Dive Brief:

• Trafigura Trading, an affiliate of Trafigura, one of the world’s largest oil trading companies, agreed to pay a $55 million fine to settle charges it used insider information to manipulate the market for high-sulfur fuel oil and used non-disclosure agreements to keep employees from informing regulators about it, the Commodity Futures Trading Commission says.
• “Trafigura misappropriated material non-public information and engaged in manipulative conduct that affected published benchmark rates,” Ian McGinley, the CFTC’s director of enforcement, said in a statement June 17, when the agreement was announced.
• The case is notable as the first time the CFTC has brought charges against a company for using NDAs to keep employees from reaching out to regulators. “This groundbreaking action demonstrates the CFTC’s commitment to protecting potential whistleblowers and puts the market on notice that the CFTC will not tolerate attempts to silence potential witnesses,” Brian Young, director of the agency’s whistleblower office, said.

Dive Insight:

Trafigura is accused of improperly obtaining nonpublic information material to the gasoline market from an employee at a Mexican trading entity. 

The information enabled the company to take a long derivative position in U.S. Gulf Coast high-sulfur fuel oil at an advantageous price as a hedge against short-term purchases of the fuel, which it acquired for export to Singapore.   

“The long derivative position … essentially [constituted] a long speculative bet on fuel oil prices,” the CFTC says.  

Although the agency didn’t identify an unusual trading pattern as the way it learned of the alleged manipulation, the company acted out of character by buying 80 cargoes of fuel oil — 3.6 million barrels — within a short trading window, affecting prices.  

The “80 cargoes [was] an amount much larger than it had ever previously purchased in the window in a single month,” the agency says. 

That heavy buying activity led to an increase in prices, creating artificially high benchmark values that benefited Trafigura’s long derivatives position while hurting other buyers, the agency says. 

“This impact on the fuel oil benchmark was to the detriment of market participants who looked to rely on the benchmark as a fair price reference,” the agency says. 

A few months after this market action, the company began requiring employees to sign employment and severance agreements with non-disclosure provisions that didn’t include a carve-out for sharing confidential information with regulators, as required by whistleblower protection laws. 

“The provisions caused confusion that resulted in an impediment to voluntary and direct communications with the CFTC,” the agency says. 

In a statement, Houston-based Trafigura said it neither admits nor denies the findings but has agreed to the penalty amount and to change its compliance program and NDAs. 

“Since the period in question, Trafigura has voluntarily undertaken significant steps to enhance its compliance programme [and] modify the non-disclosure provisions,” the company says. The new NDA provisions “include language making clear that nothing in those provisions should be understood to limit or prevent communications with governmental authorities about potential violations of law.”