In May 2011, the Corporate Compliance, Investigations and Defense Group of Andrews Kurth issued an alert regarding the formation of the Oil and Gas Price Fraud Working Group (Working Group). The Working Group includes the Department of Justice, the National Association of Attorneys General, the Commodity Futures Trading Commission, the Federal Trade Commission, the Department of the Treasury, the Federal Reserve Board, the Securities and Exchange Commission, the Department of Agriculture and the Department of Energy. The Working Group was formed as a subcommittee of the Financial Fraud Enforcement Task Force, which was created to address financial crimes. As stated in the prior alert, this collection of state and federal agencies is charged with monitoring the oil and gas markets for potential violations of the law.
On November 27, 2012, following the circulation of a report from McCullough Research regarding oil production at some of the West Coast oil refineries, a group of six Senators sent a letter to Attorney General Eric Holder calling for the Working Group to conduct an investigation into whether market manipulation or false reporting by oil refineries contributed to a spike in gas prices on the West Coast earlier this year.
The letter, sent by Senators Dianne Feinstein (D-Calif.), Barbara Boxer (D-Calif.), Maria Cantwell (D-Wash.), Patty Murray (D-Wash.), Ron Wyden (D-Ore.) and Jeff Merkley (D-Ore.), seeks a “refinery-by-refinery level probe.” The Senators cite “[a] McCullough Research report released Nov. 15th in conjunction with a California State Senate hearing on California gas prices [which] revealed information that showed that the price spikes in May and October occurred while crude oil prices were declining, inventories were increasing, and possibly in conjunction with misleading market-making information.”
Based on the McCullough Research report, the Senators conclude that “[a]nomalous, uncompetitive market dynamics may have forced West Coast drivers to pay $1.3 billion more at the pump during the May 2012 price spike.” They seek the intervention of the Working Group to confirm the findings of the McCullough Research report which would include the issuance of federal subpoenas for records of the oil and gas companies involved.
As previously reported, the Working Group has been tasked with identifying markets, regions or individuals that should be a focus of law enforcement or consumer protection agency investigations. The Senators’ letter is a direct call for “the Working Group to use every existing authority and regulation to identify, stop, and prosecute any and all instances of false reporting, manipulation, or anticompetitive behavior in the West Coast wholesale petroleum markets.”
As we advised in May 2011, those operating in the oil and gas industries must understand that a government microscope is aimed at their work. Compliance officers and general counsel may want to make sure that their compliance programs are in place and functioning as intended, as well as ensuring that their employees understand the importance of those programs and communicate with management when something seems awry. Since the Working Group has such a broad mandate in a very specific market, regular training programs for employees that remind them of the laws that affect their business are in order.