Former Glencore Oil Trader Charged With Manipulation of Fuel Prices -- Update
March 23 2021 - 1:06PM
Dow Jones News
By Dave Michaels
WASHINGTON -- A former oil trader at mining company Glencore PLC
was charged with manipulating fuel oil prices, in a case that
echoes claims investigated in Europe seven years ago.
The ex-trader, Emilio Heredia, was charged under a document that
prosecutors typically use when a defendant is to plead guilty. He
is to be arraigned Tuesday in San Francisco federal court on one
count of conspiracy related to trading through a process managed by
oil-price benchmark publisher S&P Global Platts. Mr. Heredia
directed other traders to submit orders that would push up or down
prices, to engineer a move that would improve the profitability of
other transactions in physical fuel oil, according to the charging
document filed in court last week.
The case targets conduct first revealed by The Wall Street
Journal in 2013, in an article that showed traders admitting they
could manipulate prices on the Platts system. Platts said at the
time that it wasn't aware of instances in which traders gamed its
pricing indexes.
Mr. Heredia plans to enter a plea on Wednesday, according to
court records. An attorney for Mr. Heredia didn't immediately
return messages seeking comment. A Glencore spokesman said the
company has cooperated with the continuing federal
investigation.
In a statement, S&P Global Platts said it maintains a
"robust, rigorous and transparent methodology" that allows it "to
publish assessments reflective of market value." The company said
any efforts to manipulate its process haven't been successful.
Trades made during the daily "Platts window" -- the final 30 to
45 minutes of trading -- are reported to Platts, an energy-price
publisher. Traders submit their prices to Platts editors, who
determine a value at the end of the day.
Authorities in Europe have investigated whether trading firms
such as Glencore, Vitol and Gunvor Group Ltd. manipulated prices
through the Platts process, the Journal reported in 2013. The
Commodity Futures Trading Commission, a civil regulator in the
U.S., also probed the allegations more than a decade ago.
The Justice Department's fraud section, which charged Mr.
Heredia, has steadily grown its oversight of commodity trading and
other markets that were once lightly policed and mostly unregulated
until the 2008 financial crisis. The allegation that traders
manipulated a reference price in global oil markets recalls similar
criminal cases that DOJ resolved in the past decade. Those found
that bank traders colluded to rig interest-rate and
foreign-exchange benchmarks.
Benchmark prices in the physical oil market are derived from
information volunteered by traders, since trading is done in
private and buyers and sellers aren't required to publicly report
prices. The benchmarks are then used around the world to set prices
for other purchases and sales of physical oil.
The claims against Mr. Heredia represent the latest challenge
for Glencore, one of the world's largest mining firms. Glencore
faces investigations by the DOJ, CFTC, U.K. Serious Fraud Office,
as well as authorities in Brazil and Switzerland, related to
corruption allegations in its global dealings, the company
disclosed in its latest annual report.
The latest case also could buttress efforts by U.S. prosecutors
to crack down on market manipulation, a crime that is often
difficult to prove. Manipulation typically requires showing that
traders injected misleading information into markets or created a
false impression of supply and demand.
The Justice Department has charged 19 traders since 2014 with
crimes related to spoofing, a type of market manipulation that was
widespread in futures markets. Late last year, JPMorgan Chase &
Co. paid $920 million to resolve allegations that its traders
manipulated precious metals and Treasury markets.
Mr. Heredia started working at Glencore in California in January
2015, according to his bio on LinkedIn. He worked at Chemoil, which
Glencore acquired, before that, his bio states.
If convicted, the charge against him carries a maximum prison
term of 5 years and a fine of $250,000.
In one example cited by prosecutors, Mr. Heredia in 2016
directed a co-conspirator to submit offers to Platts during the
pricing window for a low-grade fuel known as "bunker" at the port
of Los Angeles. The other trader subsequently lowered the price
more than 40 times to push down the Platts benchmark, according to
prosecutors.
The goal was to lower the price so the company could buy fuel
oil more cheaply from another firm, prosecutors wrote in their
charging document.
The activity had the effect of moving down the price from an
average of $245 per metric ton to a final price of $204.50 per
metric ton, "resulting in an unlawful gain of hundreds of thousands
of dollars" for his employer, prosecutors wrote.
Write to Dave Michaels at dave.michaels@wsj.com
(END) Dow Jones Newswires
March 23, 2021 12:51 ET (16:51 GMT)
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