Norway-Based Energy Company to Pay $4 Million for Attempted Manipulation of Index
Commentary by Bob Zwirb
A Norway-based energy company agreed to pay a civil monetary penalty to settle CFTC charges of attempting to manipulate a propane benchmark in order to benefit certain physical and financial positions (including NYMEX-cleared over-the-counter swaps).
In an Order, the CFTC alleged that Statoil ASA ("Statoil") attempted to prop up the Argus Far East Index ("Argus FEI") by purchasing propane cargoes to create the impression of high demand and drive up the Argus FEI propane price. The CFTC maintained that this strategy was developed in order to compensate for significant losses incurred in its gas liquids unit in 2011. As a result of the attempted price manipulation, the CFTC charged Statoil with violating CEA Section 9(a)(2).
To settle the charges, Statoil agreed to pay a $4 million civil monetary penalty. The CFTC acknowledged the UK Financial Conduct Authority for its assistance with the matter.
Commentary
This case illustrates two fundamental truths in today's regulatory environment. First, the CFTC can prevail, at least in the context of a settlement, in the application of its traditional manipulation standard (CEA Section 9(a)(2)) notwithstanding the conventional view that this standard is too unfriendly for enforcement purposes. Second, in the right set of circumstances, the acquisition of a commodity in the cash market can subject a trading firm to serious legal liability.