High pump prices prompt feds to create energy fraud group

Federal law enforcement officials have created a special working group to focus specifically on fraud in the energy markets, from consumer gasoline markets to oil futures.

The Oil and Gas Price Fraud Working Group will tap the expertise of a wide range of agencies and groups. It will monitor oil and gas markets for potential violations of criminal or civil laws, Attorney General Eric Holder said in a statement today.

“Rapidly rising gasoline prices are pinching the pockets of consumers across the country,” Holder said.

“We will be vigilant in monitoring the oil and gas markets for any wrongdoing so that consumers can be confident they are not paying higher prices as a result of illegal activity.  If illegal conduct is responsible for increasing gas prices, state and federal authorities should take swift action.”

The group will include representatives from:

  • the Justice Department
  • the National Association of Attorneys General
  • the Commodity Futures Trading Commission
  • the Federal Trade Commission
  • the Treasury Department
  • the Federal Reserve Board
  • the Securities and Exchange Commission
  • the Agriculture Department
  • the Energy Department

State AGs, the FTC and others already have oversight authority into gasoline markets, but there are regular calls for more “price gouging” investigations whenever gas prices stay high for extended periods of time.

The gas price spikes that followed oil price spikes in 2008 led the  Federal Trade Commission to issue new rules to prevent oil market manipulation.

Those rules give the commission the power to levy fines of up to $1 million per violation per day for market players who make misleading statements or intentionally omit information that could affect prices.

According to a memo Holder sent to the agencies, the group will:

  • Explore if there is “evidence of manipulation of oil and gas prices, collusion, fraud, or misrepresentations at the retail or wholesale levels” that harmed consumers or the federal government as a purchaser of oil and gas;
  • Look at activity in the oil markets, including taking a look at investor practices, supply and demand, and the role of speculators and index traders.

This last part is a nod to growing anger over the role speculators play in oil markets, which President Obama referred to this week as a primary driver behind higher oil prices.

To date it doesn’t appear there have been any such issues found, according to the memo:

Based upon our work and research to date, it is evident that there are regional differences in gasoline prices, as well as differences in the statutory and other legal tools at the government’s disposal.

It is also clear that there are lawful reasons for increases in gas prices, given supply and demand.

Nonetheless, where consumers are harmed by unlawful conduct that has the effect of increasing gas prices, state and federal authorities should take swift action.”

Craig Pirrong, a finance professor at the University of Houston who specializes in commodity prices, says the task force is hardly needed, since the agencies already have the tools to monitor for fraud and take action.

“This is a transparently political fishing expedition that insinuates that fraud or manipulation is distorting oil prices without providing even the flimsiest factual basis for such a suspicion,” Pirrong said. “This is part of a broad effort by the administration to deflect criticism with regard to gasoline prices.”

Here’s the memo:

2011 April AG Memo to FFETF Gas Prices