Statoil ASA, a non-US headquartered international energy company, settled charges brought by the Commodity Futures Trading Commission that, from at least October 2011 through November 2011, it attempted to manipulate Asian propane markets. The purpose of Statoil’s activities, said the Commission, was to benefit the firm’s physical positions in Asia and financial positions, including Statoil’s New York Mercantile Exchange-cleared swaps that settled to an index – the Argus Far East Index – based on propane prices in Asia. Statoil agreed to pay a fine of US $4 million to resolve the CFTC’s allegations. According to the Commission, prior to its attempted manipulation, Statoil was concerned about significant losses in its gas liquids unit throughout 2011. In response, to avoid losses and meet customer obligations, the firm purportedly determined to increase the level of the FEI Index by purchasing cargoes during the November FEI propane-price settling period. Although the alleged goal was to signal to the marketplace that demand was high to put “upwards pressure” on the FEI Index, the plan “did not materialize as hoped,” said the Commission. The Commission charged Statoil with attempted manipulation, holding it liable for the act of its employees who physically placed all relevant trades. At least some of the CFTC’s apparent evidence regarding the intent of Statoil to attempt to manipulate came through records of contemporaneous communications by its employees.
Legal Weeds: Relevant law makes it unlawful to manipulate or attempt to manipulate the price of any commodity in interstate commerce or for future delivery on or subject to the rules of any registered entity, or of any swap. (Click here to access 7 USC §13(a)(2).)
Although the CFTC asserted jurisdiction over Statoil’s purported attempted manipulation outside the US by referencing its potential impact on NYMEX-cleared swaps, the important lesson learned from this matter is that the CFTC has the authority to prosecute alleged manipulative and attempted manipulative conduct involving the price of any commodity in interstate commerce whether it has a potential impact on futures or swaps or not.
The CFTC has similar broad authority under the relatively new provision of law (enacted as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act) and Commission regulation that prohibits any person from using a manipulative or deceptive device or contrivance in connection with any “contract for sale of any commodity in interstate commerce” – not solely in connection with swaps or a commodity for future delivery on or subject to the rules of any registered entity. (Click here to access CEA Section 6(c)(1), 7 USC §9(1) and here for CFTC Rule 180.1(a).)
Recently, the CFTC relied on this broad authority to file an enforcement action in a federal court in New York City against Gelfman Blueprint, Inc., and Nicholas Gelfman, its chief executive officer and head trader, for purportedly running a Ponzi scheme related to Bitcoin. However, the CFTC’s allegations regarding the defendants’ handling of Bitcoin pertained to Bitcoin alone, not futures or swaps based on Bitcoin. (Click here for background in the article “CFTC Files Charges Alleging Bitcoin Ponzi Scheme Not Involving Derivatives” in the September 24, 2017 edition of Bridging the Week.)