04.21.08

Senator Cantwell, Congressman Inslee Call for Department Of Justice Oil and Gas Market Fraud Task Force

President's Corporate Fraud Task Force Should Focus On Fraud and Manipulation of Oil and Gas Markets

SEATTLE, WA – As energy prices continue to soar, today U.S. Senator Maria Cantwell (D-WA) and Congressman Jay Inslee (D-WA-01) called for the creation of a Department of Justice Oil and Gas Market Fraud Task Force to examine fraud and manipulation of oil and gas markets.  The President’s InteragencyCorporate Fraud Task Force should investigate allegations of oil and gas market fraud and corporate corruption, coordinating enforcement activities among several federal agencies.
 
Cantwell and Inslee sent a letter today to President George W. Bush and Attorney General Michael Mukasey urging the new task force be created immediately.
 
“With record gas prices dragging our economy into a recession and $117 per barrel of oil that can’t be explained by historic market forces, a new Enron-style Task Force should be created to examine abnormalities in the oil and gas markets,” said Cantwell. “The Department of Justice stepped in to help investigate Enron’s manipulation of electricity prices, now it needs to step up and investigate potential corruption in oil and gas markets.”
 
“Washingtonians felt the economic pain of the administration sitting on their hands when Enron was pillaging ratepayers,” added Inslee.  “They, and all American consumers, deserve vigilant oversight from the feds when it comes to gas prices.” 
 
Earlier this month, an executive from Exxon Mobil testified under oath that the price of oil should be $50 to $55 per barrel based on supply and demand fundamentals.   In October 2007 the CEO of Marathon Oil, Clarence Cazalot Jr. said, "$100 oil isn't justified by the physical demand in the market," he said. "It has to be speculation on the futures market that is fueling this."
 
The President’s Corporate Fraud Task Force, created in 2002 to investigate corporate fraud, is an inter-agency group that coordinates and enhances enforcement efforts among several agencies including Department of Justice, Department of Treasury,Department of Labor, Commodities Futures Trading Commission, Federal Energy Regulatory Commission,the Securities and Exchange Commission and U.S. Postal Inspection Service.  Cantwell and Inslee believe the Federal Trade Commission should be added to the Department of Justice task force.  Within the Department of Justice the Task Force includes the Federal Bureau of Investigation, Criminal and Tax Divisions.
 
Over the last several years, several major energy companies including Amaranth, Marathon Oil, and British Petroleum have been under federal investigation for manipulation of petroleum and natural gas markets. 
 
For example, as a result of an investigation involving British Petroleum, the company must now pay approximately $373 million in part for conspiring to corner the market and manipulate the price of propane carried through Texas pipelines.
 
Similarly, in the summer of 2006, a manipulative scheme to game the natural gas market by the now defunct hedge fund Amaranth cost consumers upwards of $9 billion.
 
In July of last year, Marathon Oil Corporation agreed to pay a $1 million fine to the CFTC to settle charges that its Marathon Petroleum Company subsidiary attempted to manipulate crude oil prices in 2003.   
 
 [The text of the Cantwell Inslee letter follows below]
 
 
April 21, 2008
 
President George W. Bush
1600 Pennsylvania Avenue NW
Washington, DC 20500
 
 
Dear President Bush:
 
With Americans questioning the fairness of record high gas prices, we urge you to establish a new interagency Oil and Gas Market Fraud Task Force under the leadership of the Department of Justice to ensure that energy markets are free from illegal market manipulation and corporate corruption. 
 
Oil and gas are irreplaceable commodities central to our economic prosperity, national security, and the health and well being of our citizens. However, with prices for these necessities more than tripling since 2002, families, businesses, and hard working Americans are struggling to make ends meet with ever shrinking disposable incomes. Airlines are going bankrupt and truckers aren’t even getting paid enough to cover diesel prices that exceed $4 dollar per gallon. Families have cut back on going out to dinner or the mall, further exacerbating our economic downturn. 
 
Congress has received testimony from our nation’s Attorneys General, energy market experts, and major oil company executives that the price of oil and gas can no longer be explained or predicted by normal market dynamics or their historic understanding of supply and demand fundamentals. Earlier this month, an executive from Exxon Mobil testified under oath that the price of crude oil should be about $50 to $55 per barrel based on the supply and demand fundamentals he had observed. Yet current crude oil prices, and crude oil futures, are expected to remain above $100 for the next several years. 
 
In the wake of the Enron and other corporate scandals, you initiated the Corporate Fraud Task Force at the Department of Justice as part of your Corporate Responsibility Initiative. By aggressively enforcing existing laws and regulations, the Task Force’s actions have yielded over 1,200 corporate fraud convictions to date. In addition, the Justice Department has obtained more than one billion dollars in fraud-related forfeitures and has distributed that money to the victims of corporate fraud. We believe the Corporate Fraud Task Force should establish a new Oil and Gas Market Fraud Task Force and apply its considerable resources, initiative, and ability to coordinate federal agency efforts to help restore consumer confidence that energy prices are fair. We urge you to also add the Federal Trade Commission to the interagency Task Force.
 
The threat of oil and gas market manipulation remains real. For example, in its Congressionally directed investigation into gas price increases following Hurricanes Katrina and Rita, the Federal Trade Commission found 15 examples of pricing at the refining, wholesale, or retail level that fit the relevant legislation’s definition of evidence of “price gouging.” In addition, last July, Marathon Oil Corp. agreed to pay a $1 million fine to the Commodities Futures Trading Commission to settle charges that its Marathon Petroleum Company subsidiary attempted to manipulate crude oil prices in 2003.
 
As we learned from the 2000-2001 Western energy crisis, energy costs affect all sectors of our economy from transportation, to industry and business, to food prices and beyond. That electricity crisis took a serious toll on American consumers and businesses, causing a 1.5 percent decline in productivity that cost the West 589,000 jobs and a $35 billion drop in domestic economic product. 
 
How the federal government responds to the changing dynamics of energy markets is vital to our continued national and economic security. As members of Congress that aggressively sought consumer relief and accountability following the Western energy crisis, we learned that consumers are best protected when energy markets are subject to aggressive regulation and enforcement. And unless there is a cop on the beat vigilantly policing energy markets, sophisticated companies can fleece consumer pocketbooks without fear of penalty. We look forward to working with you to establish an Oil and Gas Market Task Force to root out fraud and manipulation in all corners of the oil and gas marketplace. 
 
 
Sincerely,
 
 
Senator Maria Cantwell (D-WA) and Congressman Jay Inslee (D-WA-01)
 
 
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