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District Court Judge Orders Platts to Comply with a Modified CFTC Subpoena

A U.S. District Court judge for the District of Columbia has ruled that McGraw-Hill Companies must comply with a modified subpoena by the Commodity Futures Trading Commission for confidential submissions by a participant in the natural gas price surveys conducted by its Platts division.

Judge Royce C. Lamberth in a memorandum opinion agreed that Platts could claim "reporter's privilege" protecting confidential material. But while this privilege "typically prevails" in civil cases, the public interest involved in the CFTC case makes it "more akin to a criminal case than a purely civil matter." The judge, however, limited the amount and nature of the material covered by the subpoena (see NGI, June 20) and said Platts did not have to resubmit any material it had already supplied in previous CFTC investigations.

The case involves a CFTC investigation, begun in late 2003, of charges that an unnamed energy company gave false price information to Platts in an attempt to manipulate the market for natural gas during a three year period. The court has sealed the record as to the name of the Energy Company.

The publisher had objected to the CFTC's subpoena of materials submitted to Platts by the Energy Company and of documents showing Platts' use of the material, claiming both were confidential, and it could not be compelled to reveal confidential information it received in the course of news gathering, based on the First Amendment to the Constitution.

The judge agreed that First Amendment privileges applied to the Platts survey, but said while the public interest in a free flow of information generally prevails in civil cases, in criminal cases it must be balanced against the strong public interest in law enforcement. An agency investigation such as that of the CFTC is similar to a grand jury proceeding, and since it seeks to protect the public from price manipulation, it approaches the criminal standard.

Even under these circumstances the CFTC had to show a need for the information and that it had exhausted all other reasonable sources for the information. Since the records of the company under investigation were incomplete, the judge ruled the Platts information was the only other reasonable source.

Lamberth, however, agreed with Platts that the subpoena was overly broad. He agreed to modify three of the 14 points in the subpoena. One was that Platts should only submit documents it received directly from the Energy Company and does not have to go through its files to find instances where submissions from other companies may have mentioned the offending company. He also limited the subpoena to material directed to Platts and no other McGraw Hill entity.

And he limited the information Platts must turn over regarding its price index calculations to "all documents reflecting the formulas used to calculate index prices for each natural gas delivery point at which Energy Company submitted price and volume information on each day of the relevant time period." The CFTC had sought "all documents, reflecting, discussing and implementing the formulas...."

Finally, the judge noted that Platts says it already has turned over 11,000 pages of responsive documents in its compliance with an earlier CFTC subpoena and said the publisher did not have to provide again any documents that previously had been provided.

The CFTC has charged 27 companies and 21 individuals over the last few years with violations of the Commodity Exchange Act, including submitting false gas trading information to publishers in an attempt to manipulate indexes on which purchase and sale agreements are based. The violations have occurred during a time period from 2000 to 2002. Since 2002, the CFTC has won $298 million in civil penalties as part of settlements with 30 individuals and companies, including Enron Corp., American Electric Power Co. and Calpine Corp.

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