Obama calls for tougher penalties for oil market manipulators (+video)
With gas prices a big election issue, Obama says Congress should enact new curbs on speculation and illegal manipulation in a market now dominated by investors.
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Still, a declining share of commodity market activity reflects the actions of producers and consumers of products like gasoline, and a growing share is accounted for by either "passive investors" (often viewing commodity investments as a hedge against inflation) and active traders seeking to profit from market volatility.Skip to next paragraph
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"Financial firms and speculators now make up the vast majority of these markets," CFTC chairman Gary Gensler said in testimony to Congress last month.
Already, some trading firms have been nabbed for market manipulation and have paid penalties as a result of federal prosecution. A central goal of Obama's latest proposals is to signal that cops are on the beat.
In his recent testimony, Mr. Gensler said an explosion of financial products related to commodities has left his agency short-staffed. "It is as if all of a sudden the National Football League (NFL) expanded eight times to play more than 100 games in a weekend. I think we’d all agree that the same number of referees could not monitor all those games."
Obama cited Gensler's football analogy in making his pitch for more CFTC funding, which would allow the agency to add personnel and upgrade its technology.
Prior to making his pitch for new legislative steps, Obama had set up a Gas Price Fraud Working Group, with various federal agencies involved, and had taken other steps designed to boost oversight of energy markets.
Trading schemes to push prices artificially up or down are generally short-term in nature, while longer-term trends are largely driven by supply and demand fundamentals, economists say. Still, market manipulation can impose significant losses on other market participants, including ordinary consumers of products like gasoline, say proponents of tighter enforcement.
Under Obama's proposal, Congress would boost potential civil and criminal penalties, which now run as high as $1 million, or three times the financial gains reaped by illegal activity, or 10 years in prison for a criminal conviction.
The new penalties could go as high as $10 million per day, three times the illegal gains, or three times the losses to victims.
"This would ensure that where the losses to victims were greater than the gains to the defendant, the penalty reflected the magnitude of the misconduct," a White House fact sheet on the proposal said.
Potential sentences in criminal cases would also rise.
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