Washington (Platts)--20Apr2012/426 pm EDT/2026 GMT

The US Commodity Futures Trading Commission's $14 million settlement over a NYMEX energy manipulation scheme is either the precursor to a wave of anti-manipulation cases in crude oil and other markets, or a one-off coincidence that largely will be ignored throughout the market, sources said Friday.

"I think it's a sign that the CFTC is going to be much more interested in pursuing market manipulation cases," said Shaun Ledgerwood, a senior consultant at The Brattle Group and a former economist with the Federal Energy Regulatory Commission's office of enforcement who assisted in proceedings against Amaranth Advisors and Energy Transfer Partners.

"The only constraint they have is their resources, if their budget gets expanded their enforcement and market oversight efforts will expand right along with it."

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CFTC Commissioner Bart Chilton, who pushed for the expanded anti-fraud and manipulation powers his agency received in the Dodd-Frank Wall Street Reform and Consumer Protection Act, said the settlement "sends a message to potential manipulators: mess with markets and regulators will be on your trail and keep coming after you."

"Anytime we get this amount of money, it is a significant win for consumers," Chilton said Friday.

But one oil trader said the settlement was "a lot to do about nothing."

"Almost no one had even heard of Optiver and probably no one cares who they are or what they got fined," the trader said. "It there is a sign, it would be don't do stupid things like trying to trade large volume on [trade at settlement] then work futures against it to try to beat it."

Late Thursday, the CFTC announced the $14 million settlement with Optiver over oil and gasoline futures manipulation in March 2007. The CFTC said that traders in Optiver's Chicago office engaged in a trading scheme where they accumulated large positions in Trading at Settlement contracts in NYMEX light sweet crude, heating oil or gasoline contracts and then offset those positions by trading futures contracts shortly before and during the closing period for those contracts, a scheme known as "banging" or "marking" the close, according to the CFTC.

Ledgerwood said that while the "public clamor" over potential manipulation and excessive speculation in crude oil markets has become "the flavor of the day," the CFTC, along with FERC, were already in the midst of expanding their efforts to root out manipulation in all energy markets.

"I think if it involves futures, if it involves derivatives they're going to be interested," Ledgerwood said.

The CFTC's complaint said Optiver traders used its manipulative scheme at least 19 times in March 2007 and successful caused artificial prices at least five times.

"The CFTC will not tolerate traders who try to gain an unlawful advantage by using sophisticated means to drive oil and gas futures prices in their favor," said David Meister, the director of the CFTC's division of enforcement. "Manipulative schemes like 'banging the close' harm market integrity, and false and misleading statements to exchange officials to cover tracks obstruct the investigative process."

According to the CFTC, Optiver and Bastiaan van Kempen, who was Optiver's CEO in 2007, made "false statements" to NYMEX compliance officials when the exchange launched an inquiry into the trading scheme.

Damon Leavell, a spokesman for NYMEX parent CME Group, declined to comment Friday.

The settlement requires the Netherlands-based company to pay a $13 million civil penalty and disgorge $1 million in profits the CFTC claims were made under the trading scheme.

The settlement prohibits van Kempen from trading commodities for two years, Randal Meijer, who was then Optiver's head of trading, for four years and Christopher Dowson, Optiver's head trader, for eight years. Dowson is the only defendant that Optiver still employs, according to the CFTC.

The CFTC's announcement came just two days after President Obama announced a five-part plan aimed at stamping out manipulation in crude oil markets that would give the CFTC new powers to raise margin requirements and boost penalties for manipulating energy markets.

While market sources differed on the meaningfulness of the settlement, one analyst, Matt Smith of Summit Energy, said its timing was "interesting" since it came just two days after Obama's speech.

The CFTC, Smith said, was trying to send a message to the industry with the Optiver settlement, by piggy-backing on the Obama speech and "shooting across a barrel to highlight that they are being more vigilant about this."

A CFTC official, who spoke on the condition of anonymity, said Friday that the timing of the Optiver settlement was a coincidence. The Optiver settlement order was signed by US District Court for the Southern District of New York Chief Judge Loretta Preska on Thursday, but the CFTC and defendants in the case agreed to the settlement in March, according to the order.

The CFTC official said it was unclear if the Optiver announcement represented a more aggressive agency push to pursue more manipulation cases.

In fact, when the CFTC announced the Optiver charges in July 2008, Walt Lukken, then the CFTC's acting chairman, said the charges "go to the heart of the CFTC's core mission of detecting and rooting out illegal manipulation of the markets." Lukken is now president and CEO of the Futures Industry Association.

--Brian Scheid, brian_scheid@platts.com
--Alison Ciaccio, alison_ciaccio@platts.com

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