The Federal Energy Regulatory Commission’s (FERC) August 5, 2013, $28 million show cause order against BP America Inc. and other BP affiliates highlights the interrelationship between the Commodity Futures Trading Commission (CFTC) and FERC in enforcement matters.
On the surface, the case appears to be what has become a “garden variety” FERC market manipulation case. FERC alleges that BP sold physical gas at a loss to benefit its financial position. As part of its investigation, FERC found a “smoking gun,”—a tape of a phone conversation between a junior member of the physical trading desk and the trader responsible for trading the physical gas—outlining the alleged manipulation. FERC then found facts confirming, in its mind, a manipulative scheme. After BP was unable to provide contemporaneous documentation or after-the-fact explanations to justify the trading, FERC proposed a $28 million civil penalty against BP (but, unlike its recent Barclays case, not against the traders involved, even though the traders apparently initiated the alleged scheme, without the knowledge or involvement of upper BP management).
A closer examination, however, reveals an interrelationship between FERC and the CFTC in enforcement matters. BP self-reported this trading, but not to FERC. BP self-reported to the CFTC, apparently as part of a procedure implemented after a 2007 settlement with the CFTC involving alleged manipulation in propane markets. BP America Inc., et. al., Enforcement Staff Report and Recommendation, Docket No. IN13-15 at fns 2, 209-211 (Enforcement Report). The CFTC then notified FERC Enforcement. Similarly, the CFTC originally received the “smoking gun” tape and forwarded it to FERC. See fn. 180. In addition, the CFTC actively participated in BP’s internal investigation (and by extension the FERC investigation) by requiring “BP to submit an outline of the questions that it [BP] intended to ask the [BP] traders” in its (BP’s) investigatory interviews. Id. at fn. 188. (FERC made additional suggestions.) Finally, throughout the Enforcement Report are depositions of BP personnel that were done by the CFTC, including key witnesses in the case. See e.g., fn. 4, CFTC deposition of Clayton Luskie, the junior member of the BP trading desk at the center of the controversy and fn. 13, CFTC deposition of Graydn Comfort, the trader responsible for trading the physical gas.
FERC, in turn, increased the penalty because of the previous enforcement action by the CFTC, specifically because “BP has a prior history within five years of an adjudication of similar misconduct by another enforcement agency [the CFTC].” Id. at p. 73. Further, FERC said that BP had “violated an order directed specifically at BP, i.e., the 2007 CFTC order from the propane investigation permanently prohibiting BP from “violating the Commodity Exchange Act or manipulating the price of any commodity in interstate commerce.” Id.
BP’s response is due in early October.