BP Products North America Inc., a subsidiary of BP America, has agreed to pay $303 million to settle charges that it manipulated and attempted to manipulate the propane market in early 2003 and 2004, federal officials announced Thursday.

The settlement, which was approved by U.S. District Judge Ruben Castillo of the Northern District of Illinois, is the largest manipulation settlement in the history of the Commodity Futures Trading Commission (CFTC), said Acting CFTC Chairman Walter Lukken. The agency found that BP cornered the propane market in February 2004 and attempted to manipulate propane prices in April 2003.

“BP engaged in a massive manipulation — the magnitude of this settlement reflects that the Commission will not tolerate trading abuses in our open and competitive markets,” Lukken said.

In connection with the propane manipulation scheme, the Department of Justice (DOJ) filed an agreement in the Illinois federal court to defer prosecution of a one-count criminal information charging BP with conspiring to violate the Commodity Exchange Act and to commit mail fraud and wire fraud. The department will defer prosecution against the company for three years and BP America has agreed to cooperate with any ongoing investigation into the company’s trading activities.

The judge’s consent order requires that BP pay a $125 million civil penalty to the CFTC, establish a compliance and ethics program, and install a monitor to oversee BP’s trading activities in the commodities markets. It also requires BP to pay $53 million into a restitution fund, which would be administered by a third party.

The DOJ’s deferred prosecution agreement requires BP to pay a $100 million criminal penalty, plus $25 million into a consumer fraud fund, as well as make payments to the restitution fund and install a monitor.

In related action, a federal grand jury in Chicago Thursday returned a 20-count criminal indictment against four former employees of BP America for artificially inflating TET propane prices in February and March 2004. The TET propane market refers to propane that is deliverable at the TEPPCO storage facility in Mont Belvieu, TX, or anywhere within the TEPPCO pipeline system. The TEPPCO pipe runs from Mont Belvieu up through Ohio, into New York, Pennsylvania and Illinois.

BP Products North America also agreed to plead guilty to a felony violation of the Clean Air Act (CAA) for the explosion at its Texas City refinery in March 2005, which killed 15 workers and injured more than 170 others. The company will pay a penalty of $50 million and has been put on three-year probation for the blast, which was caused by the improper release of vapor and liquids. This is the largest fine to a single entity under the CAA law, according to DOJ officials.

The department imposed a criminal fine of $12 million on BP Exploration (Alaska) for pipeline leaks in the North Slope region of the state. The company also has agreed to make a $4 million community service payment to National Fish and Wildlife Foundation and a $4 million payment to the state of Alaska.

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