National Whistleblower Day

While America begged OPEC to lower oil production to save markets battered by the coronavirus pandemic, a group of commodities traders asked the Supreme Court to finally decide an oil price-fixing case with major implications for how corruption related to this global commodity is regulated here at home.

The case is notable because it involves laws protecting against commodities fraud, rarely used in oil markets. It may also provide a weapon for whistleblowers reporting fraud that occurs at least partially overseas but affects the United States.

Lawyers for a group of New York Mercantile Exchange traders filed a petition with the United States Supreme Court on March 18 asking the court to take up a case that has split appellate courts. The case began in 2013 when the traders filed a class-action lawsuit in federal court naming Shell, BP and Statoil as defendants, along with three oil trading houses and two banks. The suit alleged that the companies reported false transactions to Platts, a company responsible for incorporating daily market information into a price benchmark for oil produced in the North Sea known as Brent crude.

The Brent Crude benchmark—also called a “spot price”—determines prices for oil futures traded on exchanges in New York and London.  Futures are contracts between buyers and sellers of commodities based on a future price.

Brent crude prices affect markets around the world and exert such a strong influence on the global economy that changes can affect stocks and other financial markets. The lack of regulation of oil spot prices has been sufficiently concerning that the G20 in 2010 asked the International Organization of Securities Commissions to find ways to ensure integrity of the process.

Plaintiffs in the suit claim “inaccurate, misleading and false” information provided by the companies named in the suit caused oil prices to dip, benefitting the companies’ selling plans but causing commodities traders to lose money. They argued the behavior violated sections of the Commodities Exchange Act prohibiting manipulation of prices.

The court dismissed the case on grounds that because the oil was extracted—and partially traded—outside the United States, the wrongdoing occurred outside the CEA’s domestic jurisdiction. The traders appealed, but the Second Circuit appeals court upheld the original decision in 2019.

However, the Ninth Circuit appeals court decided in a 2018 case also involving U.S. commodities laws in foreign markets (Stoyas v. Toshiba Corp.) that the laws should apply if domestic markets are also involved. The conflict prompted the Supreme Court to ask the opinion of the U.S. Solicitor General, which sided with the Ninth Circuit.

Perhaps more importantly for those involved in commodities markets, the Commodity Futures Trading Commission (CFTC) filed an amicus curiae, or “friend of the court,” brief in the Second Circuit case supporting the traders (Prime International Trading LTD., et al. v. BP PLC, et al.). The CFTC is an independent U.S. government regulatory agency created in 1974 to regulate futures trading.

The CFTC brief asked the court to reject the argument that the Commodities Exchange Act (CEA) didn’t cover the defendants’ actions because  “[n]othing … suggests that a person may intentionally manipulate contracts on a trading facility in the United States with impunity under U.S. law … simply because that person and the means of manipulation were offshore.”

The brief reflects the CFTC’s increased involvement in foreign corruption. In March 2019, the CFTC released an enforcement advisory encouraging companies to disclose “violations of the Commodity Exchange Act involving foreign corrupt practices.” The advisory said the CFTC would work with the Securities and Exchange Commission (SEC) and Department of Justice (DOJ), both of which can enforce the Foreign Corrupt Practices Act.

The government’s drive to root out overseas corruption that impacts the U.S. economy is complemented by robust whistleblower laws. Under the CFTC’s whistleblower program, created by the Dodd-Frank Act of 2010, qualified whistleblowers can receive between 10 percent and 30 percent of penalties collected by a successful enforcement if the penalties awarded top $1 million. Non-U.S. whistleblowers can file for awards, and awards can also be given for actions brought by foreign futures authorities if the whistleblower also reports the same information directly to the CFTC. The office has awarded more than $100 million to whistleblowers to date and collected more than $800 million in sanctions.

Regardless of whether the Supreme Court decides to take on the debate over how far U.S. commodities law stretches, the CFTC’s increased focus on overseas corruption—including the international oil market—is good news for whistleblowers and others seeking to uncover corruption in the fossil fuel industry.