Draft:Jon Ruggles (businessman)

• Comment: Please read Original research, Neutral point of view, Biographies of living people (core Wikipedia policies) and Words to watch (a guide). I tagged some claims in the first couple paragraphs that are problematic to give you an idea of some of the issues. S0091 (talk) 17:57, 5 October 2024 (UTC)

• Comment: This is written like a hagiography rather than an encyclopedia article. Also, some of the content is unsourced and much of the content is not about Ruggles. If the sources make not mention of him, then likely not useful. S0091 (talk) 15:57, 5 October 2024 (UTC)

---

Jon Paul Ruggles (born 1973) is an American executive best known for founding Monroe Energy, a groundbreaking example of vertical integration within the energy sector that allowed Delta Air Lines to control its fuel supply. This move is regarded as a successful though unorthodox vertical integration of an energy company into a major corporation. Ruggles' career has been marked by significant achievements, particularly during his leadership of Delta's fuel trading business, where he built a market-leader trading business and oil company within the confines of an airline.

However, his success has been shadowed by an accusation of insider trading brought by the Commodity Futures Trading Commission (CFTC). The case signaled a turning point for the regulatory agency, as it sought to push the boundaries of Rule 180.1 and develop new case law concerning industry-standard practices in commodities trading that had been accepted practice for decades. The long-term legacy of the Ruggles case remains to be seen, but it is closely studied by legal scholars for its potential ramifications in emerging sectors like cryptocurrencies where the CFTC has positioned itself as the global regulator.

Since his departure from Delta, Ruggles has become an investor and operator in the oil industry, working for investment firms like The Carlyle Group and Silverpeak. Widely respected for his sharp intellect and relentless drive, Ruggles has nonetheless been described as a complex and polarizing figure, with some questioning his brash demeanor.

Ruggles' career and personality have been the subject of numerous articles and books and national media coverage. Notably, Kate Kelly, a bestselling author and New York Times journalist, featured him as a key figure in her book, "The Secret Club That Runs the World" (2014), which delves into the influential players in global finance. Ruggles' role in the commodities and energy sectors has cemented his status in the industry , though his professional legacy continues to be debated.

Early Life

Ruggles was raised in Youngstown, Ohio, a city known for its post-industrial challenges. He is the son of a former U.S. Army sergeant who transitioned to become a high school teacher and then later as a professor at Youngstown State University, and a mother who worked as an elementary school teacher and as an artist. Ruggles attended the University of Michigan at Ann Arbor and the University of Texas at Austin. He later went on to complete his MBA at the University of Texas at Austin in 2001.

Professional Career

Ruggles began his early career in the energy industry, holding roles at Exxon, ConocoPhillips, and Trafigura before joining consulting powerhouse McKinsey & Company. His experience in energy trading positioned him as a key figure in the industry.

In 2011, Ruggles was personally recruited by Richard Anderson, the then-CEO of Delta Air Lines, to lead a transformative initiative aimed at overhauling Delta's fuel procurement strategy. Anderson envisioned Delta's fuel operations functioning like a commodity trading house and hedge fund rather than a passive price-taker. At the time, Delta was the world's largest fuel-consuming company and faced significant exposure to volatile oil prices.

Ruggles assembled a team of experienced energy and derivatives traders from leading Wall Street firms to join Epsilon Trading, Delta's fuel trading division where Ruggles served as president. Delta implemented advanced risk management systems, expanded risk limits, and built a state-of-the-art trading desk for more than 50 traders. This bold strategy initially paid off handsomely, with Delta reporting $413 million in derivatives trading profits in 2011, a stark contrast to previous years where it had lost up to $300 million in its program. Media reports highlighted that Ruggles' success directly funded the bonus pool for 80,000 employees at Delta that year. Delta beat its consensus earnings estimates for 2011 by several cents per share due to Ruggles' performance.

In 2012, Ruggles expanded his influence by creating an oil refining arm for Delta called Monroe Energy, acquiring the Trainer Refinery from ConocoPhillips for $180 million and invested over $100 millionto bring the idled refinery back online. Despite initial skepticism from business media, Monroe Energy became a major success,generating over $3 billion in earnings for Delta and serving as a unique example of vertical integration. This bold move reduced Delta's exposure to fuel price volatility and proved a valuable asset for the airline.

