Fredriksen firms fined

The US Commodities Futures Trading Commission (CFTC) appears to have emerged victorious in a lengthy legal battle with affiliates of Norwegian shipping tycoon John Fredriksen.

On Monday a federal judge in New York signed a consent order that imposed a $13m penalty against Parnon Energy, Arcadia Petroleum, Arcadia Energy and two oil traders, James Dyer and Nick Wildgoose.

Under the terms of the settlement the defendants were not forced to confirm or deny their role in an alleged scheme to manipulate New York Mercantile Exchange (NYMEX) light sweet crude oil futures contract spreads but agreed not to refute the accusations publicly.

In addition to the $13m penalty the CFTC pointed out that the order “provides limitations on Parnon’s physical market trading” for three years and includes a provision that will require the firms’ traders to document and record various types of dealings during the same period.

“The order further requires the companies to engage an independent consultant to evaluate compliance, internal control and risk management policies, procedures, and practices, and to implement any resulting recommendations,” the organisation added in a statement.

In the same announcement CFTC director Aitan Goelman applauded the settlement, adding: “Through resolution of this litigation, the CFTC is holding accountable market participants who sought to profit by undermining the integrity of the US crude oil markets.”

James Dyer of Parnon Energy, which is based in California, and Nick Wildgoose of Arcadia Energy, which is headquartered in the UK, made TradeWinds headlines in 2011 when they were accused of manipulating crude oil futures prices in early 2008.

In the CFTC’s complaint the organisation argued that the defendants exploited what was described as a “tight physical market” by executing “a manipulative trading strategy” designed to “affect NYMEX crude oil futures contract spreads”.

Regulators claim the traders amassed a “dominate and controlling position” in a type of oil known as West Texas Intermediate, which they were accused of holding for an extended period of time to “give other market participants the impression that supply would remain tight”.

While the defendants sold their physical position at a loss during a period known as a “cash window” it is believed that the companies named in the complaint were able to generate profits of approximately $50m from futures spreads that were purchased prior to the dump.

According to the CFTC’s lawsuit, which stemmed from alleged violations of various sections of the Commodity Exchange Act, all of the firms named as defendants are wholly-owned subsidiaries of Farahead Holdings, one of Fredriksen’s private investment vehicles.

Copies of the complaint and consent order signed by judge William H Pauley III can be read in full by clicking on the links located under the Related Media section to the right of this article.