The U.S. Commodity Futures Trading Commission (CFTC) announced Tuesday that it had filed suit in New York against two traders and three firms, alleging that in 2008 they manipulated crude oil futures prices in a trading scheme that bagged more than $50 million.
The CFTC charged five defendants -- Parnon Energy Inc. of California, Arcadia Petroleum Ltd. of the United Kingdom, Arcadia Energy (Suisse) SA of Switzerland, James Dyer of Australia and Nicholas Wildgoose of California -- of unlawfully manipulating and attempting to manipulate the New York Mercantile Exchange crude oil futures prices from January to April 2008. The charges were filed in U.S. District Court for the Southern District of New York.
Dyer and Wildgoose were traders for Parnon and Arcadia, respectively, and both energy trading companies are controlled by Norwegian billionaire John Fredriksen's Farahead Holdings Ltd., which is based in Cyprus. Fredriksen also owns liquefied natural gas company Golar LNG Ltd. and worldwide offshore operator Seadrill Ltd.
According to the criminal complaint, the CFTC said the defendants had purchased about 4.6 million bbl of West Texas Intermediate (WTI) light sweet crude oil by Jan. 18, 2008 "even though they had no commercial need for crude oil." The CFTC said the defendants controlled about 66% of WTI supplies at the time and gave "other market participants the impression that the supply would remain tight."
Regulators allege that the defendants then sold short WTI derivatives at the artificially high prices. On Jan. 25, 2008, the defendants allegedly dumped their 4.6 million bbl of WTI on the market, driving prices down and making more than $50 million from the derivatives.
The CFTC said Dyer and Wildgoose attempted to repeat their scheme in February 2008 but were unable to do so because of unresolved credit issues. Regulators said the pair managed to repeat their scheme in March 2008 and were attempting it again in April 2008 when they learned that their activities were under investigation by the CFTC.
CFTC spokesman Dennis Holden told NGI that Timothy Carey, an attorney with the Chicago-based law firm Dewey & LeBoeuf, was the counsel of record in the case and is representing the defendants. Carey could not be reached for comment Wednesday. According to the criminal complaint, the defendants could face up to $130,000 in penalties for each of the five counts against them or triple the monetary gain ($150,000) for each violation.
Holden declined to reveal whether the agency was conducting any other investigations into oil speculation. President Obama last year signed into law the Dodd-Frank Wall Street Reform Act that will overhaul derivatives. The law is expected to be in place later this year (see Daily GPI, May 25; July 22, 2010).
In 2007 the CFTC ordered Marathon Petroleum Co., a subsidiary of Ohio-based Marathon Oil Corp., to pay a $1 million civil penalty for attempting to manipulate crude oil spot prices (see Daily GPI, Aug. 2, 2007).
Holden told NGI in 2008 that energy companies paid about $137 million in civil penalties during that fiscal year for fraud, manipulation and other misconduct in the futures markets, including energy futures.
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