* Obama seeks higher civil, criminal penalties on oil, gas
* Only one actual manipulation case brought since 2009
* Cases seen by lawyers as hard to prove
By Jeremy Pelofsky
WASHINGTON, April 20 President Barack Obama's
administration has brought only one new case alleging energy
market price manipulation since he took office in 2009, despite
more tough talk about it this week amid soaring prices at the
If that seems like a lackluster enforcement record for a
president eager to look assertive on oversight of oil and
natural gas markets in an election year, it may be for good
Experts said there is little evidence of widespread
manipulation in these markets and, in any case, lawyers with
experience in the field said such cases are difficult to prove.
The administration on Thursday announced a $14 million
settlement with Dutch trading firm Optiver in an oil market
manipulation case, but that case had initially been brought in
2008 under the administration of President George W. Bush.
With energy markets in turmoil, the market-regulating U.S.
Commodity Futures Trading Commission under Bush from 2006 to
2008 brought more than a dozen energy market price manipulation
cases, according to a review by Reuters.
Asked by Reuters for recent cases alleging energy market
price manipulation, officials from the CFTC, the Federal Trade
Commission and the U.S. Justice Department turned up only one
case that has been brought under Obama.
The White House did not respond to a request for comment.
The FTC received specific new authority over manipulation of the
energy market in November 2009. The Justice Department said it
does not keep a detailed tally of its criminal cases.
The average U.S. gasoline price per gallon was nearly $4 in
early April, up about 25 cents from a year earlier, a jump that
ensures plenty of rhetoric from Democrats and Republicans for
months to come with the Nov. 6 elections approaching.
"It's a very popular political issue ... it's always invoked
to blame complicated pricing issues on speculators," said Glen
Donath, a partner at Katten Muchin Rosenman LLP in Washington.
"It also feels good to point to an easy fix under the
criminal laws, but the reality is they're very hard to
prosecute," said Donath, who has worked on such cases previously
and prior to that was a federal prosecutor.
A SINGLE CASE
Almost a year ago, the CFTC alleged that two oil traders and
their firms -- James Dyer of Oklahoma's Parnon Energy and
Nicholas Wildgoose of Europe-based Arcadia Energy -- amassed and
sold off a substantial position in physical crude oil to
manipulate futures prices. The traders and their firms have
rejected the allegations and asked that the case be dismissed.
The judge in the case, William Pauley of Manhattan federal
court, heard arguments in December over a motion by the
defendants to dismiss the case and they are awaiting his ruling.
In 2009, the Obama administration settled a case that had
been brought under Bush involving collapsed hedge fund Amaranth
Advisors, for attempting to manipulate natural gas markets. The
firm paid a $7.5 million fine.
The CFTC on Thursday settled allegations that the
high-frequency trading firm Optiver Holding BV, two of its
subsidiaries and three traders engaged in manipulation and
attempted manipulation for crude oil, heating oil and gasoline.
As is typical in many such settlements, Optiver did not
admit or deny the allegations.
CFTC Chairman Gary Gensler, peppered by reporters at a CFTC
meeting on Wednesday about why the agency has not done more on
such cases, said that he only had six people for energy
oversight team. "This agency is so under-resourced," he said.
On Tuesday, Obama said: "We can't afford a situation where
speculators artificially manipulate markets by buying up oil,
creating the perception of a shortage, and driving prices
higher, only to flip the oil for a quick profit."
He proposed that Congress increase criminal and civil price
manipulation penalties for individuals and firms to $10 million
from $1 million, and that in civil cases the defendant could be
forced to pay up to three times the losses to victims.
Additionally, under Obama's proposal, penalties would be
assessed for each day of a violation, rather than per violation.
Mitt Romney, the expected Republican challenger in the
presidential election, has argued that Obama's proposals would
lead to higher taxes and more costly energy regulation.
Obama has spoken out periodically trying to show he
understands Americans' concerns about rising gasoline prices.
One drastic step he could take is to release oil from the
Strategic Petroleum Reserve, but such a move could open him up
to criticism that he was only doing it to win the election.
He also pushed this week for more funds for the agencies to
pursue manipulation cases, but sharp fiscal policy divisions in
Congress make it difficult to get approval for more funding.
The lack of cases under Obama comes despite new powers
approved in 2010's Dodd-Frank banking and market reforms, which
expanded the definition of market manipulation.
"There have not been many, if any, CFTC cases establishing
manipulation of the crude oil futures market or the natural gas
futures market," said Mark Young, a former CFTC assistant
general counsel from 1977 to 1982.
He said the CFTC and trading exchanges have been vigilant
and effective in safeguarding against trading manipulation.
"Given the absence of alleged futures price manipulation
generally, it is hard to see how increased penalties would deter
much misconduct," said Young, now a partner at the law firm
Skadden, Arps, Slate, Meagher & Flom LLP in Washington.
The CFTC has noted that its overall enforcement actions, not
just in the oil and gas market, were up 74 percent in the fiscal
year that ended Sept. 30, 2011. The FTC refused to reveal the
size of its investigation team but said it had no recent cases.
BURDEN OF PROOF
Donath, the former federal prosecutor, said a key to
manipulation cases is proving the difference between speculation
and manipulation, as well as proving that a trader had the power
to move the price of the commodity. They are high thresholds to
During the Bush administration, the Justice Department
charged several BP traders with conspiring in 2004 to manipulate
and corner the propane market, but a federal judge a year later
dismissed the indictment against the traders.
BP entered a deferred prosecution agreement in 2007 and paid
$303 million in restitution and fines.
Obama last year also created a working group made up of
several federal agencies, including the FTC, Justice Department
and CFTC to improve their collaborative efforts to root out any
manipulation in the energy markets.
While members of those agencies have had a few meetings,
little has been heard or seen from it, though a report by the
FTC is expected soon.