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12 August 2009
[Federal Register: August 12, 2009 (Volume 74, Number 154)]
[Rules and Regulations]
[Page 40685-40706]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr12au09-16]
[[Page 40685]]
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Part III
Federal Trade Commission
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16 CFR Part 317
Prohibitions on Market Manipulation; Final Rule
[[Page 40686]]
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FEDERAL TRADE COMMISSION
16 CFR Part 317
[Project No. P082900]
RIN 3084-AB12
Prohibitions on Market Manipulation
AGENCY: Federal Trade Commission.
ACTION: Final Rule.
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SUMMARY: In this document, the Federal Trade Commission (``Commission''
or ``FTC'') issues its Statement of Basis and Purpose (``SBP'') and
final Rule, pursuant to Section 811 of Subtitle B of Title VIII of The
Energy Independence and Security Act of 2007 (``EISA'').\1\ The final
Rule prohibits any person, directly or indirectly, in connection with
the purchase or sale of crude oil, gasoline, or petroleum distillates
at wholesale, from knowingly engaging in any act, practice, or course
of business - including the making of any untrue statement of material
fact - that operates or would operate as a fraud or deceit upon any
person, or intentionally failing to state a material fact that under
the circumstances renders a statement made by such person misleading,
provided that such omission distorts or is likely to distort market
conditions for any such product.
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\1\ Section 811 is part of Subtitle B of Title VIII of EISA,
which has been codified at 42 U.S.C. 17301-17305.
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EFFECTIVE DATE: November 4, 2009.
ADDRESSES: Requests for copies of the final Rule and the SBP should be
sent to: Public Records Branch, Room 130, Federal Trade Commission, 600
Pennsylvania Avenue, N.W., Washington, DC 20580. The complete record of
this proceeding is also available at that address. Relevant portions of
the proceeding, including the final Rule and the SBP, are available at
(www.ftc.gov).
FOR FURTHER INFORMATION CONTACT: Patricia V. Galvan, Deputy Assistant
Director, Bureau of Competition, Federal Trade Commission, 600
Pennsylvania Avenue, N.W., Washington, DC 20580, (202) 326-3772.
SUPPLEMENTARY INFORMATION:
Statement of Basis and Purpose
I. Background
EISA became law on December 19, 2007.\2\ Subtitle B of Title VIII
of EISA targets market manipulation in connection with the purchase or
sale of crude oil, gasoline, or petroleum distillates at wholesale, and
the reporting of false or misleading information related to the
wholesale price of those products. Specifically, Section 811 prohibits
``any person'' from ``directly or indirectly'': (1) using or employing
``any manipulative or deceptive device or contrivance,'' (2) ``in
connection with the purchase or sale of crude oil gasoline or petroleum
distillates at wholesale,'' (3) that violates a rule or regulation that
the FTC ``may prescribe as necessary or appropriate in the public
interest or for the protection of United States citizens.''\3\
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\2\ 42 U.S.C. 17001-17386.
\3\ 42 U.S.C. 17301.
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Section 812 prohibits ``any person'' from reporting information
that is ``required by law to be reported'' - and that is ``related to
the wholesale price of crude oil gasoline or petroleum distillates'' -
to a federal department or agency if the person: (1) ``knew, or
reasonably should have known, [that] the information [was] false or
misleading;'' and (2) intended such false or misleading information
``to affect data compiled by the department or agency for statistical
or analytical purposes with respect to the market for crude oil,
gasoline, or petroleum distillates.''\4\
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\4\ 42 U.S.C. 17302.
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Subtitle B also contains three additional sections that address,
respectively, enforcement of the Subtitle (Section 813),\5\ penalties
for violations of Section 812 or any FTC rule promulgated pursuant to
Section 811 (Section 814),\6\ and the interplay between Subtitle B and
existing laws (Section 815).\7\
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\5\ Section 813(a) provides that Subtitle B shall be enforced by
the FTC ``in the same manner, by the same means, and with the same
jurisdiction as though all applicable terms of the Federal Trade
Commission Act [(``FTC Act'')] (15 U.S.C. 41 et seq.) were
incorporated into and made a part of [Subtitle B].'' Section 813(b)
provides that a violation of any provision of Subtitle B ``shall be
treated as an unfair or deceptive act or practice proscribed under a
rule issued under [S]ection 18(a)(1)(B) of the [FTC Act] (15 U.S.C.
57a(a)(1)(B)).'' 42 U.S.C. 17303.
\6\ Section 814(a) of Subtitle B provides that - ``[i]n addition
to any penalty applicable under the [FTC Act]'' - ``any supplier
that violates [S]ection 811 or 812 shall be punishable by a civil
penalty of not more than $1,000,000.'' Further, Section 814(c)
provides that ``each day of a continuing violation shall be
considered a separate violation.'' 42 U.S.C. 17304.
\7\ Section 815(a) provides that nothing in Subtitle B ``limits
or affects'' Commission authority ``to bring an enforcement action
or take any other measure'' under the FTC Act or ``any other
provision of law.'' Section 815(b) provides that ``[n]othing in
[Subtitle B] shall be construed to modify, impair, or supersede the
operation'' of: (1) any of the antitrust laws (as defined in Section
1(a) of the Clayton Act, 15 U.S.C. 12(a)), or (2) Section 5 of the
FTC Act ``to the extent that . . . [S]ection 5 applies to unfair
methods of competition.'' Section 815(c) provides that nothing in
Subtitle B ``preempts any State law.'' 42 U.S.C. 17305.
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After considering the rulemaking record in this proceeding, the
Commission adopts the final Rule pursuant to its authority under
Section 811. The final Rule prohibits any person, directly or
indirectly, in connection with the purchase or sale of crude oil,
gasoline, or petroleum distillates at wholesale, from (a) knowingly
engaging in any act, practice, or course of business - including the
making of any untrue statement of material fact - that operates or
would operate as a fraud or deceit upon any person, or (b)
intentionally failing to state a material fact that under the
circumstances renders a statement made by such person misleading,
provided that such omission distorts or is likely to distort market
conditions for any such product.\8\
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\8\ As the Commission stated in each of the prior Notices issued
in this proceeding, the phrase ``crude oil gasoline or petroleum
distillates'' is used without commas in Section 811 (as well as in
the first clause of Section 812), while the phrase is used with
commas in Section 812(3): ``crude oil, gasoline, or petroleum
distillates.'' The absence of commas is obviously a non-substantive,
typographical error; therefore, the Commission reads all parts of
both sections to cover all three types of products: crude oil,
gasoline, and petroleum distillates. See FTC, Prohibitions On Market
Manipulation and False Information in Subtitle B of The Energy
Independence and Security Act of 2007, 73 FR 25614, 25621 n.59 (May
7, 2008); FTC, Prohibitions On Market Manipulation and False
Information in Subtitle B of Title VIII of The Energy Independence
and Security Act of 2007, 73 FR 48317, 48320 n.40 (Aug. 19, 2008);
FTC, Prohibitions On Market Manipulation in Subtitle B of Title VIII
of The Energy Independence and Security Act of 2007, 74 FR 18304,
18305 n.11 (Apr. 22, 2009).
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II. The Rulemaking Proceeding
The rulemaking proceeding\9\ began with the publication of an
Advance Notice of Proposed Rulemaking (``ANPR'') on May 7, 2008.\10\ In
the ANPR, the Commission solicited comments on whether it should
promulgate a rule under Section 811, and, if so, the appropriate scope
and content of such a rule.\11\ In response to the ANPR, the Commission
received 155 comments from interested parties.\12\
[[Page 40687]]
Commenters expressed differing views regarding the desirability of and
the appropriate legal basis for any such rule.\13\ They also proposed a
variety of models upon which to base a market manipulation rule,
including those used by other federal agencies pursuant to each
agency's respective market manipulation authority,\14\ such as the
Securities and Exchange Commission (``SEC''),\15\ the Federal Energy
Regulatory Commission (``FERC''),\16\ and the Commodity Futures Trading
Commission (``CFTC'').\17\
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\9\ Rulemaking documents are available at: (http://www.ftc.gov/
ftc/oilgas/rules.htm).
\10\ 73 FR 25614.
\11\ 73 FR at 25620-24. The comment period for the ANPR closed
on June 23, 2008, after the Commission granted an extension
requested by a major industry trade association. Letter from the
American Petroleum Institute to FTC Secretary Donald S. Clark, (May
19, 2008), available at (http://www.ftc.gov/os/comments/
marketmanipulation/080519ampetrolinstreqeot.pdf); FTC, Prohibitions
On Market Manipulation and False Information in Subtitle B of Title
VIII of The Energy Independence and Security Act of 2007, 73 FR
32259 (June 6, 2008).
\12\ Attachment D contains a list of commenters who submitted
comments on the ANPR. Electronic versions of the comments are
available at: (http://www.ftc.gov/os/comments/marketmanipulation/
index.shtm). In calculating the number of comments submitted in
response to a Notice issued in this proceeding, the Commission
treated multiple filings by the same commenter, or a comment filed
jointly by a group of commenters, as a single comment.
\13\ Section II.A. of the Notice of Proposed Rulemaking
(``NPRM'') discusses commenters' views and the Commission's response
to commenters on the propriety of a Section 811 rule. See 73 FR at
48320-23.
\14\ Section III. of the ANPR provides an overview of the
antecedents of Section 811 and relevant legal precedent. See 73 FR
at 25616-19. Section I.B. of the NPRM describes ANPR commenters'
views on the appropriate model for a Section 811 rule. See 73 FR at
48319 & nn.31-32.
\15\ See Securities Exchange Act of 1934 (``SEA'') 10(b), 15
U.S.C. 78j(b); 17 CFR 240.10b-5 (``Rule 10b-5'').
\16\ See Natural Gas Act 4A, 15 U.S.C. 717c-1; Federal Power Act
222, 16 U.S.C. 791a; Prohibition of Natural Gas Market Manipulation,
18 CFR 1c.1; Prohibition of Electric Energy Market Manipulation, 18
CFR 1c.2.
\17\ See Commodity Exchange Act (``CEA'') 9(a)(2), 7 U.S.C.
13(a)(2).
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After reviewing the ANPR comments, on August 19, 2008, the
Commission published a Notice of Proposed Rulemaking (``NPRM'')\18\
setting forth the text of a proposed Rule modeled on SEC Rule 10b-5 and
inviting written comments on issues raised by the proposed Rule.\19\
The NPRM described the basis for and scope of the proposed Rule;
definitions of terms in the Rule; conduct prohibited by the Rule; and
the elements of a cause of action under the Rule. In response to the
NPRM, the Commission received 34 comments from interested parties.\20\
On November 6, 2008, Commission staff held a one-day public workshop on
the proposed Rule.\21\ Commenters and workshop participants presented
views concerning several key issues relating to the proposed Rule,
particularly regarding the application of a SEC Rule 10b-5 model to
wholesale petroleum markets and the relevance of securities law to the
petroleum industry.\22\
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\18\ 73 FR 48317.
\19\ 73 FR at 48332-34. In response to a petition from a major
trade association, the Commission extended the deadline for
submission of comments on the NPRM from September 18, 2008, to
October 17, 2008. Letter from the American Petroleum Institute to
FTC Secretary Donald S. Clark, (Sept. 5, 2008), available at (http:/
/www.ftc.gov/os/comments/marketmanipulation2/538416-00006.pdf); FTC,
Prohibitions on Market Manipulation and False Information in
Subtitle B of Title VIII of The Energy Independence and Security Act
of 2007, 73 FR 53393 (Sept. 16, 2008).
\20\ Attachment B contains a list of commenters who responded to
the NPRM.
\21\ Attachment C contains a list of participants in the
workshop. The discussion topics for the workshop included the use of
SEC Rule 10b-5 as a model for an FTC market manipulation rule; the
proper scienter standard for a rule; the appropriate reach of a
rule; the type of conduct that would violate a rule; and the
desirability of including market or price effects as an element of a
rule violation. Information relating to the workshop, including a
program, transcript, and archived webcast, is available at: (http://
www.ftc.gov/bcp/workshops/marketmanipulation/index.shtml).
\22\ Section IV.A. of the Revised Notice of Proposed Rulemaking
(``RNPRM'') provides an overview of NPRM commenters' and workshop
participants' views regarding the proposed Rule. See 74 FR at 18308-
10.
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The Commission published a Revised Notice of Proposed Rulemaking
(``RNPRM'') setting forth a revised proposed Rule on April 22,
2009,\23\ and describing certain modifications to the initially
proposed Rule and the basis for the modifications. As with the
initially proposed Rule, the Commission based the revised proposed Rule
on the anti-fraud model of SEC Rule 10b-5, but modified the revised
proposed Rule to accommodate differences between securities markets and
wholesale petroleum markets. The RNPRM also set forth questions and
alternative rule language designed to elicit further views from
interested parties. In response to the RNPRM, the Commission received
17 comments from interested parties, including a consumer advocacy
group, a United States Senator, an academic, a federal agency, industry
members, energy news and price reporting organizations, and trade and
bar associations.\24\
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\23\ 74 FR 18304.
\24\ Attachment A contains a list of commenters who submitted
comments on the RNPRM, together with the abbreviations used to
identify each commenter referenced in this SBP. All commenter
references are to those comments submitted in response to the RNPRM,
unless otherwise noted.
