The US CFTC has obtained a USD13 million civil monetary penalty against defendants Parnon Energy, Arcadia Petroleum, Arcadia Energy and crude oil traders James T Dyer and Nicholas J Wildgoose.
The CFTC’s complaint charged the defendants with manipulation and attempted manipulation of New York Mercantile Exchange (NYMEX) Light Sweet Crude Oil futures contract spreads from January 2008 to April 2008.
The consent order, entered on 4 August by Judge William H Pauley III of the US District Court for the Southern District of New York, requires the defendants to pay a USD13 million civil monetary penalty, provides limitations on Parnon’s physical market trading for three years, and requires the companies to maintain records and audio recordings for three years.
The order further requires the companies to engage an independent consultant to evaluate compliance, internal control and risk management policies, procedures, and practices, and to implement any resulting recommendations.
“Through resolution of this litigation, the CFTC is holding accountable market participants who sought to profit by undermining the integrity of the US crude oil markets,” says CFTC director of enforcement Aitan Goelman. “The CFTC will continue to work to ensure the integrity of the markets we are responsible for protecting from manipulation, whether direct or indirect.”
The CFTC’s complaint alleged that the defendants, taking advantage of a tight physical market, executed a manipulative trading strategy designed to affect NYMEX crude oil futures contract spreads by knowingly amassing a dominant and controlling position in physical WTI crude oil, which is the primary grade of oil deliverable at Cushing, Oklahoma under the NYMEX futures contract; holding the physical position until after futures expiry with the intent to affect NYMEX crude oil spreads; and selling-off the physical position in a concentrated fashion during a time period known as the “cash window” at a loss.
The complaint further alleged that the defendants sought to generate profits through their manipulative conduct by buying WTI futures spreads prior to widening the spreads through their manipulation and selling WTI futures spreads prior to dumping their physical WTI crude oil position. The complaint also charged the defendants with attempted manipulation of the May/June 2008 spread in April 2008. Defendants Dyer and Wildgoose allegedly directed the manipulative trading.
