U.S. regulators charge Dutch firm with oil-price manipulation

Facing congressional criticism that speculators are driving up oil prices, the Commodity Futures Trading Commission (CFTC) today announced that it has charged the Dutch company Optiver Holding and its American subsidiary with manipulating the trading of contracts for future delivery of oil and gasoline.

In e-mails and phone conversations released by CFTC, Optiver's heads of U.S. and global trading talk about how they are able to "bully the market" and use similar references like "whack" or "push" or "move" the futures market.

"Today's action lets the marketplace know that the (CFTC's) Division of Enforcement has a zero-tolerance policy when it comes to gamesmanship," Stephen Obie, the agency's new acting head of enforcement, said at a news conference announcing the market manipulation charges.

The kind of manipulation being alleged doesn't appear to be large enough to explain this year's 80 percent surge in oil prices. In a preliminary report issued earlier this week, a Bush administration interagency task force led by the CFTC said it believes that supply and demand fundamentals remain the best explanation for soaring prices.

But today's action does provide ammunition to critics who insist that the lack of transparency in oil markets makes possible a wide range of practices that drive up oil prices, which in turn drive up the price motorists pay for gasoline.

The CFTC brought charges against Bastiaan van Kemp, a Dutch national who was chief executive office of Chicago-based Optiver US. It also charged Christopher Dowson, a Briton who was head of trading in Chicago at Optiver and Randal Meijer, who oversaw trading for the main Optiver holding company and all its subsidiaries.

In a series of phone recordings and e-mails obtained by CFTC enforcement officials, the executives weigh how far they can push their attempts to "bang the close" of market trading and still avoid detection by regulators. They then allegedly sought to cover up their scheme once confronted by officials at the New York Mercantile Exchange and later the CFTC, according to the charging document.

In one conversation, Dowson said the cover-up plan amounted to "a fairy (tale) story."

In another conversation, Dowson and Meijer describe their activities to "bully" the market in the last minutes of trading as "a fun game," and discuss expanding the scheme to other commodities like sugar, wheat or corn.

In yet another conversation, Dowson confides to Meijer that he is trying to build up positions but stay under the radar screen, noting "I'm also not doing it so dramatically that ... we're talking about it on CNBC (television) or things like this."

The CFTC alleges that in 19 instances over 11 days during March 2007, Optiver's global and U.S. operations attempted to manipulate the settlement price during the trading of next-month contracts for future delivery of crude oil, heating oil and New York Harbor gasoline. The three executives charged allegedly made more than $1 million from the illegal trading.

Congress has been critical of the CFTC for not being more active in investigating potential manipulation of oil prices and for not seeking greater staffing. Legislation is now moving in Congress aimed at stopping "speculation" in oil markets, so the timing of the CFTC action raised questions of whether the action was political.

Obie rejected the suggestion. "I categorically deny it," Obie said. He said that cases are brought when they are ready, not based on politics. "This is not politically motivated."

Obie called the case — the first brought since the CFTC announced a national oil markets investigation in May — significant, but said the agency could not quantify how much Optiver's alleged manipulation had driven oil prices.

"This case is important for the public to know that this manipulation has an impact on the market. But at this point we are not at a point to quantify that," Obie said.

The CFTC complaint involves civil, not criminal, charges. It is up to the Department of Justice to pursue criminal charges, and CFTC officials would not comment on that possibility.

In the charging document, regulators allege that Optiver's top U.S. and global traders engaged in a practice called "banging the close." During the trading day, Optiver allegedly built up substantial trading positions and then tried to offset those positions in the final minutes of trading before the daily settlement, or close of trading, at 2:30 p.m. Eastern time.

The CFTC alleges that Optiver would try to unload up to 30 percent of its positions near settlement, and the remainder over the final five minutes of trading, most often the final two minutes of trading on the New York Mercantile Exchange, or Nymex.