Ruggles left Delta at the end of 2012, and is now linked as an owner of the North Atlantic Refinery in Canada.

Controversy at Delta

In 2014, CNBC broke the news that Ruggles was being investigated by the CFTC for alleged insider trading. This investigation came in the wake of new powers granted to the CFTC under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. In September 2016, Ruggles and the CFTC reached an out-of-court settlement regarding his trading activities during his tenure at Delta Air Lines. Under the terms of the settlement, Ruggles agreed to pay $1.75 million in a fine and a $3.5 million disgorgement. Ruggles did not admit to any wrongdoing and was never prosecuted criminally. He voluntarily agreed to cease trading NYMEX energy futures for an indeterminate period. Delta Air Lines did not pursue any legal action against him.

Notably, in the settlement, Ruggles' wife, Ivonne Ruggles, was not implicated or sanctioned by the CFTC. Although some trades were executed in accounts registered in her name, the CFTC's focus remained solely on Jon Ruggles, with no penalties imposed on her.

The Legal Significance of the Ruggles Case & Misappropriation Theory

The Ruggles case is pivotal in understanding the evolving landscape of insider trading regulation in commodities markets. Before the Dodd-Frank Act, the CFTC's authority to police insider trading in commodities markets was highly limited, with the Commodity Exchange Act (CEA) focusing only on insider misuse by CFTC personnel or individuals in exchanges under its oversight. There were no broad, market-wide prohibitions on insider trading like those enforced by the SEC in securities markets. The SEC had long exercised broader powers, built around protecting shareholders from corporate insiders exploiting material nonpublic information.

The CFTC sought to extend its reach post-Dodd-Frank, primarily through Rule 180.1, which prohibits trading based on material nonpublic information obtained through breaches of duty, fraud, or deception. This expanded scope under Rule 180.1 paralleled insider trading regulations in the securities market under SEC Rule 10b-5.

From 2015-2020, the CFTC tested its new regulatory powers in several key cases, including:

• In the Matter of Motazedi (out-of-court settlement)
• In the Matter of Ruggles (out-of-court settlement)
• CFTC v. EOX Holdings LLC and Gizienski (overturned on appeal by the 5th Circuit)
• In the Matter of Classic Energy LLC and Webb (out-of-court settlement)
• United States v. Bogucki (a loss for the CFTC/DOJ in court)

These cases, including Ruggles', applied the misappropriation theory, which asserts that insider trading occurs when confidential information is misused in violation of a pre-existing duty.

Critics, including several leading legal scholars, are adamant that the term "insider trading" is misplaced in commodities markets, as the traditional notion of "insiders" prevalent in securities trading does not apply. Ironically the CFTC itself was adamantly against limitations on insider trading until Dodd Frank. The passage below from the Virginia Law Review in 2016 covers the CFTC's historical position:

Congress frequently considered imposing broad insider trading restrictions in commodities markets, but the CFTC repeatedly deflected such efforts. After considering a 1982 bill to stop informed speculation, Congress instead kicked the can to the CFTC to prepare a report on the viability of an insider trading regime for commodities and futures markets. That 1984 report argued against insider trading restrictions, citing the rationales discussed in Part III, and Congress largely abandoned any efforts at greater regulation. Similar laws were considered in 1991, and the CFTC opposed this bill too. Not only did Congress again follow the CFTC's urging by voting down new restrictions, it would later go so far as to codify the CFTC's position.

As late as 2009, the CFTC could assert, "the CFTC has no jurisdiction over insider trading in any way, unless a commissioner or a Board of Trade member engages in it . . . ." Officially, there is still no general restriction on insider trading in commodities markets. This has been confirmed by statutory language, rulemaking, and testimony by CFTC staff.

