Trading Group Fined for Driving Up Oil Price - CNBC

The U.S. futures regulator on Monday fined a commodity trading group $12 million for pushing crude oil to $100-a-barrel for the first time in 2008.

The Commodity Futures Trading Commission said a trader at a former unit of ConAgra Foods [CAG 21.60 -0.02 (-0.09%) ], bent on driving oil to triple-digit levels, caused a “non-bona fide price” to be reported for the benchmark US crude futures contract. Gavilon, the commodity trading house, later bought the unit’s trading operations.

The fine, which was agreed by the CFTC and the current owners of the trading unit, comes more than two years after crude oil futures surged to a record $147 a barrel, prompting a CFTC investigation.

The settlement sheds light on one of the more mystifying moments in oil’s price rally.

On the first day of trading in 2008, a single contract for $100 oil [US@CL.1 76.17 0.93 (+1.24%) ] changed hands on the floor of the New York Mercantile Exchange even as the electronic market was trading at a substantial discount.

The CFTC said ConAgra’s floor broker, whom it did not name, acted at the bidding of a trader at ConAgra Trade Group. Traders at the time identified the person handling the purchase as Richard Arens, a long-time floor broker. A message left on Monday at Mr Arens’ home was not immediately returned.

“The trader said that CTG had instructed its floor broker that CTG had wanted to get the $100 print for as long as three months prior to January 2, 2008, and that ‘we weren’t gonna let that one get away from us’,” the CFTC said.

Gavilon, which is owned by investment firms General Atlantic, Ospraie Management and Soros Fund Management, will pay the majority of the fine. Gavilon said: “We are pleased that this matter has been resolved and believe that this agreement is in the best interests of our customers and suppliers.”

James Newsome, a former CFTC chairman who was chief executive of exchange parent Nymex Holdings, now part of CME Group, at the time of the controversial oil trade, last year joined Gavilon’s board.

ConAgra, based in Omaha, Nebraska, will pay Gavilon $4.3 million to resolve potential liability in the case. “ConAgra Foods did have appropriate financial controls and exercised enterprise risk oversight over CTG, but we did not approve or exercise authority over individual trades executed by CTG,” the company said.
Copyright 2010 The Financial Times Limited