US probes suspected manipulation of energy pricing benchmarks at Platts

Washington  — The US department of justice is investigating suspected manipulation of energy pricing benchmarks published by S&P Global Platts, expanding the agency’s crackdown on misconduct in the global commodities market, according to four people familiar with the matter.

London-based Platts is a data and news provider which focuses on energy, metal and agricultural commodities. The company collects data from traders on their deal prices to determine a daily market price for a number of physical commodities.

US prosecutors are probing suspected manipulative behaviour by individual traders when submitting those deal prices to Platts’ price assessments for oil and other energy benchmarks, the four people said, without specifying which ones.

The people declined to be named as the probes are not public.

By pushing benchmark prices up or down, traders can boost their profits.

Over the past year, US authorities have brought two cases of alleged manipulation of Platts’ oil benchmarks by traders at two different companies, but prosecutors are now probing similar behaviour across the market, the sources said.

The previously unreported, industry-wide probe opens up a new front in the department’s crackdown on fraud, bribery and manipulation in the commodities market, raising the stakes for traders and companies globally that daily use Platts’ benchmarks to price billions of dollars worth of contracts.

The sources said prosecutors are focused on traders’ behaviour and gave no indication of suspected wrongdoing by Platts.

Platts publishes its assessment methodology which includes controls to ensure data integrity, such as appointing an independent external auditor “to review and report on its adherence to this stated methodology”, according to its website.

In response to a request for comment, Platts said it conducts reviews to ensure the integrity of its price assessments. Platts publishes data and correspondence used to determine a price assessment and provides this data to regulators when requested, said Dave Ernsberger, global head of pricing and market insight for S&P Global Platts.

“We’ve spoken with US and global authorities across a whole range of markets for many years,” Ernsberger said. He declined to comment on any potential probes.

A spokesperson for the justice department declined to comment.

Over the past decade, authorities globally have levied multibillion-dollar fines and pursued criminal charges against banks and traders for banding together to rig global benchmarks, most notoriously the London Interbank Offered Rate.

While US criminal authorities pursued cases against energy traders in the 2000s related to benchmark-rigging, in the years that followed commodities market manipulation was largely the domain of civil agencies including the Commodity Futures Trading Commission (CFTC) and the Federal Energy Regulatory Commission.

Since 2019, however, the justice department, working with the CFTC, has ramped up scrutiny of the commodities market via a specialist unit within its Washington-based fraud division. That unit has developed sophisticated data analytics tools to more quickly detect misconduct reports said in 2020.

The unit initially focused on commodities futures spoofing, whereby futures traders place buy or sell orders which they intend to cancel to falsely create the impression of strong demand or supply. They then capitalise upon the market reaction.

But the unit now has the tools and expertise to dig into other areas of the market, including industry benchmarks operated by price reporting agencies, said one of the sources.

The agency has also investigated some of the world's largest energy trading companies for bribery, including Dutch trading giant Vitol.

That and another recent case identified misconduct in relation to Platts’ benchmarks.

When settling bribery charges with the justice department in December 2020, Vitol also settled related charges brought by the CFTC. As part of that settlement, Vitol paid a civil penalty to the CFTC to resolve charges of attempted manipulation of two Platts physical oil benchmarks.

Vitol said at the time it was committed to upholding the law and had co-operated “extensively” throughout the investigation. The company neither admitted nor denied the CFTC’s allegations.

In March, a former oil trader for Glencore pleaded guilty to charges that he conspired to manipulate the Platts benchmark for a type of oil.

The department alleged that from September 2012 to August 2016 Emilio Jose Heredia Collado directed colleagues to place buy or sell orders during a Platts trading settlement window key to assessing the fuel oil price, court documents show.

Heredia successfully swayed benchmark prices to benefit himself and his employers, the department alleged. He is co-operating with an ongoing US investigation, authorities have said in court filings as recently as August.

His attorney did not respond to requests for comment. Glencore declined to comment.

“In both these cases, the regulators did not accuse Platts of wrongdoing or provide any evidence that attempts to manipulate our assessments were successful or that our assessments did not reflect market value,” Platts said in a statement.

Other commodities traders are under justice department scrutiny. Energy trader Gunvor Group has said it is being probed by US authorities  for corruption in Ecuador after a former employee pleaded guilty to bribery charges in April.

Reuters