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Prosecuting Energy Trading Fraud under the CEA
In the aftermath of Enron's collapse, attention turned to the accounting and other practices of energy companies. Numerous investigations and suits have been brought against traders and energy companies involved with supplying power to California and elsewhere during the 2000-2001 energy crisis. The government has focused on such practices as “round-trip trades,” in which energy companies entered into pre-arranged transactions, lacking market risk, to inflate reported trading volumes. Federal prosecutors in California and Texas have charged individuals with causing inaccurate or fictitious trades to be reported to trade journals.
In a speech last October entitled “Market Manipulation in the Energy Markets,” Commissioner Sharon Brown-Hruska of the Commodity Futures Trading Commission (CFTC) said the Commission was investigating 32 companies and their employees to determine whether they violated the Commodity Exchange Act (CEA) through wash trading, manipulation, and false reporting. She noted that the law views manipulation somewhat like an antitrust violation because “both require a showing of monopoly power in the relevant market and intentional anticompetitive conduct, and that proving these elements requires “a blend of both legal and economic analysis.”
A manipulative act is “one that is inherently capable of causing an artificial price.” It must be shown that the respondent intended to create that result. In other words, the government must prove specific intent to obtain an enforcement decree or criminal conviction. See transcript at http://www-lawjournalnewsletters.iproduction.com/Admin/cgi-bin/udt/www.cftc.gov/opa/speeches03/opabrown-hruska-08.htm. This article examines some of the issues raised by the government's use of the antifraud and manipulation provisions of the CEA in such cases.
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