WASHINGTON The U.S. futures regulator on Tuesday sued two veteran oil traders and their employers, the Arcadia and Parnon Energy firms, charging they booked $50 million in profits by manipulating oil prices in 2008.
The Commodity Futures Trading Commission accused traders at Parnon Energy Inc and Arcadia Energy Suisse SA of carrying out a cross-market trading scheme between January and April of 2008 involving accumulation and sell-off of a substantial position in physical crude oil to manipulate futures prices.
Parnon and Arcadia are owned by Norwegian shipping magnate John Fredriksen.
The CFTC said James Dyer and Nick Wildgoose -- former senior traders at oil major BP (BP.L) -- directed the manipulative trading scheme. The complaint, among the agency's biggest charges of wrongdoing in energy markets, said the scheme yielded more than $50 million in unlawful profits.
Neither Arcadia nor Wildgoose or Dyer were immediately available for comment.
The suit stems from trading activities related to interplay between physical oil storage held in Cushing, Oklahoma, the delivery point for the U.S. benchmark futures contract, and the derivatives market. At the time the trades occurred, oil prices were on their way to record levels.
The CFTC complaint alleged Dyer and Wildgoose knew their style of trading could lead to riches.
"MONEY TO BE MADE"
Dyer said in a September 2007 email to other Parnon/Arcadia traders that there was a "s***load of money to be made shorting" the New York Mercantile Exchange West Texas Intermediate calendar spreads if the rest of the market believed supplies at Cushing were tight, but someone unexpectedly turned end-of-month balance into a "surplus," the complaint charged.
The charges do not seem to be linked to crude's record-breaking spike to almost $150 a barrel in 2008, although the alleged offense occurred during the same time period.
The CFTC alleges the pair did at times try to push prices higher by buying up commercial supplies of crude around Cushing. But they also tried to force prices lower, at times dumping crude to depress prices and profit on short positions, according to the CFTC.
Their attempt to control the direction of the market worked in January and March 2008, the CFTC said, but failed in April, as prices rose by almost $20 a barrel toward $120 over the course of that month. Prices barely paused from then until they hit more than $147 a barrel in July 2008.
The traders executed a manipulative strategy by amassing "a sufficient quantity of physical WTI to be delivered the next month at Cushing to dominate and control WTI supply even though they had no commercial need for crude oil," it said.
It said the traders aborted the scheme in April 2008 after learning of the CFTC investigation.
In 2011, high oil prices again have brought calls for the U.S. government to crack down on speculators, with some lawmakers calling on the CFTC to immediately impose position limits.
Parnon, headquartered in Oklahoma, owns at least 3 million barrels of storage facilities at NYMEX crude delivery point Cushing. London-based Arcadia is a major global oil trading firm, which typically markets about 800,000 barrels a day of crude and product around the world.
Both are controlled by Fredriksen's Farahead Holdings, based in Cyprus. Fredriksen also controls one of the world's leading oil tanker companies, Norway's Frontline.
Arcadia has been implicated in oil squeeze plays in the past. In 2000, US independent refiner Tosco filed a lawsuit alleging Arcadia and others had colluded to control a large trunk of the physical Brent crude market to drive up prices. Arcadia settled that suit for an undisclosed sum.
The CFTC said it began stepping up its surveillance of energy markets for manipulation in early 2008, when Parnon and Arcadia began the activities that prompted the suit.