US regulators charge oil traders with manipulating prices

25 July 2008

After having imposed limits on the trading of oil futures, US authorities have started cracking down on entities who they feel have been manipulating prices. In the first such move, commodity regulators in Washington on Thursday accused a Dutch trading company of manipulating the prices of crude oil, heating oil and gasoline over an 11-day period last year. (See: Wall Street resists tougher oil futures legislation as regulators in the US, UK agree to impose limits)

The US Commodity Futures Trading Commission (CFTC) complaint, filed as a civil lawsuit in Federal District Court in Manhattan, relates to Optiver Holding and two subsidiaries. Bastiaan van Kempen, the boss of Chicago-based Optiver, a subsidiary of Optiver Holding, was named as a defendant along with trader Christopher Dowson and Randal Meijer, a supervisor of Optiver.

According to the complaint, the employees carried out a manipulative scheme known as "banging" or "marking" the close. "Banging the close" refers to the practice of acquiring a substantial position leading up to the closing period, followed by offsetting the position before the end of trading for the purpose of attempting to manipulate prices.

The agency said the employees in three instances forced futures prices lower and in two instances caused prices to rise. Thus, out of a total of 19 attempts, five were successful allegedly netting the suspects a rich haul of $1 million.

''These charges go to the heart of the CFTC's core mission of detecting and rooting out illegal manipulation of the markets,'' said Walter L Lukken, acting chairman of the commission. He said commodity regulators had worked with exchange officials to ''stop the scheme in its tracks,'' though the follow-up investigation into Optiver's trading took longer.

The complaint also charged two of the executives with covering up the scheme by lying to the compliance staff at the New York Mercantile Exchange, known as the NYMEX, where the trading occurred in March 2007.