Without admitting any wrongdoing, El Paso Corp.’s trading unit last week agreed to pay $20 million as part of a settlement with the Commodity Futures Trading Commission (CFTC) of charges that it furnished false information about natural gas trades in an attempt to skew index prices to its benefit.
The CFTC last Wednesday issued an administrative order settling charges against Houston-based El Paso Merchant Energy, L.P. (EPME), a subsidiary of El Paso Corp.
The CFTC order called for EPME and its parent to cease and desist from further violations of the Commodity Exchange Act (CEA) and regulations; to pay a civil penalty of $20 million — $10 million now and $10 million plus interest within three years of the order; and to cooperate with the CFTC in related probes involving the false reporting of gas trading information.
The settlement order found that from at least June 2000 through November 2001, EPME reported fake gas trading information, including prices and volumes, to various, unnamed energy publications that publish index prices, in an attempt to skew the indexes for EPME’s financial benefit. Moreover, the order said EPME did not maintain records of the information that it supplied to the energy publications or the true source of the information furnished to those firms, as required by CFTC regulations.
According to the order, EPME’s conduct amounted to attempted “overt” manipulation under the CEA, which, if successful, could have influenced prices of gas futures contracts on the New York Mercantile Exchange (Nymex).
This settlement “[sends] a strong message that fraudulent and manipulative schemes will not be tolerated. I believe this action, in conjunction with others that the Commission has taken, will serve as deterrence to others who contemplate similar actions and will aid in the restoration of confidence and integrity in the energy markets,” said CFTC Chairman James E. Newsome.
EPME cooperated fully with the CFTC’s probe by conducting an internal investigation through an independent law firm, waiving work product privilege as to the results of that investigation, and compiling and analyzing trading data which detailed all reported and actual trades in the gas market, according to the CFTC. The agency said it took EPME’s “significant cooperation into consideration” when agreeing to accept the company’s settlement offer.
“We will be fair, though firm, with companies like EPME that come forward and promptly divulge all of their wrongdoing,” said Gregory Mocek, director of the CFTC’s Division of Enforcement. He urged energy companies to conduct internal investigations of their trading operations and quickly turn over documents, e-mails and interviews prior to CFTC discovery of illegal activity.
“There remain a few companies on notice that…have failed to take any meaningful steps to determine whether misconduct occurred in their corporations. Others are taking four months or more to respond to our document and e-mail requests. Some are even playing a cat-and-mouse game. That is not cooperation.”
In addition to the CFTC’s Division of Enforcement staff, the Commission said it received cooperation from the President’s Corporate Fraud Task Force and the U.S. Attorney for the Southern District of Texas in the case. To view a copy of the settlement orders, go to https://www.cftc.gov.
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