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U.S. Commodity Futures Trading Commission investigate oil price manipulation

Bloomberg

 

 

CFTC to Examine Oil Traders’ Intent, Ex-Officials Say (Update2) 

By Bob Van Voris

May 31 (Bloomberg) — An investigation of oil trading by the U.S. Commodity Futures Trading Commission will likely target evidence that traders intended to manipulate markets rather than just schemed to make money, former officials of the agency said.

The CFTC, which announced May 29 it’s investigating oil trading, will be looking for e-mails, voicemails, memoranda and other direct proof that traders were trying to illegally skew the markets with their trades.

“The key to this is: what is the intent of the trading?” said Geoffrey Aronow, a former head of enforcement for the CFTC. “Is the sole intent to try to move the price of the commodity – – in this case, crude oil? Or does the trading have a reasonable commercial justification?”

Record-high oil costs have prompted lawmakers to press for scrutiny of whether speculative trading is artificially pushing up prices. Traders who did try to push up prices in the market may face civil fines by the CFTC or, in some cases, criminal prosecution by the Justice Department, Aronow said.

The CFTC will likely require direct evidence of market manipulation before taking any enforcement action, said Aronow, who’s now in private practice with the law firm Heller Ehrman in Washington. Aronow said the agency tends to require “smoking- gun” evidence before pursuing civil sanctions.

“If not a smoking gun, at least a hot gun,” he said.

Cotton Probe

Michael Greenberger, a former head of the CFTC’s Division of Trading and Markets, said that traders may face criminal prosecution by the Justice Department if the investigation turns up so-called “wash sales,” or improper off-setting trades intended to drive up prices or if they reported false prices to the publishers of trade price indexes.

The commission also opened an investigation into potential irregularities in cotton futures trading, the Wall Street Journal reported today, citing people familiar with the matter. The probe may be made public as soon as next week, the report said, adding that it was unable to contact spokespeople for the CFTC or ICE Futures U.S., where cotton is traded.

The investigation centers on trading in March, when prices surged to a 12-year high and then fell by the exchange’s daily limit for three consecutive sessions. Cotton for near-month delivery has climbed 46 percent in the past year.

Greenberger said the CFTC’s oil-market probe is the result of “an overwhelming bipartisan cry” that speculation is pushing up gasoline prices. The agency may also be trying to protect its regulatory turf from the Federal Trade Commission, which has authority to prevent market manipulation.

Litigation Foreseen

“There will be a lot of administrative and criminal litigation before the sun sets on this,” said Greenberger, who teaches law at the University of Maryland.

U.S. crude rose as high as $135.09 a barrel on the New York Mercantile Exchange on May 22. Brent crude oil, the main contract on Intercontinental Exchange Inc.’s London market, climbed to $135.14 the same day. Record prices have led some analysts and the producer group OPEC to claim that the market is driven by speculation rather than the demand and supply of oil.

To contact the reporter on this story: Bob Van Voris in New York at[email protected].

Last Updated: May 31, 2008 13:41 EDT

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