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The Commission has reviewed the entire record in this proceeding,
including comments submitted in response to the RNPRM. Based on this
review, as well as its extensive petroleum industry law enforcement
experience, the Commission hereby adopts a final Rule that is virtually
identical to the revised proposed Rule. The Commission's analysis of
certain commenter proposals and its basis for adopting each of the
final Rule's provisions are detailed below.
III. Legal Basis for the Rule
Section 811 of EISA provides the legal basis for the final Rule.
Section 811 prohibits ``any person'' from ``directly or indirectly''
using or employing ``any manipulative or deceptive device or
contrivance'' - in connection with the purchase or sale of crude oil,
gasoline, or petroleum distillates at wholesale - that violates a rule
or regulation that the Commission ``may prescribe as necessary or
appropriate in the public interest or for the protection of United
States citizens.''\25\ In enacting Section 811, Congress specifically
authorized the Commission to determine whether a rule prohibiting
manipulative conduct in wholesale petroleum markets would be
appropriate and in the public interest. As the Commission explained in
the NPRM in this proceeding:
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\25\ 42 U.S.C. 17301. Section 811 states:
It is unlawful for any person, directly or indirectly, to use or
employ, in connection with the purchase or sale of crude oil[,]
gasoline[,] or petroleum distillates at wholesale, any manipulative
or deceptive device or contrivance, in contravention of such rules
and regulations as the Federal Trade Commission may prescribe as
necessary or appropriate in the public interest or for the
protection of United States citizens.
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[T]he initial inquiry in determining whether it should promulgate a
rule requires understanding the phrase ``necessary or appropriate in
the public interest or for the protection of United States citizens.''
The use of the disjunctive ``or'' in the first clause of this phrase
indicates that the Commission would be within its [authority] to
promulgate a rule that is either: (1) ``necessary . . . in the public
interest or for the protection of United States citizens,''or (2)
``appropriate in the public interest or for the protection of United
States citizens.'' Similarly, the Commission need only show that a rule
would be either ``in the public interest'' or ``for the protection of
United States citizens.'' Thus, the Commission could proceed in its
rulemaking if, at a minimum, the endeavor is ``appropriate . . . in the
public interest.''\26\
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\26\ 73 FR at 48320-21.
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The Commission has determined that the final Rule - which defines
for market participants the Section 811 statutory prohibition against
using or employing ``any manipulative or deceptive device or
contrivance'' - is appropriate and in the public interest. The prices
of petroleum products significantly affect the daily lives of American
consumers and the daily operations of American businesses.\27\
[[Page 40688]]
Because fraudulent or deceptive conduct within wholesale petroleum
markets injects false information into the market process, it distorts
market data and thus undermines the ability of consumers and businesses
to make purchase and sales decisions congruent with their economic
objectives.\28\ As a consequence, decision-making risks and attendant
costs increase, and economic efficiency declines in the overall
economy. Fraudulent or deceptive conduct within wholesale petroleum
markets thus can have wide ranging ramifications throughout the United
States economy.\29\ For these reasons, the Commission has determined to
issue the final Rule.\30\
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\27\ ``Perhaps no other industry's performance is so visibly and
deeply felt.'' FTC Bureau of Economics, The Petroleum Industry:
Mergers, Structural Change, and Antitrust Enforcement, at 1 (Aug.
2004), available at (http://www.ftc.gov/os/2004/08/
040813mergersinpetrolberpt.pdf).
\28\ Markets absorb all available information - good or bad -
and continually adjust price signals and other market data to any
new information. When economic actors can presume that market data
have not been artificially manipulated, they can rely on that data
to make decisions that they believe will advance their individual
economic objectives. Fraudulent or deceptive conduct taints the
integrity of the market process.
\29\ Commenters recognized the negative effects of fraud and
deceit in wholesale petroleum markets. See, e.g., CAPP, ANPR, at 1
(``CAPP recognizes that fraud and manipulation pose a potential
threat to the successful and efficient functioning of petroleum
markets in North America.'' ); MFA, ANPR, at 1 (``Price manipulation
has a corrosive effect on the proper functioning of any market.'' );
API, ANPR, at 50 (``We agree that the provision of false or
misleading pricing information to private reporting entities could
be problematic.'' ); Sutherland, ANPR, at 3 (``[O]il marketers and
traders are the first victims of unfair business practices. They,
therefore, support efforts by Congress to deter manipulation and the
use of deceptive devices.'' ); see also MS AG, NPRM, at 2 (``The
proposed Rule will benefit consumers significantly because market
manipulation can artificially inflate prices of petroleum products
and cause consumers to pay more for essential goods, such as
gasoline.'' ).
\30\ See 73 FR at 48321 (noting that ``a rule that allows the
Commission to guard against conduct that undermines the integrity of
the petroleum market would be in the public interest'').
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Well-established statutory, judicial, and regulatory constructs and
principles - and the language of Section 811 itself - strongly support
the final Rule. As the Commission noted in the ANPR, the Section 811
prohibition of the use or employment of any ``manipulative or deceptive
device or contrivance'' is virtually identical to the prohibition in
Section 10(b) of the Securities Exchange Act of 1934 (``SEA'').\31\
Specifically, SEA Section 10(b) prohibits the use or employment of:
any manipulative or deceptive device or contrivance in contravention
of such rules as the [SEC] may prescribe as necessary or appropriate in
the public interest or for the protection of investors.\32\
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\31\ 15 U.S.C. 78j(b).
\32\ Id. (emphasis added). See generally Ernst & Ernst v.
Hochfelder, 425 U.S. 185, 197 (1976).
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Relying upon SEA Section 10(b),\33\ the SEC promulgated its anti-
fraud rule, Rule 10b-5, making it unlawful for any person:
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\33\ The language from the Securities Act of 1933 also supported
issuance of SEC Rule 10b-5. Section 17(a) of the Securities Act of
1933 originally prohibited:
any person in the sale of securities by the use of any means or
instruments of transportation or communication in interstate
commerce or by the use of the mails, directly or indirectly -
(1) to employ any device, scheme or artifice to defraud, or
(2) to obtain money or property by means of any untrue statement
of a material fact or any omission to state a material fact
necessary in order to make the statements made, in the light of the
circumstances under which they were made, not misleading, or
(3) to engage in any transaction, practice, or course of
business which operates or would operate as a fraud or deceit upon
the purchaser.
Through the promulgation of Rule 10b-5, the SEC intended, inter
alia, to apply the same prohibitions contained in Section 17(a) of
the 1933 Act to purchasers as well as to sellers. Birnbaum v.
Newport Steel Corp., 193 F.2d 461, 463 (2d Cir. 1952). Amended
several times over the intervening years, the current text of
Section 17(a) is codified at 15 U.S.C. 77q(a).
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(a) To employ any device, scheme, or artifice to defraud;
(b) To make any untrue statement of a material fact or to omit to
state a material fact necessary in order to make the statements made,
in the light of the circumstances under which they were made, not
misleading . . .; or
(c) To engage in any act, practice, or course of business which
operates or would operate as a fraud or deceit upon any person. . . .
in connection with the purchase or sale of any security.\34\
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\34\ 17 CFR 240.10b-5. In addition, the SEC's rules under SEA
Section 10(b) prohibit a number of specific practices in specific
circumstances. See 17 CFR 240.10b-1 through 240.10b-18.
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In examining SEA Section 10(b) and SEC Rule 10b-5, the Supreme
Court has stated that the statute, as enforced through the rule,
prohibits ``intentional or willful conduct designed to deceive or
defraud investors by controlling or artificially affecting the price of
securities.''\35\
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\35\ Schreiber v. Burlington Northern, Inc., 472 U.S. 1, 6
(1985) (quoting Ernst & Ernst, 425 U.S. at 199)) (emphasis in
original). The Supreme Court has defined ``the term [manipulation to
refer] generally to practices, such as wash sales, matched orders,
or rigged prices, that are intended to mislead investors by
artificially affecting market activity.'' Santa Fe Indus., Inc. v.
Green, 430 U.S. 462, 476 (1977). ``A matched order is the entering
of a sell (or buy) order knowing that a corresponding buy (or sell)
order of substantially the same size, at substantially the same time
and at substantially the same price either has been or will be
entered. A wash trade [or wash sale] is a securities transaction
which involves no change in the beneficial ownership of the
security. Parking [another form of manipulation] is the sale of
securities subject to an agreement or understanding that the
securities will be repurchased by the seller at a later time and at
a price which leaves the economic risk on the seller.'' SEC v.
Farni, Exchange Act Release No. 39133 (Sept. 25, 1997), available at
(http://www.sec.gov/litigation/admin/3439133.txt).
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The FERC relied upon a statutory framework similar to the
securities laws to promulgate largely identical rules prohibiting
natural gas market manipulation and electric energy market
manipulation.\36\ The Energy Policy Act of 2005 amended the Natural Gas
Act and the Federal Power Act to prohibit precisely the same type of
conduct as SEA Section 10(b); that is, the use or employment of ``any
manipulative or deceptive device or contrivance (as those terms are
used in [SEA Section 10(b)] . . .)'' in natural gas and electricity
markets.\37\
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\36\ See FERC, Prohibition of Energy Market Manipulation, 71 FR
4244, 4246 (Jan. 26, 2006) (final anti-manipulation Rule).
\37\ Section 4A of the Natural Gas Act, 15 U.S.C. 717c-1;
Section 222 of the Federal Power Act, 16 U.S.C. 824v.
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Similar statutory and regulatory frameworks prohibit the use of
manipulative practices in other parts of the economy. The Commodity
Exchange Act (``CEA'') is intended, among other things, ``to deter and
prevent price manipulation or any other disruptions to market integrity
. . . .''\38\ The CEA provides that the CFTC possesses jurisdiction for
``transactions involving contracts of sale of a commodity for future
delivery, traded or executed on a contract market . . . or derivatives
transaction execution facility . . . or any other board of trade,
exchange, or market . . . .''\39\ It further provides for CFTC anti-
manipulation authority over cash and physical transactions, as well as
certain derivatives transactions relating to securities.\40\
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\38\ 7 U.S.C. 5(b); accord Merrill Lynch, Pierce, Fenner &
Smith, Inc. v. Curran, 456 U.S. 353, 372 n.50 (1982).
\39\ 7 U.S.C. 2(a)(1)(A).
\40\ 7 U.S.C. 2(a)(1)(A), (C)-(D).
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The SEC, the FERC, and the CFTC all have taken action against
market manipulation pursuant to the authorities described above. For
example, the CFTC has initiated law enforcement actions against
defendants for submitting false statements to private reporting
services, government agencies, and the news media, and for engaging in
trading practices that give the false appearance of trading
activity.\41\ The FERC similarly has found
[[Page 40689]]
evidence of practices such as false reporting to price index
publishers.\42\ In addition, the SEC has pursued law enforcement
actions against actors that have disseminated false information to the
market, and against actors that have engaged in conduct creating the
false appearance of trading activity.\43\
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\41\ See, e.g., In the Matter of CMS Mktg. Servs. & Trading Co.,
Comm. Fut. L. Rep. (CCH) [par] 29,634 (C.F.T.C. Nov. 25, 2003)
(finding liability for the submission of false information to
private reporting services); see also Wilson v. CFTC, 322 F.3d 555,
560-61 (8th Cir. 2003) (affirming the CFTC's order finding defendant
engaged in wash sales and imposing sanctions); United States v.
Reliant Energy Servs., Inc., 420 F. Supp. 2d 1043, 1059-60 (N.D.
Cal. 2006) (finding allegations that defendant withheld supply from
the market while intentionally disseminating false and misleading
rumors and information to the California Independent System
Operator, brokers, and other traders regarding defendant's power
generation plants were sufficient to withstand a motion to dismiss
for failure to state a claim of manipulation).
\42\ See, e.g., FERC, Final Report on Price Manipulation in
Western Markets, Dkt. No. PA02-2-000 (Mar. 2003), available at
(http://www.ferc.gov/industries/electric/indus-act/wec.asp). The
FERC issued a Policy Statement and promulgated regulations to
address price formation concerns that resulted from the reporting of
false information to price index publishers. See FERC, Transparency
Provisions of Section 23 of the Natural Gas Act, 73 FR 1014 (Jan. 4,
2008); FERC, Report on Natural Gas and Electricity Price Indices,
Dkt. No. PL03-3-004, AD03-7-004 (May 5, 2004), available at (http://
www.ferc.gov/EventCalendar/Files/20040505135203-Report-Price-
Indices.pdf); FERC, Policy Statement on Natural Gas and Electric
Price Indices, 104 F.E.R.C. ? 61,121 (July 24, 2003).
\43\ See, e.g., SEC v. Rana Research, Inc., 8 F.3d 1358, 1361,
1364 (9th Cir. 1993) (finding that the defendant's press release
contained materially false and misleading statements); SEC v.
Softpoint, Inc., 958 F. Supp. 846 (S.D.N.Y. 1997) (finding defendant
liable under SEC Rule 10b-5 when defendant disseminated false
information to the market through press releases and SEC filings).
