Enron oil-curse probe
ENRON OIL PROBE & CRUDE COURSE
Exxon & Bush liars to be caught soon
"Not The Focus Of CFTC Probe Into Oil trading". May 30, 2008: 04:18 PM EST
"We have been contacted by the CFTC for information but it is our understanding that we are not the focus of the investigation," ExxonMobil spokesman Gantt Walton said in an email.
In unveiling a broad enforcement initiative on energy markets, the CFTC on Thursday disclosed that it opened a wide-ranging probe into oil trading in
The CFTC is also expanding its surveillance of energy markets, expecting more disclosure on trading positions on a fast-growing electronic energy platform and information about index funds' positions. The agency also is moving to require more information on the presence of funds whose investments track indexes of energy futures prices. The assets of commodity index funds have grown considerably in recent years, leading some to assert their presence has driven up energy prices.
May 30th, 2008
Posted: 04:00 PM ET
(CNN) — Federal regulators investigating possible price manipulation of crude oil are likely looking at what role collapsed energy giant Enron may have played, a former commission member told CNN Friday.
In an interview on “American Morning,” Michael Greenberger, who once headed the Commodity Futures Trading Commission’s Division of Trading & Markets, said, “Almost certainly what they’re looking at is as a result of Enron pushing for having energy futures contracts being done outside of the United States’ regulatory purview.
“There is a theory that has gained momentum among economists and market observers that the price of crude oil is being driven up not by supply/demand principles in whole, but by speculators who are using what are called dark markets, markets that can’t be watched by the public or regulators, to manipulate the price of crude oil and, therefore, gasoline and heating oil in an upward direction,” he said.
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New York bankruptcy court judge Arthur Gonzalez this week ordered the appointment of a second independent examiner in the Enron case.
The examiner will be charged with investigating the failed energy giant's special-purpose entities, off-balance-sheet partnerships and accounting practices, and also its dealings with the investment banks, law firms, and accounting firm that advised it.
Calling expert witnesses
The article "Dueling experts in U.S. courts," (Aug. 12) highlighted the differences between American law and the laws of other countries regarding expert witness testimony. As the article correctly points out, juries in the U.S. often have difficulty evaluating the testimony of dueling experts and frequently make decisions based on factors such as the expert's demeanor, credentials and ability to condense complex information into easily digestible bite-sized chunks.
Unfortunately, an expert's appearance and language facility have nothing to do with whether her testimony is scientifically supported.
The nature of the American process unwittingly demeans science and reinforces the skepticism with which many juries and judges treat expert testimony. Because experts are called by one side or the other, the experts are often denounced as hired guns. Jurors expect that experts will say anything the side that is paying them wants them to say.
Paid experts called by one side or the other are often forced into either stating conclusions more forcefully than may be scientifically warranted or appearing wishy-washy and unconvincing to a jury.
One solution to the expert witness credibility problem is to follow the course prescribed in many countries and insist that only judges call and examine expert witnesses. Judges would be signaling to jurors that the court finds the expert witnesses impartial and credible.
When there are legitimate discrepancies in the scientific community, U.S. courts could embrace a practice used in Australia that was alluded to in the article. In that procedure, which is known as concurrent evidence, experts testify together at trial and clarify issues, looking to find common ground.
Adopting a less adversarial approach to the introduction of expert testimony in American courts would strengthen the jury system.
Patrick Mattimore, Gex, France Former California prosecutor
Enron probably a focus of oil inquiry
(CNN) -- Federal regulators investigating possible price manipulation of crude oil are probably looking at what role collapsed energy giant Enron may have played, a former government official said Friday.
Federal regulators are looking at the price of crude oil, which ultimately is reflected at the gas pump.
"There is a theory that has gained momentum among economists and market observers that the price of crude oil is being driven up not by supply/demand principles in whole but by speculators who are using what are called dark markets, markets that can't be watched by the public or regulators, to manipulate the price of crude oil and, therefore, gasoline and heating oil in an upward direction," he said.
He added, "It would be as if you said you could trade stocks on the New York Stock Exchange, but you could also trade stocks somewhere where the Securities [and] Exchange Commission had no idea what was going on,(!) and at the behest of Enron in late 2000 in a lame-duck Congress, this kind of unregulated trading was permitted."
The Texas-based Enron collapsed in 2001 after revelations of fraudulent accounting practices. Several former executives were convicted and sentenced to prison terms on charges relating to the accounting scheme. The fall of the company cost 4,000 employees their jobs and many of them their life savings, and the collapse led to billions of dollars of losses for investors.
Greenberger is now director of the University of Maryland's Center for Health and Homeland Security.
The Commodity Futures Trading Commission said Thursday that it is six months into a nationwide crude oil investigation, with a focus on possible price manipulation. The commission said it is publicizing the investigation because of "unprecedented market conditions."
