WASHINGTON, DC – Seeking to prevent Enron-style market manipulation in commodities and derivatives markets, U.S. Senator Maria Cantwell (D-WA), today introduced legislation strengthening enforcement powers over commodities trading. The new powers embodied in the Derivatives Market Manipulation Prevention Act of 2009 would make it possible for federal regulators to more effectively investigate and punish market manipulation in commodity futures and derivatives markets. The legislation is co-sponsored by Senator Bill Nelson (D-FL).
“This time last year, our country experienced the beginning of the worst economic crisis of our time since the Great Depression,” Cantwell said. “The effects of the crisis have been felt from Wall Street to Main Street. A full recovery is going to take time, but there are steps we can take now to ensure that the mistakes of the past are no longer repeated.”
Current law makes it difficult for the Commodities Futures Trading Commission to effectively meet its mandate to investigate and punish market manipulation, resulting in little or no deterrent against abusive practices. This is because current law sets a very high bar for the CFTC to prove market manipulation. By comparison, a lower burden of proof makes it much easier for the Securities and Exchange Commission (SEC), the Federal Energy Regulatory Commission (FERC), and the Federal Trade Commission (FTC) to prove and deter market manipulation.
The CFTC must prove “specific intent” to do harm, rather than the “recklessness” standard used by the SEC for the past 75 years, and recently employed by the FERC and FTC. “Specific intent” is a much more difficult standard to prove. In fact, the standard is so weak that in its 35-year history, the CFTC has successfully prosecuted and won only one case of manipulation in the futures markets.
Cantwell’s bill would give the CFTC the same “reckless conduct” standard currently used by the SEC, the FERC, and the FTC against manipulation. It would establish a bright line so that the CFTC can effectively enforce and deter market manipulation in commodity futures and derivatives markets. Cantwell’s bill would make it clear that market manipulation resulting from “reckless conduct” will be illegal.
“When bad-actors like Enron and Amaranth Advisors manipulate commodities prices, Americans end up footing the bill, paying more for commodities like oil, gasoline, heating oil, food, and natural gas,” Cantwell said. “Unfortunately, regulators lack the tools to protect us from market manipulation in critical commodity futures markets. Through this tough new language, we can establish a clear, bright-line against illegal market manipulation and can empower regulators to effectively enforce and deter market manipulation.”