Antitrust Law Daily Wrap Up, ANTITRUST—S.D.N.Y.: $16.5M settlement approved in oil traders price manipulation suit, (Jan 25, 2016)

By Greg Hammond, J.D.

The federal district court in New York City has granted final approval to the $16.5 million settlement of a class action suit alleging that an energy trading firm, a subsidiary, and several of its traders engaged in market manipulation and anticompetitive acts relating to West Texas Intermediate (WTI) crude oil futures and options contracts (In re Crude Oil Commodity Futures Litigation, January 21, 2016, Forrest, K.).

A class of traders in futures, options, and derivatives concerning WTI crude oil alleged that Arcadia Petroleum, Ltd.—a London-based firm that trades crude oil and related financial products—manipulated the price of WTI crude oil futures and options contracts and monopolized the market for certain WTI crude oil in early 2008, when prices were near historical highs. Parnon Energy, an Arcadia subsidiary, and two individual traders were also named as defendants.

According to the plaintiffs, the defendants amassed dominant physical WTI crude oil positions in a scheme to drive the price of WTI to artificial highs and then back down. The two traders allegedly knew that physical WTI crude oil was in tight supply and bought large amounts to send a false signal to the market, inflating the price. The traders then sold their long positions, reaping the benefit of the artificially high prices, and bought new short positions. As the final step in the scheme, the defendants purportedly dumped their physical WTI holdings back into the market on the last day of the “cash window,” driving prices down and generating a large profit on the short positions. Then they allegedly began the cycle again. This conduct, according to the plaintiffs, violated the Sherman Act and Commodity Exchange Act because the defendants did not have a commercial need for the large amounts of WTI crude oil they purchased.

Class certification. In granting final approval of the settlement, the court certified a settlement class, consisting of all persons or entities that purchased, sold, or otherwise traded, during the period from January 1, 2008 through May 15, 2008, a light sweet crude oil (WTI) futures contract or an option on such light sweet crude oil (WTI) futures contract traded on the New York Mercantile Exchange (NYMEX) and/or the Intercontinental Exchange (ICE).

Attorney fees, expenses. In addition to approving the $16.5 million settlement amount, the court concluded that an award of attorney fees of nearly $3.845 million is fair, reasonable, and adequate and that lead counsel should be paid $4.648 million as reimbursement for their expenses. The settlement is also in the best interests of the settlement class, according to the court, and is the result of arm’s length negotiations between experienced counsel.

The case is No. 11-cv-3600 (KBF).

Attorneys: Bernard Persky (Robins, Kaplan, Miller & Ciresi, LLP) for Stephen E. Ardizzone. Brigitte T. Kocheny (Winston & Strawn LLP) for Parnon Energy, Inc.

Companies: Parnon Energy, Inc.

Cases: Antitrust NewYorkNews