Former Glencore Oil Trader Charged With Manipulation of Fuel Prices -- Update

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 [e-mail]

(END) Dow Jones Newswires

March 23, 2021 13:08 ET (17:08 GMT)

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