News & Developments

FTC Issues Final Rule Prohibiting Petroleum Market Manipulation

In a 2–1 vote on August 6, 2009, the Federal Trade Commission (FTC) issued a final rule[1] aimed at prohibiting fraudulent and deceitful manipulations in petroleum markets. The rule covers the wholesale purchase and sale of crude oil, gasoline, and petroleum distillates, and prohibits persons from directly or indirectly (1) knowingly engaging in acts that would operate as a fraud or deceit upon any other person (including making untrue statements of material facts), or (2) intentionally failing to state a material fact that under the circumstances would render the person’s statement misleading (provided the omission distorts or is likely to distort market condition). Examples of targeted conduct include false public announcements of planned pricing decisions and false statistical reporting.[2]

Violations of the rule carry stiff civil penalties of up to $1 million per violation, per day, in addition to any other relief available to the Commission under the FTC Act. This stands in contrast to the $11,000 per violation penalty under the FTC Act for other forms of unfair or deceptive acts. Following announcement of the rule’s issuance, Chairman Jon Leibowitz promised: “We will police the oil markets—and if we find companies that are manipulating the markets, we will go after them.”[3]

The American Petroleum Institute opposed the version of the rule issued, characterizing it as an “overreaction” by the FTC, and cautioning in written statements that the “new rule could lead to a less competitive market that would ultimately not be in the best interest of American consumers of gasoline, diesel, and other petroleum products.[4] The API is also concerned the rule will discourage companies from providing important information to the marketplace.

Chairman Liebowitz disagrees: “The current rule, as modified, strikes the right balance; it gives the commission the authority to stop fraudulent conduct in energy markets but does not undermine appropriate business activity.”[5]

The rule was issued under the Energy Independence and Security Act of 2007, and takes effect on November 4, 2009. Copies of the rule are available on the FTC’s website.

FOOTNOTES

1. 6 C.F.R. § 317 (2009).
2. New FTC Rule Prohibits Petroleum Market Manipulation, Federal Trade Commission, www.ftc.gov/opa/2009/08/mmr.shtm
3. Id.
4. API Statement on FTC Market Rule, www.api.org/Newsroom/ftc_rule.cfm.
5. Id.

Submitted by:
Corey F. Wehmeyer is an associate at Cox Smith Matthews Incorporated in San Antonio, Texas.