875 F. Supp. 2d 233
S.D.N.Y.2012Background
- The CFTC files a suit against Parnon Energy, Arcadia, Arcadia Suisse, Wildgoose, and Dyer for manipulation/attempted manipulation of WTI crude in 2008.
- Case involves three types of WTI trades: futures contracts, physical contracts, and calendar spread contracts.
- CMA contracts are standardized physical trades with 105% stand-by letters of credit and are traded on HoustonStreet/electronic facilities; calendar spreads price the difference between near and next-month contracts.
- Defendants allegedly accumulated a dominant physical WTI position, held it through near-month expiry, and dumped it during the cash window to influence calendar spreads.
- Allegations assert that this conduct shifted the market from backwardation to contango and generated substantial profits from calendar spreads, while causing losses in physical positions.
- The court denies defendants’ motion to dismiss, addressing standing, exemption under section 2(g), and manipulation/intent theories.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Do CMA physical contracts fall within the CEA and defeat 2(g) exemption? | CMAs are standardized, not subject to individual negotiation, and traded on facilities, so 2(g) cannot immunize. | CMAs are negotiated, not traded on facilities, and thus exempt under 2(g). | 2(g) does not apply; calendar spreads remain subject to the CEA. |
| Are calendar spread contracts within the CEA or exempt under 2(g)? | Spreads are transactions involving futures contracts; CEA applies to calendar spreads. | Calendars are outside the statute via 2(g) exemption. | Calendar spreads are within the CEA; 2(g) exemption does not bar regulation. |
| Does the complaint plausibly state a market manipulation claim under the CEA (Rule 8 standard)? | Defendants abused market power by holding a dominant physical position and manipulating calendar spreads. | No deceptive acts; any profits come from market movements, not manipulation. | Yes; plausible manipulation claim survives; Rule 8 applies, not Rule 9(b). |
| Did the Commission plead the ability to influence prices, artificial price, causation, and scienter sufficiently? | Alleged dominance, price movements from backwardation to contango, and causal link shown by timing and communications. | Allegations lack precise supply/demand data and proximate causation details. | Pleadings are sufficiently particular to show ability, artificial price, causation, and intent. |
| Is there sufficient allegation of intent to manipulate (scienter) under the CEA? | Communications and pattern of building/holding positions indicate conscious aim to affect prices. | General profit motive is insufficient for intent; must show specific intent. | Intent plausibly inferred from conduct and contemporaneous statements; manipulation claim viable. |
Key Cases Cited
- Dunn v. CFTC, 519 U.S. 465 (1997) (Dismissing Commission’s jurisdictional extrapolations; limits of authority under CEA)
- CFTC v. Co Petro, 680 F.2d 573 (9th Cir. 1982) (standardized futures contracts; relevance to 2(g) analysis)
- Cargill Inc. v. Hardin, 452 F.2d 1154 (8th Cir. 1971) (market manipulation framework; deliverable supply and price influence)
- Ganino v. Citizens Utils. Co., 228 F.3d 154 (2d Cir. 2000) (judicial notice and plausibility considerations in pleading)