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CFTC Reaches $48 Million Settlement With Swiss Energy Trader Over Attempted Gasoline Market Manipulation Scheme
09/17/2024On August 27, 2024, the Commodity Futures Trading Commission issued an order filing and simultaneously settling charges against a Swiss energy trader (the “Company”), for allegedly attempting to manipulate the European gasoline market in violation of the Commodity Exchange Act (“CEA”) and CFTC regulations. The order imposes a $48 million civil monetary penalty against the Company, which the CFTC claimed improperly sold gasoline at below-market prices to benefit certain short positions it held in gasoline-linked futures contracts.
According to the order, in March 2018, the Company sold large quantities of EBOB gasoline, a type of gasoline used primarily in European automobiles. The sales exceeded those of any previous month, accounted for more than 60 percent of the total volume transacted by brokered market participants, and were reported and incorporated into the Argus EBOB Benchmark, the benchmark used to price EBOB-linked futures contracts traded on NYMEX and ICE.
Significantly, the CFTC claimed that the Company’s sales were at a price that was lower than other market participants’ bids. The Company allegedly blended winter-grade EBOB, a grade of EBOB that was less profitable at the time of sales, to intentionally drive down the price of the gasoline. The CFTC claimed that “blending a large quantity of winter-grade EBOB in February and March would not have been a prudent strategy,” standing alone.
According to the CFTC, the Company conducted these below-market sales just weeks after its traders established a large short position in EBOB-linked NYMEX and ICE futures, which would result in an increase in profits if the price of EBOB dropped. The CFTC claimed that the lowered prices, along with the large short position established just weeks prior to the traders’ sales, account for the energy trader’s scheme to depress the reported price of EBOB to increase its overall trading profits.
The Commission thus found that the Company violated Section 6(c)(1) of the CEA and Regulation 180.1(a)(1), which require a showing of intentional or reckless employment of a manipulative device, scheme, or artifice to defraud, and the Commission also found the Company strictly liable for the acts of its agents, the traders, under Section 2(a)(1)(B) of the CEA and Regulation 1.2, 17 C.F.R. § 1.2 (2023).
While the Commission noted that the Company provided some cooperation during the CFTC’s investigation, it also alleged that the Company failed to timely produce or adequately preserve certain requested communications, making them ultimately unavailable to the CFTC, which may have impacted the penalty paid.
The significant penalty is a reminder of the Commission’s view of market schemes of this nature. Put simply, the Commission takes the view that off-market trades in one market to benefit positions in another are manipulative, in that they create an “artificial price.” Companies need to be sensitive to this, especially in markets without well-established pricing, and where individual trades can have an outsized influences on market forces.
