The CFTC actively investigates price manipulation in the commodities markets, including:
If you have information about a company or group of traders engaged in price fixing or manipulation, the CFTC welcomes you to report this information through its whistleblower program. A McEldrew Young attorney can guide you through this process.
Investigations into Manipulation
As of late 2014, the CFTC was still investigating major oil companies such as BP, Shell and Statoil for potential manipulation of crude oil prices. This investigation has been ongoing for several years, since the massive increase in oil prices in 2008.
The CFTC is also investigating banks for manipulating the price of precious metals in the setting of benchmark prices. The fixes for gold, silver, platinum and palladium have been set in conference calls between major banks for years. These market participants are accused of collusion in the price fixing and trading on the information discussed during the conference call.
The existing government investigations in these two areas does not mean that information about misconduct in other areas should not be brought forward. To the contrary, whistleblowers are frequently the first to know about misconduct by businesses in an area of the market. Following a tip to the whistleblower program, the CFTC will thoroughly investigate your evidence and make a decision as to whether it is interested in pursuing an enforcement action against the participants.
Forms of Price Manipulation
There are a number of illegal trading techniques that can artificially raise or lower the price of a commodity, including wash trades or spoofing. These practices are regulated in order to protect the integrity of the markets and prevent traders from taking advantage of market participants who rely on the fake bids, offers or transactions as actual evidence of supply and demand.
Supply & Demand Manipulation
Companies and traders with the ability to take large market or physical positions in a particular segment of a commodity can illegally corner the market. In one case, the company dumped the supply back on to the market in order to earn a large profit from trades in the future market. In another case, the company held on to their positions until they squeezed certain market participants who were forced to conduct transactions with them at an artificially high price.
International regulators have been investigating the improper reporting of commodity prices to establish benchmark prices that do not accurately reflect the market price.
In 2013, the Wall Street Journal published an article concerning the practices of traders selling small quantities of oil at a discount and then reporting the price to the benchmark. By driving down the oil benchmark through small orders to sell, they are able to make a large purchase order at a discount later in the week when a market participant relies on the accuracy of the benchmark price. The discount price on a large quantity of oil makes up for the amount of the loss on the smaller trades.
There are also investigations into collusion between market participants to fix the price of certain commodities at levels that do not reflect the market rate.
The Benefits of Reporting
The Right Thing to Do
Whistleblowers have become an increasingly important tool for law enforcement agencies. Without tips from individuals with non-public information, a company’s fraud against investors may go unnoticed for years. In order to facilitate disclosures, the CFTC allows anonymous reporting and takes measures to protect the identity of its whistleblowers.
The CFTC will pay eligible whistleblowers a reward of between 10 and 30 percent of the amount recovered from enforcement actions over $1 million.
The only way to qualify for Dodd-Frank whistleblower protections for a violation of the Commodity Exchange Act or CFTC rules is to file Form TCR. There is no protection under this whistleblower program prior to filing the tip with its program.