Firms and traders found guilty of oil market manipulation could be fined a minimum of $10 million a day under a proposal announced yesterday by President Obama.
“At a time when instability in the Middle East is contributing to rising global oil prices that impact consumers at the pump, it is important to give American families confidence that illegal manipulation, fraud and market rigging are not contributing to gas price increases,” said a White House statement.
The President is asking Congress to immediately appropriate $52 million more for the Commodity Futures Trading Commission so it can increase its current enforcement staff six-fold and update its IT systems, to give the CFTC specific authority to set trading margin requirements, and to authorize the stepped-up criminal and civil penalties.
Senior White House officials, speaking on background, refused to identify any specific cases of oil market manipulation or speculate about their proposal’s effect on gasoline prices. They stressed that manipulation has occurred before in energy markets, notably the Enron scandal, and said the CFTC simply needs “more cops on the beat” to police volatile markets.
The CFTC has been behind schedule in issuing new regulations required by the Dodd-Frank financial reform bill, and officials attribute that in part to a lack of staff. The White House noted that, at the same time, legal oversight of oil markets has become more complex as more oil is traded privately rather than on commercial exchanges.
CFTC officials have also been pleading for more updated computer equipment to keep up with a flood of new data and evolving market practices.
Ensuring Crime Doesn’t Pay
The President’s proposed new penalties would increase the maximum fine for either criminal or civil violations from $1 million per violation to $10 million per violation per day of occurrence.
Currently, the maximum fine a judge may levy is either a flat $1 million fine or three times the amount a violator gained by illegal activity, whichever is greater. The White House proposal would add the option of fining a violator up to three times the losses of his victims, which could be a far higher number.
While the maximum prison term of 10 years wouldn’t change for criminal convictions, the White House wants to see a sentencing guideline added under which a judge would stiffen a sentence because the crime threatened the integrity of national energy markets.
All these measures do require Congressional action, and the President called on Congress to pass them quickly. That probably isn’t imminent, since House Republicans have been slashing funding for the CFTC and trying to roll back Dodd-Frank as market-killing regulatory overreach.
One thing the White House can do without Congress is lend expertise from the White House Council of Economic Advisors and the Treasury’s Financial Stability Oversight Council to help the CFTC better analyze a flood of data it has been requiring from trading firms.