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When Congress authorized the FTC to prohibit the use or employment
of manipulative or deceptive devices or contrivances, it empowered the
Commission to rely upon the foregoing statutory, judicial, and
regulatory principles to promulgate its Rule.\44\ The final Rule, based
at least in part on SEC Rule 10b-5, will prohibit practices that inject
false information into transactions. The final Rule thereby helps to
protect the integrity of the price discovery process in wholesale
petroleum markets. Moreover, the final Rule will prevent the same types
of fraudulent or deceptive practices that the SEC, the CFTC, and the
FERC have pursued in the markets they respectively regulate and will
strike at the core of what EISA explicitly proscribes - market
manipulation.\45\
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\44\ The Commission believes that the language of Section 811
reflects congressional intent that the Commission look to SEC Rule
10b-5 in crafting a market manipulation rule. See Evans v. United
States, 504 U.S. 255, 260 n.3 (1992) (```[I]f a word is obviously
transplanted from another legal source, whether the common law or
legislation, it brings the old soil with it.''' (quoting Felix
Frankfurter, Some Reflections on the Reading of Statutes, 47 Colum.
L. Rev. 527, 537 (1947))); Morissette v. United States, 342 U.S.
246, 263 (1952) (noting where Congress borrows terms of art it
``presumably knows and adopts the cluster of ideas that were
attached to each borrowed word''); see also Nat'l Treasury Employees
Union v. Chertoff, 452 F.3d 839, 857 (D.C. Cir. 2006) (stating that
``[t]here is a presumption that Congress uses the same term
consistently in different statutes.'' ).
\45\ 73 FR at 48322.
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This conclusion finds support in the rulemaking record. Throughout
the proceeding, most commenters supported the FTC's proposal to
promulgate a market manipulation rule,\46\ and most RNPRM commenters
that addressed the issue opined that the revised proposed Rule would be
appropriate and in the public interest.\47\ The Commission has
determined, therefore, that the final Rule - which at its most
fundamental level prohibits fraudulent or deceptive conduct - is
appropriate and in the public interest.
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\46\ Most NPRM commenters who addressed the initially proposed
Rule opined that it would be appropriate. See, e.g., ATA, NPRM, at 2
(supporting the proposed Rule ``as an additional tool to help
preserve the integrity of vital energy markets''); IPMA, NPRM, at 4
(``The proposed Rule does meet the rulemaking standard that it is
`necessary or appropriate in the public interest or for the
protection of United States[] citizens.''' ); see also MFA, ANPR, at
4-5 (``We believe the Commission should adopt appropriate rules
prohibiting manipulation in the purchase and sale of crude oil,
gasoline and petroleum distillates at wholesale . . . .'' ).
\47\ As with prior comments submitted in this proceeding, most
RNPRM commenters directed their statements to the application of a
Section 811 rule, rather than to whether the revised proposed Rule
met Section 811's rulemaking standard. See also 74 FR at 18308 n.40
(noting that most NPRM commenters focused their comments on the
application of the proposed Rule). See, e.g., CAPP at 1-2 (opining
that the modifications to the revised proposed Rule - including, in
particular, the adoption of an express scienter standard and the
inclusion of market conditions language in the omissions section -
ensured that the Rule ``would serve the public interest''); CFA at 4
(stating that the revised proposed Rule ``promotes the public
interest and is perfectly consistent with the legislative
language''); PMAA at 3 (noting that the revisions to the revised
proposed Rule are ``appropriate''); see also ATAA at 2-3
(``applaud[ing] the Commission's decision to exercise its rulemaking
authority,'' arguing that ``[m]arket manipulation, fraud, and
deceptive practices distort the market, inflate prices, and inure to
the detriment of the entire economy''). But see API at 2, 4-5
(disagreeing that a Section 811 rule would be appropriate because,
in its view, a weighing of ``likely benefits and costs supports a
decision not to promulgate any rule at this time'').
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IV. Discussion of the Final Rule
A. Overview
After reviewing the full rulemaking record developed in this
proceeding, the Commission has concluded that promulgating a final Rule
that is virtually identical to the revised proposed Rule best reflects
congressional intent while accommodating the specific characteristics
of wholesale petroleum markets. The final Rule therefore differs from
the revised proposed Rule only as a consequence of two clarifying
changes.\48\ In the RNPRM, the Commission tentatively determined to
modify the proscriptions of the initially proposed Rule - which were
nearly identical to SEC Rule 10b-5 - in order to account for
differences between wholesale petroleum markets and securities
markets.\49\ The Commission has now concluded that the revised proposed
Rule, promulgated as the final Rule, would prevent manipulative conduct
in wholesale petroleum markets while limiting attendant costs, a
primary concern for many industry commenters.
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\48\ In final Rule Section 317.3(b), the Commission has
substituted the phrase ``is likely'' for the word ``tends'' in
revised proposed Rule Section 317.3(b). See Section IV.D.3.b. below
for further discussion. The Commission also has modified the
definition of ``knowingly.'' See Section IV.C.3. below for further
discussion.
\49\ See 74 FR at 18310.
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In tailoring the final Rule, the Commission has accounted for
Section 811's direction that the final Rule be an anti-fraud rule
guided by the principles of SEC Rule 10b-5 and relevant precedent.
These principles focus on the protection of market integrity.\50\ The
rulemaking record reflects support for an anti-fraud standard.\51\
Although the conduct prohibition in Section 811 is identical to
language found in SEA Section 10(b),\52\ the inclusion of the
[[Page 40690]]
language ``as necessary or appropriate'' in Section 811 provides the
Commission with flexibility - within the framework of an anti-fraud
model - to use its expertise to tailor the Rule to the characteristics
of wholesale petroleum markets.
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\50\ See United States v. Russo, 74 F.3d 1383, 1391 (2d Cir.
1996) (``[F]rauds which `mislead[] the general public as to the
market value of securities' and `affect the integrity of the
securities markets' . . . fall well within [Rule 10b-5].'' (quoting
In re Ames Dep't Stores, Inc. Stock Litig., 991 F.2d 953, 966 (2d
Cir. 1993))) (citation omitted); see also Superintendent of Ins. of
N.Y. v. Bankers Life & Cas. Co., 404 U.S. 6, 12 (1971) (stating that
```preserving the integrity of securities markets''' is one of the
purposes of Section 10(b) (quoting Superintendent of Ins. of N.Y. v.
Bankers Life & Cas. Co., 430 F.2d 355, 261 (2d Cir. 1970))).
\51\ See, e.g., API at 29 (``The proper objective of any rule
issued under Section 811 is to cover deceptive conduct . . . .'' );
CAPP at 2 (``Manipulative conduct that makes use of false
information in market transactions does not constitute routine or
acceptable commercial behavior, and is reasonably within the scope
of prohibited conduct.'' ); CFDR (Mills), Tr. at 38-39 (``From my
point of view, fraud is a good demarcation for any antimanipulation
rule, because it provides a basis by which people can govern
themselves and know with some understanding of what kind of conduct
is going to violate a rule or not.'' ); PMAA (Bassman), Tr. at 47
(``[U]sing fraud . . . is very clear, because none of the people
operating in this market operate without the benefit of legal
counsel. Any legal counsel understands the concept of fraud, and
fraud does belong here.'' ); NPRA, NPRM, at 2 (``NPRA endorses the
FTC's determination that implementation of the EISA should be
accomplished through a rule against fraud and deception that harms
the competitive functioning of wholesale petroleum markets and,
ultimately, consumers.'' ).
\52\ See 15 U.S.C. 78j(b). As noted above, the anti-manipulation
authority granted to the FERC also contains the identical conduct
prohibition, and the statute granting that authority explicitly
directed the FERC to rely upon SEA Section 10(b) in defining the
terms ``manipulative or deceptive device or contrivance.'' See 15
U.S.C. 717c-1; 16 U.S.C. 824v.
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The Commission therefore has promulgated an anti-fraud Rule that,
although modeled on SEC Rule 10b-5, is tailored to account for
significant differences between wholesale petroleum markets and
securities markets.\53\ In this regard, the Commission has determined
that the level of needed protection against fraud or deceit in
wholesale petroleum market transactions should take into account that
market participants typically are sophisticated and experienced
commercial actors who are able to engage in a substantial amount of
self protection, including filling in relevant information gaps. By
contrast, small individual retail securities investors often possess
less complete information than counter-parties such as securities
brokers - and may also be significantly less sophisticated in
discerning relevant information gaps. Additionally, the regulatory
system overlaying securities markets, of which SEC Rule 10b-5 is a
part, prescribes more comprehensive requirements - including in
particular more comprehensive disclosure requirements - than the
regulatory system applicable to wholesale petroleum markets.\54\
Accounting for these contextual differences in crafting the final Rule,
the Commission has sought to achieve the appropriate balance between
the flexibility needed to prohibit fraud-based market manipulation
without burdening legitimate business activity. To achieve this result,
the final Rule differs from the initially proposed Rule in three
significant ways.
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\53\ Some commenters argued that the final Rule should extend to
conduct such as speculative activity or the unilateral exercise of
market power, because in their view such conduct is inherently
manipulative. See, e.g., CFA at 8 (arguing that the Commission
``could have considered the exercise of market power and excessive
speculation as manipulation'' because they ``have no economic
justification''); Greenberger at 1 (opining that the proposed Rule
could offer a tough enforcement mechanism against speculative
activity); Senator Cantwell at 2-3 (asserting that Congress intended
for the FTC's rule to reach a broad range of conduct, including the
withholding of supply); Pirrong, NPRM, at 2 (arguing that the
proposed Rule should not focus on fraud or deceit, but rather on the
exercise of market power). However, the rulemaking record does not
support extending the final Rule to cover such conduct, except to
the extent that the practices used are part of a course of conduct
that otherwise violates the final Rule.
\54\ Many commenters, in this regard, urged the Commission to be
cognizant of the realities of normal business practice within
wholesale petroleum markets so as to avoid crafting a rule that
unduly chills legitimate business conduct. See ISDA at 5-6; API at
32; Sutherland at 3. For example, commenters asserted that
discerning an unlawful material omission in the context of complex
wholesale petroleum market transactions would be far more difficult
than in securities markets. See CFDR at 4; API at 15.
---------------------------------------------------------------------------
First, the final Rule, like the revised proposed Rule, comprises a
two-part conduct prohibition in contrast to the three-part conduct
prohibition in the initially proposed Rule. The consolidation of parts
``more clearly and precisely denote[s] the unlawful conduct [that the
Rule] prohibits.''\55\ Second, each paragraph of the conduct
prohibition in the final Rule contains an explicit and tailored
scienter standard.\56\ The Commission has adopted differing scienter
standards in order to address commenters' concerns that the initially
proposed Rule - which used only a single, ``knowingly'' scienter
standard - would have chilled some legitimate business conduct,
especially with respect to the prohibition on misleading omissions of
material facts from affirmative statements. Third, the final Rule
prohibits only those omissions of material facts that distort or are
likely to distort market conditions for a covered product. This
limitation too addresses concerns about unintended interference with
legitimate business activity.
---------------------------------------------------------------------------
\55\ 74 FR at 18316.
\56\ See 74 FR at 18316.
---------------------------------------------------------------------------
B. Section 317.1: Scope
Section 813 provides the Commission with the same jurisdiction and
power under Subtitle B of EISA as does the FTC Act, 15 U.S.C. 41 et
seq.\57\ With certain exceptions, the FTC Act provides the agency with
jurisdiction over nearly every economic sector. Because EISA does not
expand or contract coverage under the FTC Act, any ``person'' engaged
in any activity subject to Commission jurisdiction under the FTC Act is
covered by the final Rule. Conversely, any ``person'' engaged in any
activity not subject to Commission jurisdiction under the FTC Act is
not subject to Commission jurisdiction under the final Rule.
---------------------------------------------------------------------------
\57\ Section 813(a) of EISA provides that Subtitle B shall be
enforced by the FTC ``in the same manner, by the same means, and
with the same jurisdiction as though all applicable terms of the
[FTC] Act (15 U.S.C. 41 et seq.) were incorporated into and made a
part of [Subtitle B].'' 42 U.S.C. 17303 (emphasis added).
---------------------------------------------------------------------------
The only comments received in response to the RNPRM with respect to
the scope of a final rule concerned pipelines and futures markets, and
contained essentially the same arguments the commenters had made in
previous comments.\58\ The Commission rejects the latest arguments, and
reiterates that the scope of the final Rule is coextensive with the
reach of the FTC Act.
---------------------------------------------------------------------------
\58\ In response to the RNPRM, AOPL continued to urge the
Commission to ``state explicitly that oil pipelines regulated by
FERC under the [Interstate Commerce Act] are outside the coverage''
of any FTC rule. AOPL at 1-2. ATAA, on the other hand, continued to
oppose any safe harbors or exemptions for pipelines in order to give
full effect to the purpose of EISA. ATAA at 3-4 (``[N]othing in
either Section 811 or Subtitle B suggests the FTC should consider
limiting or competing concerns in its implementing regulations.'' );
see also PMAA at 2 (agreeing with the Commission's decision not to
adopt a safe harbor for pipelines); cf. Greenberger at 3 (contending
that the Commission should ``not offer[] an overly broad safe harbor
from the FTC's statutorily mandated jurisdiction'').
Other commenters renewed their request for the Commission to
recognize what they believed to be the CFTC's ``exclusive
jurisdiction'' over futures markets by making clear that its rule
would not extend to futures trading activity. See CFTC at 2 (``There
is no language in EISA that supersedes or limits the CFTC's exercise
of [the CEA's] exclusive jurisdiction over futures trading.'' ); MFA
at 2 (asking ``the Commission to adopt a safe harbor from its
proposed Part 317 rules for futures markets activities'' and that
``the safe harbor . . . apply even if the market participant's
futures trading allegedly had an impact on cash or other non-futures
market oil or gasoline prices''); see also Sutherland at 4 (stating
that ``to prosecute conduct already regulated by the CFTC . . . will
waste sparse resources and increase the costs to all market
participants''). But see, e.g., Senator Cantwell at 2 (``Congress,
however, specifically intended for the Commission to exercise this
new authority by working cooperatively and in tandem with the CFTC
to prevent and deter any manipulative activity, including in the
futures markets, which would affect wholesale petroleum markets.''
