1,829 heifers. No later than October 26, 2004, Bovina 

sent McMahan a list of the cattle he purchased, including the pen numbers, number of 

head, sex, pay weight, cost per CWT, purchase amount, current feed expense, projected 

feed expense and projected out date. 

33. Kokontis followed up on the data McMahan supplied on November 22, 

2004, with a letter dated December 28, 2004, also issued pursuant to the Commission's 

authority under Section 4i of the Act and Regulations 1.31 and 18.05. This letter sought 

specific information about the 1,750 head that McMahan claimed he had bought from 

Bovina, set forth in six enumerated questions. McMahan responded by telephone on 

January 10, and in writing by facsimile transmission on January 12, 2005. 

34. McMahan's January 12,2005 response to the enumerated questions 

implied that McMahan bought and retained ownership of the 1,750 steers at Bovina. 

35. During the course of sworn investigative testimony, McMahan contended 

that at the time he reported the direct sale of 1,800 head of feeder steers averaging 725 

pounds at $118.00/CWT to the USDA, McMahan had a handshake agreement with 

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Bovina's general manager to sell McMahan some feeder steers weighing more than 850 

pounds and other feeder steers weighing approximately 525 pounds that, taken together, 

constituted a total of about 1,800 head weighing about 725 pounds. McMahan contended 

that toward the end of October 2004, he and the general manager agreed to substitute 

heifers for the lighter weight steers. None of these animals, however, were independently 

eligible for inclusion in the Index. 

36. Despite multiple opportunities to do so over the course of several 

telephone conversations and an exchange of correspondence over a period of two-andone-half months, McMahan never told DMO that the transaction he had reported to the 

USDA had not been completed as he had reported it. 

IV. 

Violations Of The Act And The Regulations 

COUNT I 

McMAHAN VIOLATED SECTIONS 6(c), 6{d), AND 9{a)(2) OF THE ACT BY 

KNOWINGLY DELIVERING A FALSE OR MISLEADING OR KNOWINGLY 

INACCURATE REPORT CONCERNING MARKET INFORMATION THAT 

TENDED TO AFFECT THE PRICE OF FEEDER CATTLE 

37. The allegations contained in paragraphs 1 through 36 are realleged and 

incorporated herein by reference. 

38. The purchase of 1,800 feeder steers that McMahan reported !O the USDA 

concerned market information that affected or tended to affect the price of feeder cattle in 

interstate commerce. 

39. In October 2004, McMahan knowingly delivered through interstate 

commerce a false or misleading or knowingly inaccurate report to the USDA concerning 

market information that affected or tended to affect the price of a commodity in interstate 

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commerce, in violation of Sections 6(c), 6(d), and 9(a)(2) of the Act, 7 U.S.C. §§ 9, 13b, 

and 13(a)(2) (2002). 

COUNT II 

McMAHAN VIOLATED SECTION 4i OF THE ACT AND 

REGULATIONS 1.31 AND 18.05 BY FAILING TO KEEP AND PRODUCE 

ADEQUATE RECORDS SHOWING HIS CASH AND OTHER POSITIONS, AND 

BY PROVIDING FALSE, MISLEADING OR KNOWINGLY INACCURATE 

INFORMATION TO DMO 

40. The allegations contained in paragraphs 1 through 36 are realleged and 

incorporated herein by reference. 

41. Because McMahan was a reportable trader, DMO was empowered to seek 

books and records underlying the direct sale of 1,800 feeder steers that McMahan 

reported to the USDA in October 2004 pursuant to Regulations 1.31 and 18.05, 17 C.F.R. 

§§ 1.31 and 18.05, and Section 4i ofthe Act, 7 U.S.C. § 6i. 

42. DMO sent McMahan letters dated November 5 and December 28, 2004, 

that specifically identified DMO's authority to seek cash market and other information 

under Regulations 1.31 and 18.05. These letters sought specific information about the 

feeder steers that McMahan claimed he had bought. The November 5 letter asked 

McMahan to produce documentation to support the purchase of 1,800 head that 

:McMahan had acknowledged reporting to the USDA. The December 28 letter asked 

McMahan about the 1,750 head that McMahan claimed he actually bought from Bovina, 

set forth in six enumerated questions. 

43. McMahan failed to produce to DMO adequate cash market and other 

records, and delivered to DMO false or misleading or knowingly inaccurate responses to 

its requests. 

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44. The book and recordkeeping requirements and inspection provisions 

contained in Section 4i and Regulations 1.31 and 18.05 are essential to permit the 

Commission to accomplish the purposes of the Act. By failing to produce adequate cash 

market and other records upon request, and by providing false, misleading or knowingly 

inaccurate information to DMO, under circumstances when he was called to produce 

records showing his cash market and other positions, McMahan violated Section 4i of the 

Act, 7 U.S. C. § 6i (2002), and Regulations 1.31 and 18.05, 17 C.F.R. §§ 1.31 and 18.05 

(2007). 

