Financial Regulatory Forum

U.S. needs needs easier way to prove commodity futures manipulation – regulator

By Reuters Staff
September 15, 2009

By Christopher Doering
WASHINGTON, Sept 15 (Reuters) – U.S. prosecutors need an easier way to prove manipulation in commodity futures cases in order to better protect the market and consumers, a commissioner with the Commodity Futures Trading Commission said on Tuesday.

Bart Chilton, in a speech on climate change, said there are “impossibly high” standards in place for the CFTC to prove manipulation, resulting in a dismal record of prosecuting suspected offenders in the commodity arena.

He called for unprecedented changes in the legal standard required to prove manipulation.

“There are just too many market manipulations we simply
can’t address,” Chilton said. “This can lead to unacceptable price volatility that affects consumers and business all across America, when they put gas in the car or food on the table.”

Chilton, citing the high burdens on prosecutors, noted the CFTC has successfully prosecuted and won only one manipulation case in its 35-year history. The case is currently on appeal in federal court.

In June, the White House urged the Securities and Exchange Commission and the CFTC to give Congress a report by the end of September that identifies their conflicts and makes recommendations on how to resolve them. The CFTC is viewed as having weaker enforcement rules and authority over the markets.

Chilton acknowledged the SEC has an “easier legal hurdle to jump” than the CFTC in proving manipulation and that efforts between the two agencies to smooth out gaps and inconsistencies in their regulatory oversight “may (be) a great opportunity to adjust our rules to be more in line with theirs.”

Currently, the CFTC must obtain help from the U.S. Department of Justice or other state or local criminal authorities to prosecute cases in a criminal fashion. Chilton estimated two-thirds of all cases the CFTC refers to criminal authorities such as the DOJ are rejected.

The law requires the CFTC to prove an individual intended to manipulate prices, which can be difficult to do. In addition, the agency must prove that an individual had the market power to move the price of a commodity and that they caused an artificial price to occur.

“For far too long,” Chilton said, “folks who commit financial crimes pay the fine but don’t do the time. That needs to change.”

A slew of essential commodities, such as oil, surged last year on what some analysts said was excessive speculation and big money inflows. Crude oil reached $147 a barrel, then deflated like other commodities amid financial turmoil.

The CFTC has not blamed the spike in oil prices on speculators, despite disagreement from some individuals such as hedge-fund manager Michael Masters.

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