05.20.08

Senators Join Cantwell in Calling for Justice Department Oil and Gas Market Fraud Task Force

President's Corporate Fraud Task Force Should Focus On Rooting Out Fraud and Manipulation in Oil and Gas Markets

WASHINGTON, D.C. – As Americans continue to struggle under record high oil and gas prices, and the summer driving season is about to start, today U.S. Senators Elizabeth Dole (R-NC) and Sheldon Whitehouse (D-RI) joined Maria Cantwell (D-WA) in calling for the creation of an Oil and Gas Market Fraud Task Force to examine possible fraud and manipulation in oil and gas markets.  The President’s InteragencyCorporate Fraud Task Force should aggressively investigate allegations of oil and gas market fraud using their existing legal authorities and coordinate ongoing enforcement activities among several federal oversight agencies.
 
The bipartisan group of senators sent a letter today to President Bush urging the new task force be created under the leadership of the Department of Justice. The letter echoes sentiments expressed in a letter sent by Cantwell and Congressman Jay Inslee (D-WA-01) in April.
 
“With supply and demand fundamentals unable to explain why oil prices have doubled in the past year, the President should create a new Enron-style Task Force to ensure oil and gas markets are not being manipulated,” said Cantwell. “Every American sees the smoke of out-of-control gasoline prices, we need the Justice Department to see if there’s a fire. When the Justice Department investigated Enron’s manipulation of electricity prices they found massive criminal wrongdoing, now they need to step up and make sure similar schemes are not driving today’s record prices at the pump.”
 
“With gas prices in Rhode Island climbing towards $4 a gallon, strengthening the Justice Department’s authority to prevent market abuse will help lower prices at the pump and ensure that consumers are getting a fair shake,” said Senator Whitehouse, a member of the Senate Judiciary Committee and former Rhode Island U.S. Attorney and Attorney General.  “I am grateful for Senator Cantwell’s leadership on this issue, and I urge the President to take immediate action to ensure that market speculators can’t take advantage of Rhode Island families.”
 
“Harnessing the resources of our government in a concerted effort to monitor and protect our energy markets from any fraud or price manipulation is a responsible step given the rapid rise of energy prices,” said U.S. Sen. Elizabeth Dole.  “The President should take immediate action to establish this new Task Force, which can help restore the confidence of Americans in our oil and gas markets and prevent further harm to our economy.”   
 
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 the Departments of Justice, Treasury,Labor, the Commodities Futures Trading Commission, the Federal Energy Regulatory Commission,the Securities and Exchange Commission, and U.S. Postal Inspection Service.  The Senators’ letter also recommends adding the Federal Trade Commission to the task force since the Commission received the authority and responsibility to police wholesale oil and petroleum distillate markets in the 2007 Energy Bill. The Task Force also includes the Criminal and Tax Divisions of the Federal Bureau of Investigation which are under the Department of Justice.
 
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 Senators’ letter follows below]
 
May 20, 2008
 
The President
The White House
Washington, DC 20500
 
Dear Mr. President:
 
With Americans questioning the fairness of record high oil and 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 or corporate corruption. 
 
Oil and gas are irreplaceable commodities central to our economic prosperity, national security, and the health and well being of our citizens. Prices for these necessities however have more than tripled 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 are barely 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 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 forces. An executive from Exxon Mobil recently testified before Congress 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 are more than double that amount and crude oil futures remain well above $100 per barrel through 2016.
 
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 also urge you to add the Federal Trade Commission, which received new authority in the Energy Independence and Security Act of 2007 to prevent manipulation in the wholesale oil and petroleum distillate markets, to the interagency Task Force.
 
The threat of oil and gas market manipulation remains real. For example, last July, Marathon Oil Corporation 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. 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. And a federal investigation led British Petroleum to pay approximately $373 million in part for conspiring to corner the market and manipulate the price of propane carried through Texas pipelines.
 
As we learned from the 2000-2001 Western electricity crisis, rising energy costs hurt virtually every sector of our economy and drive inflation and losses in consumer confidence.   That electricity crisis took a serious toll on American consumers and businesses, forcing a 1.5 percent decline in productivity which caused 589,000 Americans to lose their 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. If the Western energy crisis taught us anything it is that consumers are best protected when energy markets are subject to aggressive oversight and enforcement. And unless there is a cop on the beat vigilantly policing energy markets --especially when supplies are tight in markets with extremely inelastic demand-- sophisticated companies can fleece consumer pocketbooks without fear of penalty. We look forward to working with you to establish an Oil and Gas Market Fraud Task Force to root out fraud and manipulation in all corners of the oil and gas marketplace, and restore consumer confidence. 
 
 
Sincerely,
 
 
 
Sens. Maria Cantwell, Elizabeth Dole, Sheldon Whitehouse, Susan Collins, Amy Klobuchar, Gordon Smith, and John Kerry
 
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