The Cautionary
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Greed-to-Grief, No. 28

Greed-to-Grief, No. 28

The boss with his hand in the cookie jar

George Pillari
December 04, 2025

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After oil, natural gas is the second most-used fossil fuel on the planet. Natural gas is mined from deep inside the Earth’s crust, refined, and stored like oil before it is used to heat your home.

But gases are voluminous. While you can carry a one-gallon can of oil like a carton of milk, the volume of natural gas needed to produce an equivalent amount of energy would fill a one-bedroom apartment.

The solution to the problem is to convert natural gas into its liquid form. By cooling the gas to -260 degrees Fahrenheit, the volume is reduced by a factor of 600. So now you can carry a gallon of oil in one hand and a gallon of liquefied natural gas, commonly known as LNG, in your other hand.

The conversion of natural gas to LNG

The US is the world’s biggest producer and exporter of LNG. LNG is transported much like oil through a system of trucks and tanker ships. When the LNG reaches its destination, it is reheated and ready to use as a power supply.

Hedging and speculating on the price of LNG is big business. For example, companies that purchase millions of gallons of LNG per year want to ensure they will receive the fuel vital to their operations, so they sign long-term contracts with multiple LNG suppliers.

But they also want to avoid price fluctuations during the typical 20-year contract.

The price of LNG goes up and down on a daily basis, so financial instruments have been created to provide for speculation on the price. Let’s say a company wants to lock in a price of $100 per unit of LNG.

The company will buy contracts that pay the company if the price of LNG goes up. The company is paying for price insurance to guarantee a stable unit price year-to-year for its LNG purchases.

Trading and speculation in LNG is just like other commodities

The other side of the financial contract is usually a financial trading institution making the opposite bet. The trader will take the price-protection payments from the company and put them in the bank. If the price of LNG goes up, it has to cover the price difference above the $100 and pay it to the company, and this is a loser for the trader. If the price is flat or goes down, the trader keeps the premiums received from the company, a winner for the trader.

David Smothermon orchestrated a massive fraud in the trading of LNG

David Smothermon was on a successful 10-year run at trading firm Trammo. He was a senior executive, ran the desk for LNG trading, and was in and out of positions daily. In 2015 he made his firm more than $60 million in profits and earned himself a $15 million bonus. Everybody was happy.

But as the 2016 trading year progressed, accounting officials at Trammo noticed discrepancies between what was reported in the trading records and what cash actually changed hands.

After some probing, it was discovered that Smothermon falsified over $200 million of trades. He routinely directed staff to change entries in the trading systems to show more favorable results.

The guts of his scam involved adjusting the price or the “mark” that listed the value of an asset. For example, if he bought a contract to provide price protection for a company purchasing LNG, he would lower the price for the LNG so it appeared he did not have to pay out the insurance and his trade appeared profitable. It was all quite calculating and deliberate.

In short order, the US Attorney’s Office of Complex Fraud and Cybercrimes (what a great place to say you worked) was on the scene and the small and well-respected firm’s booming success of 2015 was determined to be a mirage.

Trammo had to scramble, laid off 70% of its staff and barely survived. According to the victim impact statement made by Trammo at the sentencing hearing:

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Smothermon used his position of trust and responsibility to conceal over several months a fraud of enormous magnitude

Smothermon’s lawyers gave the typical arguments about how his entire life and identity was as a trader, he believed the losses were temporary, and his trades would turn positive, blah, blah, blah.

Sounding like a gambling addict who believed the next roll of the dice would turn things around, Smothermon was sentenced to three years in prison and ordered to pay $19 million in restitution.

It doesn’t even begin to measure the damage done to the careers and families of the hundreds that were laid off due to Smothermon’s fraud.

Key Takeaways

When the boss is stealing, you have problems. Many get caught up in the money being made and figure the boss will straighten things out. If you participate in a fraud, it’s hard for the boss to help you when he or she is behind bars.
Any kind of breakout performance should be viewed skeptically first, not last. Smothermon’s wildly successful trading year was not unlike a decent baseball player erupting and setting a home-run record. Can you say “steroids?”
Any financially oriented business, or any business for that matter, needs controls and ongoing audit mechanisms. There have been too many financial firms that suddenly “blow up,” when a closer look says the problems were there for a while but everybody was making money, so why change anything?

Things I think about

Fedex processes more than 16 million packages per day during the holiday season.