"In addition to the CFTC's ongoing examination of the role of fundamental economic forces and new investors in the recent commodity market price increases, the agency continues to pursue one of its primary missions -- to 'deter, detect, and punish futures market manipulation,' " according to a written statement from the commission.
Sen. Maria Cantwell, D-Washington, said on CNN's "Issue No. 1" Friday that she and other lawmakers sent a letter last week to the commission, pressing them to take action.
"There is more regulation on hamburger in America, trading on the futures cattle market, than there is oil, and yet oil is critical to our U.S. economy," she said.
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Oil trading probe may uncover manipulation
But overall, any wrongdoing is likely to play a small part in soaring crude prices. Meanwhile, speculators aren't expected to hang.
NEW YORK (CNNMoney.com) -- Amid soaring oil prices that some say are caused by nothing more than rampant speculation, the government Thursday announced a wide ranging probe into oil price manipulation and said it would get more information on the effect investors are having on the market.
The measures, undertaken by the Commodity Futures Trading Commission after pressure from angry lawmakers, do two things.
First, they'll attempt to gather more information from index funds and other non-commercial users of oil. They'll also seek information on oil trades made outside the U.S. on exchanges like the IntercontinentalExchange Europe (ICE) where the CFTC has no oversight and has been unable to get more detailed information.
The second thing on the CFTC's agenda is an actual investigation into possible price manipulation - most likely by a commercial user of oil like a production company, shipping company, or storage company.
Recent investor interest in commodities is an issue of intense debate. Some say investors, who have been funneling money into oil and other commodities over the last several months amid rising inflation and falling stock prices, are unjustifiably driving up the price of oil and gas simply because they have no other place to put their money.
Others say tight supply and strong demand are the real reasons behind this investor interest, and the market is functioning properly to limit demand and increase supply.
CFTC has previously said that it has not found any evidence that speculators were artificially inflating prices.
"Data used by Commission staff show that price changes are largely unrelated to fund trading," according to written testimony before a Senate hearing earlier this month by CFTC Chief Economist Jeffrey Harris. "Broad-based manipulative forces are not driving the recent higher futures prices in commodities across-the-board."
Neither Harris nor any other economist at the CFTC could not be reached for comment.
According to a chart presented in its congressional testimony, it appears the CFTC used data from 2007 to reach its conclusion.
Additional reporting by index funds and other non-commercial buyers of crude will help CFTC make better analysis, said Michael Haigh, head of U.S. commodities research at the investment bank Société Générale and a former economist at the CFTC.
Even so, he doesn't expect the CFTC's overall conclusion - that investors aren't unjustifiably driving up oil prices - to change much.
More regulation on the way?
But Haigh said oil traders see this request for additional information as perhaps a precursor to broader regulation, like decreasing the amount of contracts speculators are allowed to hold or raising the amount of money investors have to put down to buy those contracts.
"The fear that this might happen may drive people out of the market," he said. "There could be a run for the gates."
Oil prices fell Thursday by over $4, one of the biggest declines in recent weeks. One expert attributed the slide to the investigation.
"The traders now know that someone is looking over their shoulder," said Michael Greenberger, a professor at the University of Maryland and a former CFTC official. "Their phony sales are being watched, and in one day there was the biggest drop in 2 1/2 months."
If there is a run for the gates, Haigh said prices may or may not fall, but liquidity would be reduced, leaving the market more vulnerable to manipulation by a single participant.
And that's the second thing the CFTC is looking into - "practices surrounding the purchase, transportation, storage, and trading of crude oil and related derivative contracts," the agency said in a statement.
This most likely means manipulation of the physical oil market, not typically done by speculators but rather by commercial players who might literally withhold oil from the market in an attempt to drive prices higher.
The CFTC has found evidence of this in the past. BP recently settled a suit that alleged the company tried to corner the propane market to inflate prices in 2003 and 2004. BP agreed to pay a $303 million settlement.
Haigh thinks it's likely CFTC will find evidence of this again given that the agency has been investigating for six months and has now chosen to make it public. But he stressed that a single player acting alone would in all likelihood not have a huge influence on prices.
"It's difficult to imagine a price runup of $90 to $135 being done by one entity," he said. (ExxonMobil?)
He believes the CFTC took the unusual step of announcing the investigation to placate angry lawmakers who may be tempted to enact broader regulations on the oil futures market that would hamper trading.
One analyst said the CFTC investigation will have little effect.
"This investigation is just a way for the government to divert attention away from the fact that it hasn't created a viable energy policy," said Mike Fitzpatrick, an analyst at the brokerage MF Global in New York. "Ultimately, fundamentals rule the markets...this investigation is going to wind up producing nothing."
Not everyone agrees fundamentals rule the market.
"There is a theory that the price of crude oil is being driven up not by supply and demand principles, but by speculators using what are called dark markets, markets that can't be watched by the public or regulators, to manipulate the price of crude," said Greenberger.
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