Markets Wired

The Federal Trade Commission today issued a Final Rule that will prohibit market manipulation in the petroleum industry. The Rule will prohibit fraud or deceit in wholesale petroleum markets, and omissions of material information that are likely to distort petroleum markets. The FTC’s approval of the Rule concludes a proceeding that incorporated several rounds of public comment. The Final Rule will become effective on November 4, 2009. The Commission issued this Rule under the Energy Independence and Security Act of 2007, pursuant to a provision included by Senator Maria Cantwell of Washington State.

“This new Rule will allow us to crack down on fraud and manipulation that can drive up prices at the pump,” said FTC Chairman Jon Leibowitz. “We will police the oil markets – and if we find companies that are manipulating the markets, we will go after them.”

The Final Rule announced today retains the anti-fraud approach of the April 2009 revised proposed rule. The Rule prohibits fraudulent or deceptive conduct that could harm wholesale petroleum markets. Specific examples of such conduct include false public announcements of planned pricing or output decisions, false statistical or data reporting, and wash sales intended to disguise the actual liquidity of a market or the price of a particular product. The Rule also prohibits material omissions from a statement that, although true, is misleading under the circumstances.

Specifically, the Final Rule prohibits any person, directly or indirectly, in connection with the purchase or sale of crude oil, gasoline, or petroleum distillates at wholesale, from a) knowingly engaging in any act, practice, or course of business – including making any untrue statement of material fact – that operates or would operate as a fraud or deceit upon any person; or b) intentionally failing to state a material fact that under the circumstances renders a statement made by such person misleading, provided that such omission distorts or is likely to distort market conditions for any such product.

Anyone violating the Rule faces civil penalties of up to $1 million per violation per day, in addition to any relief available to the Commission under the FTC Act.

The Commission vote to issue the Final Rule was 3-1, with Commissioner William E. Kovacic voting no, Chairman Jon Leibowitz issuing a separate statement, Commissioner Kovacic issuing a separate dissenting statement, and Commissioner J. Thomas Rosch issuing a separate concurring statement – each of which can be found as links to this press release and on the FTC’s Web site. The Final Rule will be available on the FTC’s Web site and will be published in the Federal Register later this month. Copies of the Final Rule can be found on the FTC’s Web site at http://www.ftc.gov/policy/federal-register-notices/prohibitions-market-manipulation-16-cfr-part-317.

Copies of the Federal Register notice are available from the FTC’s Web site at http://www.ftc.gov and from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580.

(FTC File No. P082900)
(Manip. Rule.wpd)