); Greenberger at 2 (``Congress clearly intended the FTC to have
power in this area that would not be blocked by the CFTC . . . .''
); CFA at 8 (stating that Congress did not preclude the Commission
from extending its rule to futures markets). See generally Section
IV.B. of the RNPRM for a discussion of the arguments previously
raised by commenters regarding the jurisdictional scope of any
Section 811 rule with respect to pipelines and futures markets. 74
FR at 18310-11.
---------------------------------------------------------------------------
With respect to pipelines, as the Commission stated in the RNPRM,
not all pipelines necessarily fall outside the coverage of the FTC Act.
Certain pipeline companies or their activities may fall outside the
coverage of the FTC Act to the extent that they are acting as common
carriers. However, pipeline companies and their owners or affiliates
often are involved in multiple aspects of the petroleum industry -
including the purchase or sale of petroleum products, and the provision
of transportation services - and they may engage in conduct in
connection with wholesale petroleum markets covered by EISA. The
Commission has therefore determined that it must assess on a case-by-
case basis whether any particular person - or any conduct at issue -
falls outside the scope of the final Rule, and/
[[Page 40691]]
or whether the conduct at issue falls under the ``in connection with''
language in the final Rule, which is discussed below in Section
IV.D.1.b.
For similar reasons, although the Commission recognizes the CFTC's
jurisdiction ``with respect to accounts, agreements . . . and
transactions involving contracts of sale of a commodity for future
delivery,''\59\ the Commission declines to adopt a blanket safe harbor
for futures markets activities. Nonetheless, consistent with its
longstanding practice of coordinating its enforcement efforts with
other federal or state law enforcement agencies where it has
overlapping or complementary jurisdiction - as stated in the NPRM and
the RNPRM - the Commission intends to work cooperatively with the CFTC
to execute the Commission's objective to prevent fraud or deceit in
wholesale petroleum markets.\60\
---------------------------------------------------------------------------
\59\ 7 U.S.C. 2(a)(1)(A).
\60\ 74 FR at 18310-12; 73 FR at 48323-25. Several commenters
supported the Commission's intention to work cooperatively with
other agencies in exercising its Section 811 authority. CFTC at 2;
MFA at 4; ISDA at 3; see also 74 FR at 18311 n.82.
---------------------------------------------------------------------------
C. Section 317.2: Definitions
The final Rule defines six terms: ``crude oil,'' ``gasoline,''
``knowingly,'' ``person,'' ``petroleum distillates,'' and
``wholesale.'' The only change to the definitions set forth in the
revised proposed Rule is a non-substantive change to the definition of
``knowingly.'' These definitions establish the scope of the final
Rule's coverage and provide guidance as to how the Commission intends
to enforce the Rule. Only a few commenters addressed the definitions
proposed in the RNPRM, and most of them focused on the definition of
``knowingly.'' These comments, together with the Commission's analysis
of the definitions included in the final Rule, are discussed below.
1. Section 317.2(a): ``Crude Oil''
Section 317.2(a) of the revised proposed Rule defined ``crude oil''
as ``the mixture of hydrocarbons that exists: (1) in liquid phase in
natural underground reservoirs and that remains liquid at atmospheric
pressure after passing through separating facilities, or (2) as shale
oil or tar sands requiring further processing for sale as a refinery
feedstock.''\61\ No commenters addressed this definition in response to
the RNPRM.
---------------------------------------------------------------------------
\61\ 74 FR at 18312.
---------------------------------------------------------------------------
Thus, Section 317.2(a) of the final Rule retains, without
modification, the definition of ``crude oil'' in the revised proposed
Rule. Consistent with its position in the NPRM and RNPRM, the
Commission intends for the definition to include liquid crude oil and
any hydrocarbon form that can be processed into a refinery feedstock,
but to exclude natural gas, natural gas liquids, or non-crude refinery
feedstocks.\62\
---------------------------------------------------------------------------
\62\ 74 FR at 18312; 73 FR at 48325.
---------------------------------------------------------------------------
2. Section 317.2(b): ``Gasoline''
Section 317.2(b) of the revised proposed Rule defined ``gasoline''
to mean: ``(1) finished gasoline, including, but not limited to,
conventional, reformulated, and oxygenated blends, and (2) conventional
and reformulated gasoline blendstock for oxygenate blending.''\63\ Only
one commenter, IPMA, addressed this definition, arguing for the
inclusion of renewable fuels such as ethanol and other oxygenates.\64\
---------------------------------------------------------------------------
\63\ 74 FR at 18312 (adopting the initially proposed Rule's
definition of ``gasoline'').
\64\ See IPMA at 4 (arguing that the final Rule should include
non-petroleum based commodities, such as ethanol and other
oxygenates, in its definition of ``gasoline'').
---------------------------------------------------------------------------
Section 317.2(b) of the final Rule retains, without modification,
the definition of ``gasoline'' in the revised proposed Rule. As the
Commission stated in the RNPRM, it ``intends to capture those
commodities regularly traded as finished gasoline products or as
gasoline products requiring only oxygenate blending to be finished,
under this definition.''\65\ The Commission declines to extend the
definition of ``gasoline'' to include products that are not listed in
Section 811 - such as renewable fuels (e.g., ethanol) and blending
components (e.g., alkylate and reformate). Nonetheless, the Commission
concludes that it may apply the final Rule to conduct implicating those
non-covered products if appropriate under the ``in connection with''
language of the final Rule, as discussed below in Section IV.D.1.b. As
the Commission noted in the RNPRM, using the ``in connection with''
language provides the Commission ``with sufficient flexibility to
protect wholesale petroleum markets from manipulation without expanding
the reach of a Section 811 rule to cover products not identified in the
statute.''\66\
---------------------------------------------------------------------------
\65\ 74 FR at 18312.
\66\ 74 FR at 18312.
---------------------------------------------------------------------------
3. Section 317.2(c): ``Knowingly''
Section 317.2(c) of the revised proposed Rule defined ``knowingly''
to mean ``with actual or constructive knowledge such that the person
knew or must have known that his or her conduct was fraudulent or
deceptive.''\67\ The revised proposed Rule thus expressly provided that
a person must engage in the proscribed conduct ``knowingly'' in order
to violate Section 317.3(a); that is, that a person must ``knowingly''
engage in fraudulent or deceptive conduct.\68\
---------------------------------------------------------------------------
\67\ 74 FR at 18312.
\68\ See 74 FR at 18305, 18312.
---------------------------------------------------------------------------
Although one commenter noted that the proposed definition clarified
that ``inadvertent mistakes - caused perhaps by the disorderly nature
of markets - would not be actionable as manipulation,''\69\ other
commenters addressed a different point. These commenters urged the
Commission to delete the phrase ``with actual or constructive
knowledge'' from the definition, in order to avoid confusion about its
interpretation.\70\
---------------------------------------------------------------------------
\69\ Argus at 2.
\70\ ISDA contended that ``[t]he commonly understood meaning of
`knew or must have known' is to have actual or constructive
knowledge,'' and that ``[i]ncluding duplicative language in the
definition could have unintended effects.'' ISDA at 11. CFDR also
supported deleting the phrase, but for a different reason; CFDR
argued that the legal concept of ``constructive knowledge'' is
inconsistent with a ```knew or must have known' scienter standard''
because ```[c]onstructive knowledge' . . . often is applied to hold
a person accountable for information that he or she `should have
known,' even if he or she did not.'' CFDR at 3.
---------------------------------------------------------------------------
The Commission has determined to adopt this recommendation. Thus,
final Rule Section 317.2(c) defines ``knowingly'' to mean ``that the
person knew or must have known that his or her conduct was fraudulent
or deceptive.'' The Commission emphasizes, however, that this
modification in the definition of ``knowingly'' does not change its
meaning.
For purposes of enforcement of final Rule Section 317.3(a), the
Commission has determined that a showing of extreme recklessness is, at
a minimum, necessary to prove the scienter element. In this regard, the
Commission adopts, in part, the ``extreme recklessness'' standard
established by the United States Court of Appeals for the Seventh
Circuit.\71\ Though the Circuits may differ on the application of
extreme recklessness,\72\ almost all of them have
[[Page 40692]]
now adopted this standard.\73\ Similarly, the Commission has concluded
that the standard should apply to the final Rule, and the Commission
believes that it is appropriate because it provides for both effective
rule enforcement and clarity to market participants.
---------------------------------------------------------------------------
\71\ In an opinion by Judge Posner, the Court of Appeals for the
Seventh Circuit recently reaffirmed the Sundstrand extreme
recklessness standard. SEC v. Lyttle, 538 F.3d 601, 603 (7th Cir.
2008).
\72\ See 73 FR at 48329; 74 FR at 18318. As the Supreme Court
has noted, ``[e]very Court of Appeals that has considered the issue
[of civil liability under SEA Section 10(b) and Rule 10b-5] has held
that a plaintiff may meet the scienter requirement by showing that
the defendant acted intentionally or recklessly, though the Circuits
differ on the precise formulation of recklessness.'' Tellabs, Inc.
v. Makor Issues & Rights, Ltd., 551 U.S. 308, 319 n.3 (2007) (citing
Ernst & Ernst, 425 U.S. at 194 n.12); Ottmann v. Hunger Orthopedic
Group, Inc., 353 F.3d 338, 343 (4th Cir. 2003) (collecting Court of
Appeals cases). The Supreme Court, however, has reserved the
question whether extreme reckless behavior is, in fact, sufficient
to establish civil liability under SEA Section 10(b) and Rule 10b-5.
See Tellabs, Inc., 551 U.S. at 319 n.3.
\73\ Phillips v. LCI Int'l, Inc., 190 F.3d 609, 621 (4th Cir.
1999); SEC v. Steadman, 967 F.2d 636, 641 (D.C. Cir. 1992);
Hollinger v. Titan Capital Corp., 914 F.2d 1564, 1569 (9th Cir.
1990) (en banc); Hackbert v. Holmes, 675 F.2d 1114, 1118 (10th Cir.
1982); Broad v. Rockwell, 642 F.2d 929, 961 (5th Cir. 1981) (en
banc); McLean v. Alexander, 599 F.2d 1190, 1197 (3d. Cir. 1979);
Mansbach v. Prescott, Ball, & Turben, 598 F.2d 1017, 1025 (6th Cir.
1979); see also Greebel v. FTP Software, 194 F.3d 185, 198 (1st Cir.
1999); Camp v. Dema, 948 F.2d 455, 461 (8th Cir. 1991).
---------------------------------------------------------------------------
The ``extreme recklessness'' standard articulated by the Seventh
Circuit requires a showing that an actor knew or must have known that
his conduct created a danger of misleading buyers or sellers.\74\ The
Seventh Circuit has stated that this showing can be made with respect
to securities fraud by establishing that the actor's conduct
constitutes ``an extreme departure from the standards of ordinary care
. . . to the extent that the danger [of misleading buyers or sellers]
was either known to the defendant or so obvious that the defendant must
have been aware of it.''\75\ However, whereas standards of ordinary
care are well developed in the context of securities markets, they are
less well defined in the context of wholesale petroleum markets. For
this reason, the Commission has concluded that a showing of a departure
from ``ordinary care'' is not required to establish scienter under
final Rule Section 317.3(a). The Commission therefore has determined
that, for purposes of final Rule Section 317.3(a), proving scienter
will require showing only that a person either knew or must have known
that his or her conduct created a danger of misleading buyers or
sellers.
---------------------------------------------------------------------------
\74\ Sundstrand Corp. v. Sun Chem. Corp., 553 F.2d 1033, 1045
(7th Cir.), cert. denied, 434 U.S. 875 (1977) (quoting Franke v.
Midwestern Okla. Dev. Auth., 428 F. Supp. 719, 725 (W.D. Okla.
1976)). The Court of Appeals for the District of Columbia Circuit
relied upon Sundstrand to establish the ``extreme recklessness''
scienter standard applicable to SEC Rule 10b-5. See SEC v. Steadman,
967 F.2d 636, 641-42 (D.C. Cir. 1992) (adopting Sundstrand's extreme
recklessness standard).
\75\ SEC v. Lyttle, 538 F.3d at 603-04, quoting Makor Issues &
Rights, Ltd. v. Tellabs Inc., 513 F.3d 702, 704 (7th Cir. 2008).
---------------------------------------------------------------------------
This definition of ``knowingly'' gives petroleum industry
participants the appropriate guidance as to the level of scienter
required to establish a final Rule Section 317.3(a) violation. The
Commission further discusses the application of the ``knowingly''
standard in Section IV.D.2.a. below.
4. Section 317.2(d): ``Person''
Section 317.2(d) of the revised proposed Rule defined the term
``person'' to mean: ``any individual, group, unincorporated
association, limited or general partnership, corporation, or other
business entity.''\76\ No commenters addressed this definition in
response to the RNPRM. As stated in the RNPRM, the Commission believes
that ``this definition is consistent with the jurisdictional reach of
the FTC Act, as well as with prior usage in other FTC rules.''\77\
Therefore, Section 317.2(d) of the final Rule retains the revised
proposed definition of ``person'' without modification.
