FTC Rule Could Result in $1 Mln. Fine for Illegal Manipulation of Fuel Prices
This story appears in the Aug. 17 print edition of Transport Topics.
In the face of growing pressure on the federal government to regulate oil markets and trading, the Federal Trade Commission has issued a new rule that could result in fines of up to $1 million if traders or companies are found manipulating fuel markets.
The rule gives the commission the power “to crack down on fraud and manipulation that can drive up prices at the pump,” FTC Chairman Jon Leibowitz said in a statement announcing the action.
“We will police the oil markets — and if we find companies that are manipulating the markets, we will go after them,” Leibowitz said.
The manipulation rule, which takes effect Nov. 4, was issued by the FTC on Aug. 6 under powers given the commission by the Energy Independence and Security Act of 2007.
The new rule is aimed at the wholesale oil market and prohibits such conduct as “false public announcements of planned pricing or output decisions, false statistical or data reporting,” and sales intended to hide the actual liquidity of a market or the price of a product.
The rule also prohibits what the commission calls “material omissions from a statement that, although true, is misleading under the circumstances.” The FTC’s rulemaking followed news that the Commodities Futures Trading Commission is also developing new regulations to prevent excessive speculation in oil futures contracts (click here for previous story).
Leaders in the trucking industry and other sectors of the economy, as well as ordinary consumers, have been pressing for more scrutiny of oil markets ever since last year’s record-setting prices for gasoline and diesel.
Most recently, despite the severe recession and huge fuel supplies worldwide, prices have been rising again for both diesel and gasoline, closely following crude oil prices that have topped $70 a barrel this summer when they were half that price this winter.
The CFTC, the commodities commission, regulates the buying and selling of futures contracts for everything from oil to wheat and pork bellies, while the FTC has historically focused on antitrust issues.
Under its new rule, however, the FTC now has the power to address any deliberate manipulation in the energy markets, said commission spokesman Mitchell Katz.
“We didn’t have any authority in this area until we wrote the regulation,” he said.
“The only authority that we had would be if we found collusion or other illegal anticompetitive conduct,” Katz added.
Until the new rule was adopted by the commission, Katz said, the FTC could collect only civil penalties and the limit was $16,000 per violation per day.
The Energy Independence and Security Act gave the FTC new powers with which to attack market manipulation, said Peter Richman, deputy assistant director of the FTC’s Bureau of Competition.
The new rule is one of the FTC’s first steps towards using those powers, and the rule “makes it clear what is and is not behavior that we’re going to challenge,” Richman said. “And this isn’t necessarily the end,” he added.
As the FTC uncovers and investigates cases of alleged manipulation, he said, the commission may find that it needs to take additional steps to curb such behavior.
