Federal Trade Commission Chairman Jon Leibowitz, in a statement accompanying the FTC’s final rule prohibiting petroleum marketplace manipulation on Aug. 6:
“When Congress passed the Energy Independence and Security Act of 2007, it authorized the commission to develop a rule to prevent manipulation in wholesale energy markets. The goal of Congress was for the commission to detect and prevent market manipulation that might lead to higher [gasoline] prices for consumers.
“After a thorough and intensive process, the commission has started to do just that. The rule issued by the commission today is a broad anti-fraud measure that will help us prohibit conduct that harms consumers but that may not violate antitrust laws.
“We are going to use this authority as aggressively as possible to stop market manipulation that drives up prices at the pump.
"Trade associations representing the oil industry have voiced concern about the new rule. They argue that it will chill business conduct in the service of stopping something that they don’t believe is happening in the first place. These industry advocates have proposed several specific changes that would weaken the rule, requiring a higher scienter standard under the general liability provision, requiring an explicit market distortion element for the entire rule, and entirely eliminating liability for omissions.
“I am fundamentally opposed to these proposals. They would effectively neuter the rule and, as my colleague Commissioner [J. Thomas] Rosch notes in his concurring statement, they would undermine congressional intent.
“For example, the proposed changes would make it harder, if not impossible, to prosecute those who manipulate the market by intentionally omitting critical information from their communications, even when those omissions distort market conditions and raise gasoline prices for all Americans.
“Such omissions can be every bit as deceptive as any other type of fraudulent conduct, so it is crucial that we have the ability to prevent and prosecute them. A rule that does not allow us to go after such conduct would limit our ability to protect consumers.
“The rule as proposed already takes into account legitimate industry concerns. In fact, we responded directly to those concerns by modifying the more expansive proposal in the draft rule we released last summer, originally based on Securities and Exchange Commission Rule 10b-5, to accommodate industry worries.
“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.
“It is only the fact that [gasoline] prices were over $4/gal a year ago that keeps us from thinking that prices are too high today. If we water down this rule as suggested by the industry, it would hinder our ability to stop manipulation of wholesale petroleum markets. That would undermine the intent of Congress, and undermine the efforts of the commission to protect consumers and do our job.”
Contact Nick Snow at[email protected]