---------------------------------------------------------------------------
\76\ 74 FR at 18313 (adopting the initially proposed Rule's
definition of ``person'').
\77\ 74 FR at 18313; see, e.g., Telemarketing Sales Rule, 16 CFR
310.2(v); Disclosure Requirements and Prohibitions Concerning
Franchising, 16 CFR 436.1(n).
---------------------------------------------------------------------------
5. Section 317.2(e): ``Petroleum Distillates''
Section 317.2(e) of the revised proposed Rule defined ``petroleum
distillates'' to mean ``(1) jet fuels, including, but not limited to,
all commercial and military specification jet fuels, and (2) diesel
fuels and fuel oils, including, but not limited to, No. 1, No. 2, and
No. 4 diesel fuel, and No. 1, No. 2, and No. 4 fuel oil.''\78\ No
commenters addressed this definition in response to the RNPRM.
---------------------------------------------------------------------------
\78\ 74 FR at 18313 (adopting the initially proposed Rule's
definition of ``petroleum distillates'').
---------------------------------------------------------------------------
The Commission has determined to include in final Rule Section
317.2(e), without modification, the definition of ``petroleum
distillates'' in revised proposed Rule Section 317.2(e). As stated in
the NPRM and the RNPRM, this definition includes ``finished fuel
products, other than `gasoline,' produced at a refinery or blended in
tank at a terminal.''\79\ As the Commission explained in the RNPRM, the
definition of ``petroleum distillates'' also includes middle distillate
refinery fuel streams, and thus encompasses all product streams above
heavy fuel oils - up to and including lighter products such as on-road
diesel, heating oil, and kerosene-based jet fuels - but does not extend
to heavy fuel oils.\80\ Consistent with the RNPRM, the Commission has
also determined that the definition of ``petroleum distillates'' does
not extend to renewable fuels such as biodiesel.\81\ The Commission
addresses the intended application of the final Rule to conduct
implicating non-covered products, such as renewable fuels, in its
discussion of the ``in connection with'' language in Section IV.D.1.b.
below.
---------------------------------------------------------------------------
\79\ 74 FR at 18313; 73 FR at 48325.
\80\ 74 FR at 18313.
\81\ See 74 FR at 18313.
---------------------------------------------------------------------------
6. Section 317.2(f): ``Wholesale''
Section 317.2(f) of the revised proposed Rule defined the term
``wholesale'' to mean: ``(1) all purchases or sales of crude oil or jet
fuel; and (2) all purchases or sales of gasoline or petroleum
distillates (other than jet fuel) at the terminal rack level or
upstream of the terminal rack level.''\82\ As stated in the RNPRM, the
Commission intended the definition of ``wholesale'' to include all bulk
sales of crude oil and jet fuel (even when not for resale) and all
terminal rack sales,\83\ but not to extend to retail sales of gasoline,
diesel fuels, or fuel oils to consumers.\84\
---------------------------------------------------------------------------
\82\ 74 FR at 18314.
\83\ 74 FR at 18314.
\84\ 74 FR at 18314; see also 73 FR at 48326.
---------------------------------------------------------------------------
Two commenters, PMAA and Greenberger, supported the inclusion of
sales at the terminal rack level in the definition.\85\ SIGMA, by
contrast, renewed its opposition to including such transactions,
arguing in part that rack prices are ``unlikely to alter overall price
levels in the markets served out of a terminal or terminal cluster''
and that ``there are no reported instances of price manipulation
practices at the rack terminal level.''\86\
---------------------------------------------------------------------------
\85\ PMAA at 2 (agreeing with the Commission's position on rack
sales); Greenberger at 3 (supporting the RNPRM's definition of
``wholesale'' that includes rack transactions).
\86\ SIGMA at 2 (``[Rack] prices are set by the supplier's view
of the market and are not normally fixed by reference to other
suppliers' prices.'' ).
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The Commission is not persuaded that there is little or no
potential for market manipulation at or below the terminal rack level.
As the Commission stated in the RNPRM, ``prohibited conduct may in fact
occur at the terminal rack level'' and ``[s]uch a determination
requires analysis on a case-by-case basis.''\87\ Moreover, terminal
rack sales are ``wholesale'' transactions as that term is commonly
defined, and excluding them from the definition of ``wholesale'' would
therefore place the final Rule at odds with the express language of
EISA, which addresses manipulative conduct in wholesale markets. The
Commission has consequently determined to retain in final Rule Section
317.2(f), without modification, the definition of
[[Page 40693]]
``wholesale'' in revised proposed Rule Section 317.2(f).
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\87\ 74 FR at 18313-14.
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D. Section 317.3: Prohibited Practices
Section 317.3 sets forth the conduct prohibited by the final Rule.
Specifically, this provision states:
It shall be unlawful for any person, directly or indirectly, in
connection with the purchase or sale of crude oil, gasoline, or
petroleum distillates at wholesale, to:
(a) Knowingly engage in any act, practice, or course of business -
including the making of any untrue statement of material fact - that
operates or would operate as a fraud or deceit upon any person; or
(b) Intentionally mislead by failing to state a material fact that
under the circumstances renders a statement made by such person
misleading, provided that such omission distorts or is likely to
distort market conditions for any such product.
The final Rule thus prohibits fraudulent or deceptive conduct,
including statements made misleading as a result of an omission of
material fact, within or in connection with wholesale petroleum
markets.
Final Rule Section 317.3 is virtually identical to Section 317.3 in
the revised proposed rule.\88\ As the Commission detailed in the RNPRM
in discussing the proposed scope and application of the two paragraphs
of Section 317.3, the final Rule therefore broadly prohibits fraudulent
or deceptive conduct, which may take various forms, including
statements that are misleading as the result of an omission of material
information. As articulated in the RNPRM, the Commission has altered
the initially proposed Rule and its conduct prohibitions to clarify the
type of conduct covered by the final Rule.\89\ First, the Commission
has consolidated the conduct prohibition in Section 317.3 of the
initially proposed Rule from three paragraphs into two paragraphs. The
first paragraph applies to overt conduct that is fraudulent or
deceptive; the second paragraph applies only to material omissions. The
Commission has determined that this consolidation defines the unlawful
conduct that the Rule prohibits more precisely than the three
paragraphs in the initially proposed Rule did. Second, the Commission
has adopted separate scienter standards for each of the two paragraphs
to address concerns that the initially proposed Rule would chill
legitimate business activity, and, in so doing, has established a
higher scienter standard for the second paragraph than for the
first.\90\ Third, the Commission has addressed concerns that
specifically prohibiting material omissions would create an undue risk
of deterring voluntary disclosures of information. It has addressed
this concern by requiring a showing that the omission at issue distorts
or is likely to distort market conditions for a covered product.\91\ By
tailoring the final Rule in this fashion, the Commission believes it
achieves an appropriate balance between the needs of effective
enforcement and unduly burdening legitimate business practices.
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\88\ In addition to the revised proposed rule, the RNPRM invited
commenters to consider a single, unified conduct provision
prohibiting all fraudulent or deceptive conduct, including material
omissions (and deleting the separate prohibition of such omissions).
In particular, the alternative provision would have made it unlawful
for ``any person, directly or indirectly, in connection with the
purchase or sale of crude oil, gasoline, or petroleum distillates at
wholesale, to engage in any act (including the making of any untrue
statement), practice, or course of conduct with the intent* to
defraud or deceive, provided that such act, practice, or course of
conduct distorts or tends to distort market conditions for any such
product.'' 74 FR at 18327. The phrase ``with the intent'' would have
been defined to mean that the alleged violator intended to mislead -
regardless of whether he or she specifically intended to affect
market prices (that is, possessed specific intent), or knew or must
have known of the probable consequences of such conduct - and
regardless of whether the conduct was likely to defraud or deceive
the target successfully. Id.
\89\ The initially proposed Rule stated:
It shall be unlawful for any person, directly or indirectly, in
connection with the purchase or sale of crude oil, gasoline, or
petroleum distillates at wholesale,
(a) To use or employ any device, scheme, or artifice to defraud,
(b) To make any untrue statement of a material fact or to omit
to state a material fact necessary in order to make the statements
made, in the light of the circumstances under which they were made,
not misleading, or
(c) To engage in any act, practice, or course of business that
operates or would operate as a fraud or deceit upon any person.
73 FR at 48334. This wording and format were virtually identical
to SEC Rule 10b-5.
\90\ As the Commission noted in the ANPR, the NPRM, and the
RNPRM, nothing in connection with this Section 811 [r]ulemaking, any
subsequently enacted rules, or related efforts should be construed
to alter the standards associated with establishing a deceptive or
an unfair practice in a case brought by the Commission. 73 FR at
48322 n.61; 73 FR at 25619 n.55; 74 FR at 18316 n.144. Specifically,
no showing of any degree of scienter is required to establish that a
particular act or practice is deceptive or unfair, and therefore
violates Section 5 of the FTC Act. See, e.g., FTC v. Bay Area Bus.
Council, Inc., 423 F.3d 627, 635 (7th Cir. 2005); FTC v. Freecom
Commc'ns., Inc., 401 F.3d 1192, 1202 (10th Cir. 2005); FTC v. Amy
Travel Serv., Inc., 875 F.2d 564, 573-74 (7th Cir. 1989).
\91\ Revised proposed Rule Section 317.3(b) contained a market
conditions proviso that did not exist in the initially proposed
Rule; that is, that the material omission ``distorts or tends to
distort market conditions'' for a covered product. As noted above,
the Commission has determined to substitute the phrase ``is likely''
for the word ``tends'' in final Rule Section 317.3(b). See Section
IV.D.3.b. below for further discussion.
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Accordingly, final Rule Section 317.3(a) prohibits any conduct that
operates or would operate as a fraud or a deceit, provided that the
alleged violator engaged in the prohibited conduct knowingly; that is -
as defined in the final Rule - with extreme recklessness. Final Rule
Section 317.3(b) separately prohibits statements that are misleading
because a material fact is omitted intentionally and the omission
distorts or is likely to distort conditions in a wholesale petroleum
market. The intent requirement - and the proviso that an omission must
distort or be likely to distort market conditions for a covered product
in order to violate Section 317.3(b) - address many commenters'
concerns that the omissions provision in initially proposed Rule
Section 317.3(b) would have chilled legitimate business activity. The
Commission believes that these features of final Rule Section 317.3(b)
focus it on fraudulent or deceptive conduct likely to threaten the
integrity of wholesale petroleum markets.
The Commission has concluded that the final Rule does not cover
inadvertent mistakes, unintended conduct, or legitimate conduct
undertaken in the ordinary course of business.\92\ This limitation
further helps to avoid impeding beneficial business behavior. The final
Rule also does not impose any recordkeeping requirements.\93\
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\92\ Consistent with its position in the NPRM and the RNPRM, the
Commission currently does not expect to impose specific conduct or
duty requirements such as a duty to supply product, a duty to
provide access to pipelines or terminals, a duty to disclose, or a
duty to update or correct information. In particular, the final Rule
would not require covered entities to disclose price, volume, and
other data to individual market participants, or to the market at
large, beyond any obligation that may already exist. See 73 FR at
48326-27; 74 FR at 18325.
\93\ See 73 FR at 48332.
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Nearly all the commenters who discussed the conduct prohibition in
the revised proposed Rule supported the modifications that the
Commission made to the initially proposed Rule.\94\
[[Page 40694]]
Many commenters urged, however, additional modifications to Section
317.3. For example, a few commenters recommended that the Commission
broaden the scope of the revised proposed Rule by applying the extreme
recklessness standard to Section 317.3(b) - as well as to Section
317.3(a)\95\ - and by eliminating the market conditions proviso in
Section 317.3(b).\96\ Other commenters, by contrast, recommended that
the Commission narrow the revised proposed Rule by: (1) adopting a
single specific intent standard and applying it to both parts of
Section 317.3;\97\ (2) applying either a specific market effect
requirement or a market conditions proviso to both parts of Section
317.3;\98\ and (3) eliminating the prohibition on material
omissions.\99\ Some of these commenters believed that the alternative
rule language would better address their concerns.\100\
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\94\ See, e.g., ISDA at 2 (contending that the revised proposed
Rule ``includes several significant improvements''); SIGMA at 1
(stating that the revised proposed Rule ``dramatically improv[ed]''
upon the NPRM and ANPR); API at 25, 34 (noting the improvements in
the revised proposed Rule); CFA at 2 (``[T]he Commission has done a
good job in its revisions.'' ); Sutherland at 2 (commending the
revised proposed Rule for ``striking a balance between protecting
consumers from manipulation and avoiding unnecessary costs to market
participants''); Argus at 2 (stating that the revised proposed Rule
provided greater clarity to the petroleum industry); CAPP at 1-2
(supporting the inclusion of an explicit scienter requirement and
market conditions proviso to Section 317.3(b)); CFDR at 2 (stating
that the revised proposed Rule was a ``substantial improvement[]'');
Platts at 2 (contending that the revised proposed Rule improved upon
the proposed Rule); PMAA at 2-3 (noting that the revised proposed
Rule was an improvement). Greenberger and ATAA, however, recommended
that the Commission adopt the initially proposed Rule, arguing that
it best fulfilled the broad mandate of EISA. Greenberger at 2; ATAA
at 1. Some commenters took no position on the revised proposed Rule
except to advance specific concerns regarding the scope of a rule.
