Correction to This Article
This article about an investigation into manipulation of oil prices incorrectly attributed several comments to the chairman of the Commodity Futures Trading Commission. The article, which in part discussed whether the commission's action was politically motivated, should have cited Steve Obie, acting director of enforcement, and should have read as follows: Steve Obie, acting director of enforcement at the CFTC, said the agency was not trying to influence the Senate vote. "As you can see, this case was ready. This was not a politically motivated case," Obie said during a news conference. The agency is investigating "dozens" of energy-manipulation cases and will announce each one when the probes uncover evidence of illicit behavior, Obie added.

CFTC Charges Firm With Manipulating Oil Prices

Acting chairman Walter Lukken says the CFTC was not trying to influence a Senate vote on curbing excessive speculation.
Acting chairman Walter Lukken says the CFTC was not trying to influence a Senate vote on curbing excessive speculation. (Jay Mallin - Bloomberg News)
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By David Cho
Washington Post Staff Writer
Friday, July 25, 2008

The agency that regulates commodity trading yesterday charged a Dutch firm, Optiver Holding, and its U.S. subsidiary with manipulating the price of crude oil, heating oil and gasoline, marking the first case to arise from the body's investigation into the energy markets.

In its complaint, which was filed in U.S. District Court for the Southern District of New York, the Commodity Futures Trading Commission accused three employees of engaging in illegal trades called "banging the close." The phrase refers to buying or selling large volumes of commodity contracts in the closing moments of a trading day. The movement in prices then benefits the traders' other holdings.

CFTC officials said Optiver traders used this scheme over 11 days in March 2007 to influence the price of several benchmark energy commodities, including West Texas Intermediate crude oil and New York Harbor heating oil.

In five instances, the traders were successful in moving the price up or down to benefit their investment bets, the CFTC officials said. The complaint alleges that the traders pocketed $1 million through the scheme.

Steven Schwab, a spokesman for Optiver, did not return calls seeking comment. On its Web site, Optiver identifies itself as a 22-year-old company and a large derivatives trader with offices in Amsterdam, Sydney and Chicago.

Under pressure from lawmakers to keep a tighter rein on commodity trading, the CFTC unveiled the charges a day before the Senate was set to vote on legislation aimed at curbing excessive speculation.

"The CFTC has every incentive to show that the cop is on the beat and is doing his job," said Kevin Book, senior vice president for Friedman, Billings, Ramsey Group, an Arlington investment firm. "No regulator likes the direct scrutiny of Congress or the threat of sweeping new obligations or worse yet, the loss of regulatory authority."

Stephen J. Obie, acting enforcement director of the CFTC, said the agency was not trying to influence the Senate vote. "As you can see, this case was ready. This was not a politically motivated case," Obie said during a news conference.

The agency is investigating "dozens" of energy-manipulation cases and will announce each one when the probes uncover evidence of illicit behavior, Obie added.

The CFTC has intensified its scrutiny of energy markets as the price of a gallon of gasoline soared above $4 and as crude oil reached a record $147 a barrel earlier this month. The price of oil has since fallen, settling above $125 yesterday.

Earlier this year, the commission took what it described as the "extraordinary step" of announcing its nationwide probe into illicit trading in energy markets.

In the complaint announced yesterday, the commission accused Optiver chief executive Bastiaan van Kempen of making false statements and concealing the scheme.

Christopher Dowson, Optiver's head trader, and Randal Meijer, a supervisor, were also named in the suit. They were recorded in a telephone conversation describing the trades as "a fun game" and pondering whether they could expand to sugar, wheat or corn trading, according to the CFTC.

They also discussed working out a fake story in case regulators asked questions, the CFTC said. "You should milk it for right now because you never know how long this thing is going to last," one of the employees was quoted as saying by a CFTC investigator.

If found guilty, the firm faces civil penalties, such as large fines. Criminal charges would have to be brought separately by law enforcement officials. CFTC officials declined to comment on whether they have been in touch with the Department of Justice on the matter.

Meanwhile, in Congress, a bill proposed by Senate Majority Leader Harry M. Reid (D-Nev.) was scheduled for a vote today. The measure, which Wall Street firms have vigorously opposed, would impose tough limits on how many contracts financial actors can hold at any one time.

But Republicans, stymied in their efforts to include an amendment that would lift bans on offshore oil drilling, said they might use procedural tactics to prevent the measure from a floor vote.


© 2008 The Washington Post Company

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