Commodities markets—whether the be energy, currencies, crypto etc. —have always operated with a different purpose and structure than capital markets (e.g. stocks and bonds). Unlike capital markets, where the focus is on capital formation and investor protection, commodity markets are designed specifically to allow participants to transfer risk, often using both public and nonpublic information. In commodities trading, there are no "shareholders" or investors whose interests must be safeguarded from informational asymmetries. As a result, practices such as positioning a market-maker's proprietary book to facilitate a large hedge for a counterparty, including active front-running, have long been fundamental aspects of the market's functioning. These practices are distinct from fraudulent activities and have been, and likely will be in the future too, considered an integral part of ensuring liquidity and risk management within the commodities market. Moreover, the commodity market rely on the extensive use of complex derivatives which have not fit into capital market regulation due to their very nature. It is of no surprise then that the CFTC lacked any historical authority, or reason, to police the concept. Post Dodd Frank, the rule making and enforcement by the CFTC have taken more than a decade to roll out, and yet the rules and case law appear to be incomplete, inconsistent, and in some ways contradictory.

Nonetheless, the CFTC's recent enforcement actions under Rule 180.1 illustrate its broad interpretation of duties that can give rise to insider trading violations, signaling its intent to regulate commodities markets with a more robust framework.

The Ruggles case is notable in that it is was intended as a series of test cases to expand the CFTC's regulatory reach . Had there been a trial, the government would have been required to show clear evidence that Jon Ruggles' actions harmed or financially disadvantaged Delta Air Lines. In fact, publicly available data indicates that Ruggles created a highly profitable trading division with Epsilon Trading, generating hundreds of millions of dollars in earnings for the airline. His success was driven by complex derivatives strategies, which became an integral part of Delta's extensive commodities trading operations, rumored to be one of the largest in the world at the time of his departure. Following Ruggles' exit, Delta's trading performance deteriorated significantly, culminating in an admission by new CEO Ed Bastian that Delta had suffered $4 billion in hedging losses over eight years. This decline casts doubt on the CFTC's misappropriation theory, which would have required proof that Ruggles defrauded Delta in violation of Rule 180.1. The theory remains unsubstantiated.

Furthermore, neither Delta nor criminal prosecutors pursued legal action against Ruggles, even as the Southern District of New York (SDNY), led by Preet Bharara, conducted a major insider trading crackdown that resulted in over 80 convictions during the period surrounding Ruggles' settlement. Had the DOJ and CFTC been capable of securing a criminal conviction against Ruggles, it could have paved the way for broader enforcement actions, particularly in sectors like cryptocurrency, where company founders often engage in proprietary trading while managing risks on behalf of shareholders. This clearly did not happen.

The Ruggles case highlights the complexity of enforcing insider trading rules in large, sophisticated trading environments. A similar setback for the CFTC occurred in 2019 with the criminal prosecution of Robert Bogucki, where Judge Charles Breyer issued a directed acquittal. The Bogucki case, which also applied a misappropriation theory, demonstrated the difficulties of applying traditional fraud theories in markets where practices like pre-hedging and front-running are common. Breyer's words were telling in that "the Justice Department's case collapsed shortly after the trial began" and that "no jury could reasonably convict Bogucki on the evidence presented." Scholars have referred to United States v. Bogucki as the 2019 legal case of the year. Perhaps had Ruggles gone to trial, the same verdict would have been reached hence the reluctance of the government to pursue Ruggles further than a civil settlement action.

Additionally, recent criminal cases, such as the prosecution of Sam Bankman-Fried and his associates, have not utilized the legal theories developed in the Ruggles and Bogucki cases, despite numerous potential parallels involving transactions between FTX, Alameda Research, and Bankman-Fried's personal holdings, where the concern was large enough that SBF even felt the need to tweet a denial 2019 that "neither he nor Alameda were intentionally front-running their customers." It remains to be seen whether the CFTC or DOJ will employ the arguments used against Ruggles in future legal actions against major cryptocurrency figures. Generically, win percentages for government prosecutions are extremely low for defendants (acquittals are 0.4% according to Pew), especially when the government brings its full power to bear. Of the 5 similar cases intended by the CFTC to expand their scope, losing 40% in the courts and settling the rest indicates the flaw in the application of misappropriation theory and Ruggles may have been part of dead-end road for a legal theory.