See generally CFTC; MFA; IPMA; AOPL.
\95\ See, e.g., Senator Cantwell at 3 (``[T]he Commission's
Final Rule should reflect Congress' intent that a finding of
recklessness should be sufficient to satisfy the scienter element
for manipulative conduct . . . .'' ); CFA at 9 (suggesting that the
Commission apply the recklessness standard to both prongs of the
final Rule); see also Greenberger at 3 (agreeing that recklessness
is the appropriate scienter standard under a Section 811 rule).
\96\ See, e.g., Senator Cantwell at 4 (arguing that the market
conditions proviso unnecessarily limited the scope of the
Commission's authority); Greenberger at 3 (advocating against the
market conditions proviso in Section 317.3(b)); CFA at 8 (stating
that the modifications to the Rule ``unnecessarily narrow[ed] the
scope of protection afforded to the public'').
\97\ See, e.g., Sutherland at 3 (stating that a single specific
intent standard would allow the Commission to ``target essentially
the same conduct as is targeted by the Revised NPRM but with less
risk of chilling desirable market behavior''); Argus at 2
(advocating for a specific intent requirement if individual
companies and trade associations do not believe the revised proposed
Rule provides the necessary clarity); API at 26 (contending that a
single specific intent standard would make rule enforcement more
effective). But see CFDR at 2 (noting that the scienter requirement
in the revised proposed Rule is ``relatively clear'').
\98\ See, e.g., ISDA at 3, 14 (suggesting that the Commission
apply a market conditions proviso to both prongs of Section 317.3);
API at 37-38 (arguing that a showing of market effects should be
required, but that if instead the market conditions proviso were
retained, it should apply to all conduct covered by the Rule);
Sutherland at 4 (encouraging the Commission to ``require prohibited
behavior to impact the market''); CFDR at 4-5 (asking the Commission
to ``make intent to corrupt market pricing an element of the
offense'').
\99\ See, e.g., API at 12 (recommending that the Commission
eliminate the prohibition on omissions); Sutherland at 3 (arguing
that market participants are sophisticated parties who ``generally
do not require special remediation'' for omissions in the context of
negotiations); CFDR at 4 (advocating against adopting an explicit
omissions liability provision).
\100\ See, e.g., Sutherland at 2-3 (arguing that the alternative
rule language provided ``greater clarity than the Revised NPRM'');
ISDA at 4-5 (contending that the alternative rule language was
``better suited'' to wholesale petroleum markets because it better
defined the scope of impermissible conduct); API at 20 (arguing for
adoption of the alternative rule language with clarifications);
Platts at 2 (urging the Commission to consider adopting the
alternative rule language); CFDR at 4 n.3 (preferring the approach
of the alternative rule language to omissions). Many of these
commenters suggested further modifications to the alternative rule
language. See, e.g., API at 2-4; Platts at 2; Sutherland at 2-3.
---------------------------------------------------------------------------
The Commission has considered commenters' concerns carefully, and
has determined not to effect further changes to the scope of the
revised proposed Rule. The Commission has concluded that narrowing the
Rule, as suggested by some commenters, would unnecessarily encumber its
ability to reach conduct that likely constitutes market manipulation,
contrary to the objectives of Section 811, and that the modifications
to the initially proposed Rule (which was nearly identical to SEC Rule
10b-5) appropriately tailor the final Rule to reflect the
characteristics of wholesale market transactions. Additionally, the
Commission has concluded that broadening the rule to reach other types
of conduct, as suggested by some commenters, would be inconsistent with
the statutory language authorizing the Commission to prohibit market
manipulation pursuant to the framework of SEC Rule 10b-5, an anti-fraud
rule.
The broad prohibition in final Rule Section 317.3(a) permits the
Commission to reach all types of fraudulent or deceptive conduct likely
to harm wholesale petroleum markets. The extreme recklessness standard
in Section 317.3(a) appropriately focuses that paragraph on conduct
that presents an obvious risk of misleading buyers or sellers, and
ensures that this provision does not reach inadvertent mistakes, which
could have had the unintended effect of curtailing beneficial market
activity. The Commission believes that the design of the separate and
more limited prohibition of Section 317.3(b) - a prohibition on
statements that are misleading as a result of an omission of a material
fact - addresses commenters' concerns about the difficulty of
distinguishing between benign and harmful omissions. The Commission
believes that this objective is achieved by the greater evidentiary
burden imposed by Section 317.3(b) of the final Rule - a higher
scienter requirement and a market conditions proviso.
The Commission therefore issues final Rule Section 317.3 in a form
virtually identical to Section 317.3 in the revised proposed Rule. In
so doing, the Commission has specifically tailored each paragraph of
final Rule Section 317.3 to bring about an appropriate balance between
effective prohibition of undesirable conduct and avoidance of
unintended chilling of desirable economic activity.\101\ A more
detailed discussion of the final Rule's conduct provisions and the
Commission's response to commenters is set forth below.
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\101\ See 74 FR at 18308.
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1. Preamble Language
a. ``Directly or Indirectly''
The phrase ``directly or indirectly'' - which originates in Section
811 of EISA\102\ and is also included in the preamble to final Rule
Section 317.3 - delineates the level of involvement necessary to
establish liability under the final Rule. In particular, it means that
the final Rule imposes liability not only upon any person who directly
engages in manipulation but also upon any person who does so
indirectly.
---------------------------------------------------------------------------
\102\ 42 U.S.C. 17301 (``It is unlawful for any person, directly
or indirectly, to use or employ . . . .'' (emphasis added)).
---------------------------------------------------------------------------
One commenter, CFA, opined that Congress included the phrase
``directly or indirectly'' in part to support a recklessness standard
for a Section 811 rule.\103\ The Commission disagrees with this reading
of the statute. Rather, the Commission has determined that ``directly
or indirectly'' describes the level of involvement necessary to
establish liability under the final Rule, not any particular scienter
standard. Thus, consistent with its position in the RNPRM, the
Commission has determined that the phrase ``directly or indirectly'' in
the final Rule should ``be interpreted and applied to prevent a person
from engaging in the prohibited conduct, either alone or through
others.''\104\
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\103\ CFA at 4-5 (``By including the phrase directly or
indirectly, making no mention of intentionality or effect, and
citing only the public interest, the Congress clearly invited the
[FTC] to. . . reject the inclusion of a finding of intent in order
to find unlawful conduct.'' ). See Sections IV.D.2.a. and IV.D.3.a.
for a discussion of the scienter requirements in the final Rule.
\104\ 74 FR at 18317.
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[[Page 40695]]
b. ``In Connection With''
Section 811 authorizes the Commission to prohibit manipulative
conduct undertaken ``in connection with'' the purchase or sale of crude
oil, gasoline, or petroleum distillates at wholesale.\105\ Thus, the
final Rule reaches market manipulation that occurs in the wholesale
purchase or sale of products covered by Section 811 (and defined in the
final Rule) - and ``in connection with'' such purchases or sales -
provided that there is a sufficient nexus between the prohibited
conduct and the markets for these products.\106\
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\105\ AOPL argued that the phrase ``in connection with'' cannot
give the Commission jurisdiction over oil pipelines regulated by the
FERC under the ICA. AOPL at 7-8. The Commission addresses the final
Rule's application to pipelines in Section IV.B.
\106\ Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Dabit, 547
U.S. 71, 85 (2006) (holding that the ``in connection with'' language
requires a nexus between fraudulent conduct and a securities
transaction).
---------------------------------------------------------------------------
In response to the RNPRM, two commenters discussed the ``in
connection with'' language. Senator Cantwell urged the Commission to
interpret the phrase ``broadly . . . to prevent and deter any
manipulative conduct,'' including supply and operational decisions,
``that could impact wholesale petroleum markets.''\107\ IPMA supported
the Commission's tentative determination to reach ethanol and other
blending products through the ``in connection with'' language.\108\
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\107\ Senator Cantwell at 2-3.
\108\ IPMA at 4.
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As it stated in the RNPRM, the Commission believes that Congress
intended that it construe the phrase ``in connection with''
broadly.\109\ Such an interpretation is consistent with precedent from
securities law interpreting the same phrase in SEC Rule 10b-5,\110\ and
will enable the Commission to give full effect to the statutory
language of Section 811, which is identical to SEA Section 10(b). In
this respect, the Commission disagrees with commenters that the ``in
connection with'' language should never reach supply or operational
decisions. Instead, the language can reach those decisions whenever
there is a sufficient nexus between the conduct at issue and the
purchase or sale of crude oil, gasoline, or petroleum distillates.\111\
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\109\ See 74 FR at 18317-18.
\110\ See Dabit, 547 U.S. at 85 (affirming a broad
interpretation of the ``in connection with'' requirement).
\111\ The Commission emphasizes that it does not intend to
regulate or otherwise second-guess market participants' legitimate
supply and operational decision-making, contrary to the assertion of
some commenters. See API, NPRM, at 30-32 (urging the Commission not
to interpret the ``in connection with'' language as reaching
upstream conduct and statements, including operational and supply
decisions); NPRA, NPRM, at 33 (arguing that ``any possibility of
liability under an FTC rule for [supply or operational] decisions
could seriously distort refiners' decision making and disrupt
competitive activity in petroleum markets'').
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With respect to product coverage, as detailed in the RNPRM, the
Commission intends to reach products - such as renewable fuels (e.g.,
ethanol or biodiesel) or blending components (e.g., alkylate or
reformate) - that are not specifically identified in Section 811 only
if there is a sufficient nexus between conduct involving those products
and wholesale petroleum markets for covered products.\112\ Renewable
fuels and blending components are integral to the overall supply of
finished motor fuels. Thus, manipulating purchases or sales of these
products can have the requisite nexus with wholesale petroleum markets.
---------------------------------------------------------------------------
\112\ See 74 FR at 18317-18.
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By contrast, the Commission does not intend to apply the final Rule
to commodities whose predominant use is in non-petroleum products, or
to commodities that are inputs for ethanol, such as corn and sugar. The
connection between these commodities and wholesale petroleum markets
would likely be too attenuated to satisfy the ``in connection with''
requirement of Section 811. Thus, the Commission will determine on a
case-by-case basis whether supply or operational decisions - or conduct
in renewable fuels markets (or markets for other non-covered products)
- are ``in connection with'' wholesale petroleum transactions.\113\
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\113\ A further safeguard against regulatory overreach
respecting supply or operational decisions is that a violation of
the final Rule also requires that the requisite scienter standard be
demonstrated. The requirement that this element be proved clarifies
that the final Rule does not reach conduct arising out of an error
or miscalculation, either because the actor did not knowingly engage
in fraudulent or deceptive conduct, or because the actor did not
intentionally mislead by omitting material facts from statements.
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2. Section 317.3(a): General Anti-Fraud Provision
Final Rule Section 317.3(a) is the same as revised proposed Section
317.3(a). Specifically, final Rule Section 317.3(a) is a general anti-
fraud provision that prohibits any person from knowingly engaging in
conduct - including the making of false statements of material fact -
that operates or would operate as a fraud or deceit on any person.
Final Rule Section 317.3(a) thus prohibits fraudulent or deceptive
conduct that not only serves no legitimate purpose, but can be expected
to impair the efficient functioning of wholesale petroleum
markets.\114\ Specific examples of conduct that would violate Section
317.3(a) include false public announcements of planned pricing or
output decisions; false statistical or data reporting; false statements
made in the context of bilateral or multilateral communications that
result in the dissemination of the false information to the broader
market;\115\ and fraudulent or deceptive conduct such as wash sales.
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\114\ 74 FR at 18318.
\115\ The Commission generally does not intend to reach
bilateral negotiations as a matter of course. Fraud or deception
arising out of such negotiations may be more appropriately treated
under state law. This position is consistent with that of the FERC
in interpreting similar market manipulation authority. See 71 FR at
4251-52 (stating that ``absent a tariff requirement or [FERC]
directive,'' the FERC ``generally will not apply [its] final [anti-
manipulation] rule to bilateral contract negotiations'').
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The overall record in this proceeding reflects widespread support
for a market manipulation rule that prohibits overt fraud or
deceit.\116\ Comments submitted in response to the RNPRM add to this
support.\117\ Several commenters, however, raised concerns regarding
the scope of revised proposed Section 317.3(a). For example, some
commenters recommended that the Commission modify the paragraph to
require the specific intent to commit fraud or deceit - or a specific
intent to manipulate a market - as an element of proof.\118\ These
commenters also urged the Commission to add a market conditions proviso
to Section 317.3(a), because in their view, such a proviso was needed
to ensure that the provision prohibited market manipulation.\119\
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\116\ See prior Notices for further discussion of commenters who
support an anti-fraud rule. 74 FR at 18308 & n.47; 73 FR at 48319 &
n.28.
\117\ See, e.g., Sutherland at 3 (supporting ``a prohibition
against intentional false statements or a prohibition against
intentional fraudulent conduct''); API at 29 (``The proper objective
of any rule issued under Section 811 is to cover deceptive conduct .
. . .'' ); ATAA at 3 (``ATA[A] hopes that if the FTC adopts the
revised proposed rule, it will apply and enforce that rule
consistent with the broad anti-fraud mandate of the EISA.'' ); CAPP
at 2 (``Manipulative conduct that makes use of false information in
market transactions does not constitute routine or acceptable
commercial behavior, and is reasonably within the scope of
prohibited conduct.'' ).
