BP Unit Charged With Price Manipulation Options

[dauss]

BP Unit Charged With Price Manipulation

WASHINGTON (AP) -- Federal investigators said Wednesday that BP energy traders cornered the U.S. propane market in the winter of 2004 and illegally manipulated prices, driving up heating and cooking costs for rural consumers.

The charges come at a time when oil and gas companies are under intense scrutiny from consumers and Congress over soaring energy prices and record profits, and analysts said entire industry's credibility could be damaged. While BP denied any wrongdoing, a former employee admitted taking part in a conspiracy and agreed to cooperate with criminal prosecutors.

The Commodity Futures Trading Commission said that BP traders -- with the consent of senior management -- "purchased enormous quantities of propane to establish a dominant" position in the market and then withheld fuel from the market in order to drive prices higher.

Details of the alleged scheme, compiled with help from internal company documents and recorded conversations, were outlined in a civil lawsuit filed against BP Products North America Inc., a unit of London-based BP PLC.

"It's pretty clear as to what they were doing," CFTC attorney Paul Hayeck said in an interview.

Also on Wednesday, the Department of Justice announced that one former BP trader implicated in the scheme, 34-year-old Dennis N. Abbott of Houston, has pleaded guilty "to conspiring to manipulate and corner the propane market." The agency said Abbott, who has agreed to cooperate with law enforcement in "an ongoing investigation," faces up to five years in prison and a fine of $250,000.

BP spokesman Ronnie Chappell said "market manipulation did not occur" and that the company intended to fight the charges in court. However, Chappell said an internal investigation conducted by BP found that several employees failed "to adhere to BP policies governing trading activities" and that they were dismissed from the company.

"We have also taken steps to strengthen the supervision of our trading activities," Chappell said.

The alleged price-manipulation conspiracy generated outrage among energy traders and politicians.

Phil Flynn of Alaron Trading Corp. in Chicago said the entire industry is likely to suffer from the negative publicity.

"Now everybody is going to use this one incident as proof positive that the big oil companies are manipulating every market," he said. "It's going to be guilt by association."

Senator Charles E. Schumer (D-N.Y.) said that "if these charges are true, it shows the worst of big oil ... consumers deserve free markets that reflect true prices."

According to the CFTC lawsuit, which was filed in the U.S. District Court for the Northern District of Illinois, the plan to manipulate prices and pump up profits began to take shape in early 2004 amid declining propane prices that were particularly painful to BP because its traders had made significant bets that prices would rise.

The CFTC paints trading manager Mark Radley as a key architect of the plan to turn the situation around and potentially net the company $20 million in profit. In one recorded conversation, Radley boasted that the propane market was "vulnerable to a squeeze." In another he said the market was "tight enough that if someone wanted to play games with it, potentially they could."

Radley and others formulated a strategy to establish a massive position in the propane market in February 2004, the lawsuit contends, and he was recorded in one conversation as saying "we can control the market at will."

In addition to Abbott, Radley and the company itself, other current and former BP Products North America employees who face charges include: Donald Cameron Byers, the unit's former chief operating officer; Martin Marz, the compliance manager; James Summers, the vice president of natural-gas liquids; and Cody Claborn, a propane trader.

Aside from potential criminal charges, each defendant could be fined as much as $120,000.

In 2003, propane was the primary heating fuel for close to 7 million households, most of them concentrated in the Northeast and upper Midwest, according to the CFTC. It is a portable energy source for households beyond the reach of natural gas pipelines.

Robert G. Hansen, the associate dean at Dartmouth's Tuck School of Business, said it appears that "a corporate management failure occurred at BP" and that, with energy markets facing such a high level of scrutiny from the public, "management has to have the utmost control of their trading groups."

[jwttu]

I've always thought BP was a shady company