45. Each and every instance in which McMahan failed to produce adequate 

cash market and other records upon request, or provided false, misleading or knowingly 

inaccurate information in response to DMO's inquiries, is a separate and distinct 

violation of Section 4i and Regulations 1.31 and 18.05. 

COUNT III 

McMAHAN VIOLATED SECTIONS 6(c), 6(d), AND 9(a)(3) OF THE ACT BY 

KNOWINGLY MAKING FALSE OR MISLEADING STATEMENTS OF 

MATERIAL FACT TO THE COMMISSION OR KNOWINGLY OMITTING 

MATERIAL FACTS NECESSARY TO MAKE THE STATEMENTS NOT 

MISLEADING 

46. The allegations contained in paragraphs 1 through 36 are realleged and 

incorporated herein by reference. 

47. During multiple occasions from November 2004 through the present, 

McMahan knowingly made or caused to be made to representatives of the Commission 

one or more statements orally and in reports or documents required to be filed under the 

Act or Regulations concerning material facts that were false or misleading or omitted 

information necessary to make the statements not misleading concerning feeder cattle 

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cash market information, in violation of Sections 6(c), 6(d), and 9(a)(3) of the Act, 

7 U.S.C. §§ 9, 13b, and 13(a)(3)(2002). 

48. Each and every instance in which McMahan knowingly made or caused to 

be made statements concerning material facts that were false or misleading or omitted 

information necessary to make the statements not misleading concerning feeder cattle 

cash market information, is a separate and distinct violation of Sections 6( c), 6( d), and 

9(a)(3) of the Act, 7 U.S.C. §§ 9, 13b, and 13(a)(3). 

v. 

Relief Requested 

By reason of the foregoing allegations, the Commission deems it necessary and 

appropriate, pursuant to its responsibilities under the Act, to institute public 

administrative proceedings to determine whether the allegations set forth above are true 

and, ifso, whether an appropriate order should be entered in accordance with Sections 

6(c) and 6(d) of the Act, 7 U.S.C. §§ 9, 13b (2002). 

Section 6(c) of the Act allows the Commission to: (1) prohibit the Respondent 

from trading on or subject to the rules of any registered entities, and require all registered 

entities to refuse such person all privileges thereon for such period as may be specified in 

the Commission's Order, (2) if the Respondent is registered with the Commission in any 

capacity, suspend, for a period not to exceed six months, or revoke, the registration of 

that Respondent, and (3) assess against a Respondent a civil monetary penalty of not 

more than the higher of $120,00 for each violation committed between October 23, 2000 

and October 22, 2004, $130,000 for violation committed on or after October 24~ 2004, or 

triple the monetary gain to the Respondent for each violation. 

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Section 6( d) of the Act allows the Commission to enter an Order directing that the 

Respondent cease and desist from violating the provisions of the Act and Regulations 

found to have been violated. 

VI. 

WHEREFORE, IT IS HEREBY ORDERED that a public hearing for the purpose 

of taking evidence on the allegations set forth in Section III above be held before an 

Administrative Law Judge, in accordance with the Commission's Rules of Practice under 

·the Act ("Rules"), 17 C.F.R. §§ 10.1 et seq. (2007), at a time and place to be set as 

provided by Section 10.61 of the Rules, 17 C.F.R. § 10.61, and that all post-hearing 

procedures shall be conducted pursuant to Sections 10.81 through 10.107 ofthe Rules, 

17 C.F.R. §§ 10.81 through 10.107. 

IT IS FURTHER ORDERED that Respondent shall file an Answer to the 

allegations contained in this Complaint within twenty (20) days after service, pursuant to 

Section 10.23 of the Rules, 17 C:F.R. § 10.23, and pursuant to Section 10.12(a) of the 

Rules, 17 C.F.R. § 10.12(a), shall serve two copies of such Answer and of any documents 

filed in this proceeding upon Rosemary Hollinger, Regional Counsel and Associate 

Director, Scott R. Williamson, Deputy Regional Counsel, and David A. Terrell, Senior 

Trial Attorney, Division of Enforcement, Commodity Futures Trading Commission, 

525 West Monroe, Suite 1100, Chicago, Illinois 60661. If Respondent fails to file the 

required Answer or fails to appear at a hearing after being duly served, Respondent shall 

be deemed in default and the proceeding may be determined against Respondent upon 

consideration of the Complaint, the allegations of which shall be deemed to be true. 

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IT IS FURTHER ORDERED that this Complaint and Notice oflle3Ii:ng shall be 

served upon the Respondent personally or by registered or certified mail, pursuant to 

Section 10.22 of the Rules, 17 C.F .R. § 1 0.22. 

In the absence of an ~ppropriate waiver, no officer or employee of the 

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Commission engaged inthe performance of the investigative orprosecutorialfunctions in 

this or any factually related proceeding will be permitted to participate or advise in the 

decision in this matter except as witness or counsel in a proc~eding held pursuant to 

notice. 

By the Commission. 

&;;/!.~ David A. Stawick 

Secretary of the Commission 

Commodity Futures Trading Commission 

Dated: · March 18. 2008 

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