\118\ See, e.g., ISDA at 6 (``Any rule that the Commission
enacts should require proof that a market participant specifically
intended to engage in a fraudulent or deceptive practice . . . .''
); CFDR at 2 (arguing that a Section 811 rule ``must require that a
person act with an intent to corrupt market pricing''); Sutherland,
NPRM, at 5 (urging the Commission to require a showing ``that the
defendant specifically intended to manipulate the market'').
\119\ See, e.g., API at 34 (arguing that including such a
proviso would ``focus[] the rule on the sort of conduct Congress
sought to address: acts and practices that manipulate a market'');
ISDA at 3 (encouraging the Commission to modify the Rule to apply
the market conditions proviso to both prongs); see also Sutherland
at 4 (urging the Commission ``to require [a showing that] prohibited
behavior . . . impact the market'').
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[[Page 40696]]
The Commission has considered these issues and concerns, but has
determined that final Rule Section 317.3(a) should be identical to
revised proposed Rule Section 317.3(a) so that it broadly prohibits all
types of fraudulent or deceptive conduct likely to harm wholesale
petroleum markets. The Commission has thus retained the ``knowingly''
scienter standard in final Rule Section 317.3(a) and has chosen not to
require a showing that prohibited conduct adversely affect market
conditions. This determination comports with the Commission conclusion
that there is no economic justification for overt fraud or deception, a
view about which there is no dispute in the rulemaking record. The
Commission has determined that these choices also provide sufficient
protection against capturing legitimate business conduct - and against
reaching mistakes - because affirmative misstatements are not easily
confused with benign conduct.
The Commission also has determined that final Rule Section 317.3(a)
should not reach material omissions because they are covered by Section
317.3(b). Although the Commission opined in the RNPRM that ``any
omission that is part of a fraudulent or deceptive act, practice, or
course of business would violate Section 317.3(a),''\120\ the
Commission now has concluded that the better course is to subject
unlawful omissions only to enforcement under final Rule Section
317.3(b). To do otherwise would introduce unnecessary confusion, and
could potentially limit voluntary disclosures beneficial to market
transparency. Thus, conduct covered by Section 317.3(a) does not
include misleading statements resulting from material omissions covered
by final Rule Section 317.3(b).
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\120\ 74 FR at 18320 n.188. API expressed concern that if
Section 317.3(a) reaches omissions also covered by Section 317.3(b),
it would render paragraph (b) superfluous. See API at 22-23; see
also Argus at 2 (stating that some companies need clarification that
omissions will only be covered by Section 317.3(b)).
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a. A Person Must Knowingly Engage in Conduct That Operates or Would
Operate as a Fraud or Deceit
Section 317.3(a) of the revised proposed Rule provided that a
person must engage in the proscribed conduct ``knowingly'' in order to
violate the provision. In the RNPRM, the Commission tentatively defined
the term ``knowingly'' to be coextensive with the extreme recklessness
standard.\121\ Thus, the Commission stated in the RNPRM that extreme
recklessness would satisfy the intent requirement in revised proposed
Section 317.3(a).\122\
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\121\ 74 FR at 18318. The extreme recklessness standard was also
the scienter standard contemplated for the initially proposed Rule.
See 73 FR at 48329.
\122\ 74 FR at 18318.
---------------------------------------------------------------------------
Several commenters urged the Commission to adopt a single, higher
``specific intent'' standard for the final Rule.\123\ Other commenters,
by contrast, contended that an extreme recklessness standard would be
appropriate and consistent with congressional intent.\124\ For example,
CFA argued that the proposed extreme recklessness standard would be
``more appropriate to protect the public'' because it ``require[d] the
[market] participants to exercise some self-control and to self-
regulate their behavior.''\125\
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\123\ See, e.g., API at 32, 34 n.38 (arguing that a final rule
should require a ``specific intent to manipulate the market as a
prerequisite for liability'' because such a standard ``would
considerably reduce the element of subjectivity and uncertainty that
currently exists in [Section 317.3(a)]''); ISDA at 6 (positing that,
because wholesale petroleum market participants trade and make
decisions in real time, often without perfect information, the
Commission should only ``prosecute intentionally fraudulent
conduct''); CFDR at 2 (urging the Commission to ``require that a
person act with an intent to corrupt market pricing or otherwise to
cause market prices to be false, fictitious and artificial''); see
also MFA at 3 (stating that if the Commission captures futures
markets under its final Rule, it should adopt specific intent, which
is consistent with Section 4b of the CEA).
\124\ See, e.g., Senator Cantwell at 3 (``[T]he Commission's
Final Rule should reflect Congress' intent that a finding of
recklessness should be sufficient to satisfy the scienter element
for manipulative conduct, including for false statements and
omissions of material fact.'' ); CFA at 4 (agreeing with the
Commission that the recklessness standard would be ``appropriate to
protect the public and [would be] entirely consistent with the
act''); CAPP at 1 (supporting the revised proposed Rule's scienter
requirement); see also Greenberger at 3 (arguing against the
addition of explicit scienter requirements, which, in his view,
``unnecessarily inhibit[ed] the FTC from exercising its authority to
protect the public from market manipulation by making the
evidentiary requirements more onerous under the revised rule'').
\125\ CFA at 4 (stating that a specific intent standard ``would
lower the standard to allow market participants to engage in
careless conduct'').
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After considering these views, the Commission believes that,
because final Rule Section 317.3(a) prohibits overt fraudulent or
deceptive acts - which can have no beneficial effect in any setting -
the extreme recklessness standard embodied in the term ``knowingly'' is
appropriate.\126\ A higher ``specific intent to manipulate the market''
standard could, in principle, permit harmful conduct to escape coverage
under the final Rule, simply because the actor did not intend to
manipulate the market. The Commission has concluded that such a
regulatory gap is unacceptable. The Commission also has concluded that
requiring a showing of extreme recklessness, rather than ordinary
recklessness or negligence, provides sufficient assurance that final
Rule Section 317.3(a) does not capture inadvertent conduct or mere
mistakes.\127\
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\126\ The Commission has clarified the definition of
``knowingly'' from that set forth in the RNPRM. In particular,
establishing liability under Section 317.3(a) will require
establishing only that an alleged violator ``knew or must have known
that his or her conduct was fraudulent or deceptive.'' The words
``with actual or constructive knowledge such that a person'' have
been deleted. Significantly, this modification is not intended to
change the meaning of ``knowingly'' or limit the types of evidence
that the Commission may rely upon in establishing the requisite
scienter, including both direct and circumstantial evidence of a
defendant's state of mind. See Section IV.C.3. in ``Definitions''
for further discussion.
\127\ As the Commission observed in the NPRM and the RNPRM, the
FERC adopted a similar approach in its interpretation of its anti-
manipulation rule, noting that ``[t]he final rule is not intended to
regulate negligent practices or corporate mismanagement, but rather
to deter or punish fraud in wholesale energy markets.'' 71 FR at
4246; see 73 FR at 48328 n.123; 74 FR at 18318 n.168.
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Thus, to violate final Rule Section 317.3(a), a person must engage
in the proscribed conduct ``knowing'' that it is fraudulent or
deceptive. For example, a trader's state of mind must encompass more
than just carrying out the ministerial function of transmitting false
information to a price reporting service. Rather, there must be
evidence that the trader knew or must have known that the information
transmitted was false.\128\
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\128\ The scienter element would also be satisfied if the trader
is acting at the behest of another person within the same
organization who ``knew or must have known'' that the conduct would
operate as a fraud or deceit. The Commission does not intend,
however, that the requisite state of mind be imputed across persons
within an organization. See also Section IV.D.1.a. above for a
discussion of the level of involvement necessary to establish
liability under the final Rule.
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As discussed above in Section IV.C.3., the Commission has adopted,
in part, the ``extreme recklessness'' standard set out by the United
States Court of Appeals for the Seventh Circuit.\129\ The Commission
has determined that establishing a violation of final Rule Section
317.3(a) requires, at a minimum, evidence that the defendant's conduct
presents a danger of misleading buyers or sellers that is either known
to the
[[Page 40697]]
defendant or is so obvious that the actor must have been aware of
it.\130\
---------------------------------------------------------------------------
\129\ See Sundstrand Corp. v. Sun Chem. Corp., 553 F.2d 1033,
1045 (7th Cir.), cert. denied, 434 U.S. 875 (1977) (quoting Franke
v. Midwestern Okla. Dev. Auth., 428 F. Supp. 719, 725 (W.D. Okla.
1976)).
\130\ As also discussed above in Section IV.C.3, proof of
scienter under final Rule Section 317.3(a) shall not require
evidence of a departure from ordinary standards of care.
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b. Materiality Standard
Section 317.3(a) of the final Rule prohibits conduct that operates
or would operate as a fraud or deceit, ``including the making of any
untrue statement of material fact.'' In the RNPRM, the Commission
proposed a materiality standard that treated a fact as material if
there was a substantial likelihood that a reasonable market participant
would consider it important in making a decision to transact because
the material fact significantly altered the total mix of information
available.\131\ No commenter addressed the materiality standard in the
RNPRM. Consequently, the Commission adopts that same standard for the
final Rule.
---------------------------------------------------------------------------
\131\ 74 FR at 18320; see also 73 FR at 48326. See Basic Inc. v.
Levinson, 485 U.S. 224, 231-32 (1988) (```[A]n omitted fact is
material if there is a substantial likelihood that a reasonable
shareholder would consider it important in deciding how to vote.'''
(quoting TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 449
(1976))); see, e.g., Greenhouse v. MCG Capital Corp., 392 F.3d 650,
658-659 (4th Cir. 2004) (holding a false statement regarding the
educational background of the defendant company's Chairman of the
Board to be immaterial).
---------------------------------------------------------------------------
The Commission notes that the element of materiality limits the
coverage of the final Rule. Consistent with securities law, the
Commission intends that it not be sufficient simply to show that any
particular person would have found any particular piece of information
of interest,\132\ or to show that any particular person would have
acted differently but for the particular piece of information at
issue.\133\ Rather, the assessment requires a factual inquiry into
whether the statement, omission, or datum at issue is of a character
that would significantly affect the decision-making process of a
reasonable market participant because it alters the mix of available
information. This assessment, in turn, depends upon the specific
circumstances surrounding the particular statement or omission.
---------------------------------------------------------------------------
\132\ See Basic Inc., 485 U.S. at 234 (``The role of the
materiality requirement is . . . to filter out essentially useless
information that a reasonable investor would not consider
significant, even as part of a larger `mix' of factors to consider
in making his investment decision.'' (citing TSC Indus., 426 U.S. at
448-49)); see also 3 Thomas Lee Hazen, Treatise on Securities
Regulation 12.9[3], at 284 (5th ed. 2005). In addition, it should be
noted that a purchaser or seller is not necessarily entitled to all
information relating to each of the circumstances surrounding a
particular transaction. See, e.g., In re Apple Computer Sec. Litig.,
886 F.2d 1109, 1115 (9th Cir. 1989) (concluding that ``the
defendant's failure to disclose material information may be excused
where that information has been made credibly available to the
market by other sources''); see also In re Northern Telecom Ltd.
Sec. Litig., 116 F. Supp. 2d 446, 459 (S.D.N.Y. 2000) (``A company
is generally not obligated to disclose internal problems because
`[t]he securities laws do not require management to bury the
shareholders' in internal details . . . .'' ) (internal quotations
omitted).
\133\ See, e.g., Folger Adam Co. v. PMI Indus., Inc., 938 F.2d
1529, 1533 (2d Cir. 1991) (``No matter how stated, however, it is
well-established that a material fact need not be outcome-
determinative; that is, it need not be important enough that it
`would have caused the reasonable investor to change his vote.'''
(quoting TSC Indus., 426 U.S. at 449)).
---------------------------------------------------------------------------
Guided by securities law precedent, the Commission intends to
determine on a case-by-case basis whether a statement (or omission) is
material. In this regard, the Commission views false or deceptive
statements as material whenever they are of a character likely to be
significant to participants in the broader market. Examples might
include false representations to the government about a company's
current inventory or refinery operating status, or false
representations about the price or volumes of past transactions to a
private price reporting service.
c. Other Language in Section 317.3(a)
Final Rule Section 317.3(a) - like the initially proposed Rule and
the revised proposed Rule - prohibits misrepresentations of fact
because such misrepresentations clearly constitute fraudulent or
deceptive conduct.\134\ As detailed in the RNPRM, many commenters and
workshop participants agreed that such conduct harms the marketplace
and should be prohibited.\135\ Prohibiting misrepresentations of
material fact is further supported by the enforcement approach of other
agencies. Final Rule Section 317.3(a) thus continues to include the
phrase ``the making of any untrue statement of material fact'' in order
to make this prohibition clear.
---------------------------------------------------------------------------
\134\ As the NPRM noted, Section 317.3(a) of the proposed Rule
was intended to provide a clear ban on ``the reporting of false or
misleading information to government agencies, to third-party
reporting services, and to the public through corporate
announcements.'' 73 FR at 48326. Congress gave the Commission
authority under Section 812, a separate provision from Section 811,
to prohibit any person from reporting false or misleading
information related to the wholesale price of petroleum products
only if it is required by law to be reported to a federal department
or agency. The prohibitions embodied in Section 812 became effective
with the enactment of EISA on December 19, 2007. See 42 U.S.C.
17302.
\135\ 74 FR at 18320.
