Thursday, July 24, 2008

CFTC Gets In The Act...

... with a "show trial," um, "show enforcement action". The CFTC has charged a Netherlands-based trading firm with manipulating the muti-billion dollar oil markets. These guys were so good at it that the CFTC says they actually made a million dollars.

Manipulating a billon dollar market and making just one million dollars, oh yeah.

Here are the details on this goofy charge:

CFTC has charged Optiver, a Netherlands-based global proprietary trading fund, two of its subsidiaries and three employees, with manipulation and attempted manipulation of crude oil, heating oil and gasoline futures contracts listed on the New York Mercantile Exchange in March 2007.

The regulator has filed the civil enforcement action in the U.S. District Court for the Southern District of New York against Optiver Holding BV and two subsidiaries -- Optiver US, LLC, a Chicago-based corporation, and Optiver VOF, a Dutch company.

The complaint also named defendants Christopher Dowson, head trader of Optiver; Randal Meijer, head of trading and supervisor of Optiver and Optiver VOF; and Bastiaan van Kempen, chief executive officer of Optiver.

The complaint charged all defendants with 19 separate instances of attempted manipulation involving the energy futures contracts on 11 days in March 2007.

In at least five of those 19 attempts, the defendants successfully manipulated certain energy futures contracts, causing artificial prices, CFTC alleged.

"Although this alleged energy trading scheme lasted only several days in March 2007, even short-term distortions of prices will not be tolerated by the Commission," said CFTC Acting Chairman Walt Lukken.

The defendants used a scheme known as "banging" or "marking" the close, which refers to the practice of acquiring a substantial position leading up to the closing period, followed by offsetting the position before the end of the close of trading in an attempt to manipulate prices, according to the CFTC complaint.

On March 19, 2007, van Kempen told an Optiver trader: "You should milk it for right now because you never know how long it's going to last," according to CFTC.

In a separate conversation, Dowson said that with 1,000 gasoline contracts, one could "really bully" the market. Meijer added that "you can bully around more with more."

The complaint also charged Optiver and van Kempen with concealing the scheme and making false statements in response to an inquiry from the Nymex.

Here's where it really gets good:

Acting Enforcement Director Stephen Jay Obie said at a news conference on Thursday that "these [Optiver's] manipulations had an impact on the market. At this point, we're not in a position to quantify the impact on the market."

"This is not a politically motivated case," Obie said. "What we're going after are manipulators of our markets. We pursue all manipulators."

Not sure of the impact? Let me put it this way, it had about as much impact as this CFTC enforcement action will have on the price of oil: None.

Not political? Obie held a press conference for this goofy charge!

If I had a dime for every trader who tried to close his stock, commodity, whatever, up on the day, I would be an American Oligarch before Randal Quarles.

Actually, van Kempen on tape pretty much says they are just taking advantage of a very strong market that won't last: "You should milk it for right now because you never know how long it's going to last."

No manipulation here. These dudes were just surfing the Federal Reserve money printing, inflation creating, Big Wave. Case dismissed!

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