---------------------------------------------------------------------------
A few commenters mistakenly believed that the phrase ``operates or
would operate as a fraud or deceit'' found in Section 317.3(a) would
obviate the scienter requirement for that provision.\136\ The
Commission disagrees with this interpretation. The Commission notes,
for example, that SEC Rule 10b-5 contains an identical phrase, and the
Supreme Court has interpreted Rule 10b-5 as requiring proof of
scienter.\137\ Thus, the Commission has determined not to alter the
phrase ``operates or would operate as a fraud'' for purposes of final
Rule Section 317.3(a). In keeping the phrase, moreover, the Commission
intends that Section 317.3(a) reach conduct that defrauds or deceives
another person or that could have the capacity to do so.
---------------------------------------------------------------------------
\136\ CFDR contended that the revised proposed Rule's language
``operates or would operate as a fraud'' was at odds with the Rule's
``knowingly'' standard because federal securities case law
interprets that phrase as establishing a non-scienter standard. CFDR
at 4. ISDA also suggested that the language ``operates as a fraud''
confuses the scienter standard because the standard merely
``require[s] intent to engage in any volitional act that happens to
`operate as a fraud.''' ISDA at 8.
\137\ See Ernst & Ernst v. Hochfelder, 425 U.S. 185, 193 (1976).
---------------------------------------------------------------------------
3. Section 317.3(b): Omission of Material Information Provision
Final Rule Section 317.3(b), like revised proposed Rule Section
317.3(b), prohibits fraudulent or deceptive statements that are
misleading as a result of the intentional omission of material facts,
where that omission distorts or is likely to distort market conditions
for a covered product.\138\ Thus, material omissions from a statement
that is otherwise literally true may, under the circumstances present
at the time the statement is made, render that statement
misleading.\139\ The Commission therefore has determined that
prohibiting intentional omissions of material facts that distort or are
likely to distort market conditions is consistent with both the
objectives of EISA and the Commission's larger mandate to protect
consumers.\140\
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\138\ As noted above, final Rule Section 317.3(b) substitutes
the phrase ``is likely'' for the word ``tends'' in revised proposed
Rule Section 317.3(b). See discussion in Section IV.D.3.b. below.
\139\ See McMahan & Co. v. Wherehouse Ent., Inc., 900 F.2d 576,
579 (2d Cir. 1990) (``Some statements, although literally accurate,
can become, through their context and manner of presentation,
devices which mislead investors.'' ).
\140\ A violation of final Rule Section 317.3(b) requires that
the person make an affirmative statement that is rendered misleading
by reason of a material omission. The Commission generally does not
intend that Section 317.3(b) reach silence where no statement has
been made.
---------------------------------------------------------------------------
The record contains comments from both those who supported and
those who objected to a specific omissions provision.\141\ Those
objecting argued
[[Page 40698]]
that the Section 317.3(b) prohibition on omissions would lead firms to
adopt compliance programs that curtail voluntary disclosures, thereby
``denying markets the benefits of the information that is readily
disclosed today.''\142\ Some commenters also questioned whether a
specific omissions prohibition would be ``efficacious'' given the
absence of any existing disclosure obligations in wholesale petroleum
markets.\143\ Still other commenters stated that revised proposed
Section 317.3(b) was superior to the initially proposed Rule because
the revisions enhanced the Rule's clarity regarding the coverage of
material omissions.\144\
---------------------------------------------------------------------------
\141\ Compare Greenberger at 3 (contending that the omissions
provision provided ``adequate protection to industry
participants''), with API at 12 (recommending that ``the Commission
eliminate liability for omissions''). Some commenters favored the
alternative rule language because it did not explicitly prohibit
material omissions. See API at 19 (urging ``the Commission to adopt
the proposed alternative rule language and clarify that it would
cover affirmative statements but not omissions''); CFDR at 4 n.3.
\142\ API at 17; see, e.g., Argus at 5 (``[C]ompanies may prefer
to disclose no information, instead of risking violating the rule's
prohibition on omissions . . . .'' ).
\143\ CFDR at 2, 4 (contending that an express prohibition on
material omissions created ``the premise of a disclosure duty [to
be] formally implicated by a rule''); see also Sutherland at 3
(``[W]holesale market participants are sophisticated parties who
generally [would] not require special remediation for . . .
omissions . . . .'' ).
\144\ See, e.g., ISDA at 2 (stating that the Commission's
modifications to the omissions provision ``made an important
enhancement to the ability of firm[s] to ensure compliance with the
rule''); Platts at 5 (noting that the revised proposed Rule's
omissions provision was ``a step forward'' with regard to clarity
and simplicity); CAPP at 2 (``With [the modifications to the
omissions provisions], CAPP concur[red] that the revised proposed
Rule would serve the public interest.'' ).
---------------------------------------------------------------------------
After reviewing the record, the Commission has decided to retain a
separate prohibition on material omissions because this conduct may
serve as a vehicle to manipulate wholesale petroleum markets even in
the absence of affirmative disclosure requirements. In promulgating
final Rule Section 317.3(b), the Commission has accommodated both
Section 811's injunction against market manipulation and commenters'
concerns that a separate omissions provision might discourage voluntary
disclosures that increase beneficial market transparency. The
Commission has achieved this accommodation by crafting the Section
317.3(b) prohibition of material omissions so that it differs from the
Section 317.3(a) prohibition on overt fraud or deceit in two
significant ways.
First, Section 317.3(b) contains a stricter scienter standard than
does Section 317.3(a). Specifically, establishing a final Rule Section
317.3(b) violation requires showing that the alleged violator
``intentionally fail[ed] to state a material fact that under the
circumstances render[ed] a statement made by such person misleading.''
This scienter standard requires that the alleged violator intend to
mislead by means of a material omission rather than simply being aware
of the potential risk posed by his or her conduct; that is, the actor
must have intentionally omitted information from a statement with the
further intent to make the statement misleading.
Second, final Rule Section 317.3(b) contains a limiting proviso not
found in final Rule Section 317.3(a). The proviso requires that the
wrongful conduct at issue distort or be likely to distort market
conditions. The limiting proviso provides businesses with the assurance
that omissions occurring in the context of routine business activity
are not actionable unless they otherwise undermine market participants'
ability to rely on the integrity of market data.
Final Rule Section 317.3(b) - like final Rule Section 317.3(a) -
also does not impose an affirmative duty to disclose information or a
duty to correct or update information.\145\ Rather, Section 317.3(b)
applies only if a covered entity voluntarily provides information - or
is compelled to provide information by statute, order, or regulation -
but then intentionally fails to disclose a material fact that makes the
information misleading. Section 317.3(b) therefore does not require
businesses to provide commercially sensitive information to any other
person absent a pre-existing legal obligation to do so.\146\ Similarly,
it is not a violation of final Rule Section 317.3(b) to withhold market
intelligence that a company gathered about market conditions.\147\ The
failure to provide such information would not establish a violation of
this provision, even if the counter-party in a commercial negotiation
would have acted differently if such information had been revealed. In
addition, the Commission does not generally intend that Section
317.3(b) reach routine bilateral commercial negotiations, which are
unlikely to inject false information into the market process.\148\
---------------------------------------------------------------------------
\145\ 74 FR at 18321 (noting that the revised proposed Rule
``would not . . . impose an affirmative duty to disclose
information). This determination comports with the suggestions of
several commenters. See, e.g., Sutherland at 3 (arguing against
imposing mandatory disclosure obligations on wholesale petroleum
market participants); CAPP at 2 (``CAPP remains concerned that
mandatory disclosure is a problematic approach in the absence of
specific, empirical evidence of damaging practices or incidences of
specific harm.'' ); Argus at 5 (stating that imposing mandatory
disclosure obligations would lead to confusion and would place a
severe burden on market participants); ISDA at 12-13 (stating that
``[s]uch a requirement would create a level of regulatory risk that
would deter market participants from communicating in any
substantive way with market participants''); API at 23 (arguing that
a final rule should not impose a duty to correct or update
information).
\146\ SEC Rule 10b-5 similarly does not create an affirmative
duty of disclosure. See, e.g., In re Time Warner Inc. Sec. Litig., 9
F.3d 259, 267 (2d Cir. 1993) (``[A] corporation is not required to
disclose a fact merely because a reasonable investor would very much
like to know that fact.'' (citing Basic Inc. v. Levinson, 485 U.S.
224, 239 n. 17 (1988))).
\147\ API asked the Commission to preserve market participants'
incentive to gather and evaluate market intelligence by promulgating
a rule that does not require disclosure of such information. API at
32-33 & n.37. API argued that collecting and evaluating market
intelligence is costly, and market participants are unlikely to
incur these costs if they are required to disclose such information.
API at 32. The Commission agrees that a party should not be required
to reveal such market intelligence in order to comply with the final
Rule. For example, a party would not be required to reveal estimates
of its future inventory levels to a counter-party during a business
negotiation.
\148\ In these instances, parties may seek redress under state
laws for contract or tort claims. These laws are more appropriate in
such cases. For example, state law better addresses issues such as
whether a counter-party in a commercial transaction had an
independent ability to verify representations made by a party or was
otherwise entitled to rely on such representations in reaching an
agreement; whether a contract was entered into under false
pretenses; or whether a party had a pre-existing legal duty to
provide information to a counter-party.
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a. Scienter Standard: A Person Must Intentionally Make a Misleading
Statement By Intentionally Omitting Material Information
As noted, Section 317.3(b)'s scienter standard requires that a
person must have intentionally omitted information from a statement
with the further intent to make the statement misleading.
Significantly, this standard does not require a showing that the actor
intended to manipulate a wholesale petroleum market or otherwise
intended to have an impact on the larger market. It requires only that
the actor intended to make a statement misleading by means of an
intentional omission of material fact. The Commission has determined to
apply the scienter requirement both to the omission of a material fact
and to the making of a misleading statement.\149\
---------------------------------------------------------------------------
\149\ See also ISDA at 8 (asking the Commission to clarify that
the Rule's scienter standard applies to a fraudulent act rather than
to any volitional act).
---------------------------------------------------------------------------
Several commenters expressed general support for the Commission's
decision to adopt an ``intentional'' standard for Section
317.3(b).\150\ Some
[[Page 40699]]
commenters further urged the Commission to elevate the standard to a
``specific intent to manipulate the market'' because, in their view, it
would better delineate limits on the conduct reached by the Rule.\151\
The Commission has determined not to do so because intentional
misleading statements can be of a character that undermines market
participants' overall trust in the integrity of market data, regardless
of whether an actor had a specific intent to have that effect or to
benefit from it. The Commission believes, furthermore, that the
``intentional'' standard provides market participants and their counsel
with as much clarity as practicable regarding the evidentiary burden
necessary to establish this element of a Section 317.3(b) violation.
Because a violation of Section 317.3(b) requires proof of intentional
conduct, it does not reach inadvertent conduct or mere mistakes.
---------------------------------------------------------------------------
\150\ See, e.g., API at 3 (stating the Commission ``correctly
recognize[d] the shortcomings of a knowledge / extreme recklessness
standard as applied to omissions''); CAPP at 1 (approving of the
revised scienter requirement); Argus at 2 (supporting the addition
of ``intentionally'' as ``a significant effort to reduce [a]
chilling effect and . . . draw[s] the rule closer to the existing
[CEA] language''); see also Platts at 5 (praising revisions to the
omissions provision, which it believed enhanced the clarity and
simplicity of the Rule). But see, e.g., Greenberger at 3 (stating
that the addition of ``intentionally'' to Section 317.3(b)
``unnecessarily inhibit[ed] the FTC from exercising its authority to
protect the public from market manipulation . . . .'' ).
\151\ See, e.g., CFDR at 4-5 (``[P]roof of intent to corrupt the
integrity of market pricing processes or an intent otherwise to
cause false, fictitious and artificial market prices must be a
necessary element of any anti-manipulation rule.'' ); API at 3
(arguing that specific intent ``is necessary to limit the rule to
the market-distorting conduct that Congress intended to address in
Section 811'').
---------------------------------------------------------------------------
b. The Omission of Material Information Must Distort or Be Likely to
Distort Market Conditions within a Wholesale Market for a Covered
Product
Under the revised proposed Rule, a statement made intentionally
misleading by reason of the intentional omission of a material fact
would violate the Rule only if its dissemination ``distorts or tends to
distort market conditions'' respecting any covered product. Final Rule
Section 317.3(b) retains this limiting market conditions language,
except that the Commission has determined to replace the phrase ``tends
to distort'' with the phrase ``is likely to distort.'' The Commission
has effected this modification in order to eliminate the possibility of
confusion, by clarifying that final Rule Section 317.3(b) focuses upon
those material omissions that are likely to distort market conditions.
Thus, establishing a violation of final Rule Section 317.3(b) expressly
requires proof that a material omission ``distorts or is likely to
distort market conditions'' for a covered product.\152\
---------------------------------------------------------------------------
\152\ The edit is consistent with the views of one commenter.
See API at 38 (arguing that the concept of ``tendency'' may lead to
unintended interpretations).
---------------------------------------------------------------------------
Commenters presented various views on the desirability of a market
conditions proviso.\153\ ISDA opined that ``the distorts or tends to
distort requirement . . . will benefit markets . . . because it should
remove from the ambit of the rule, private and other conversations and
conduct that do not distort or tend to distort markets and with which
the Commission should not be concerned.''\154\ Other commenters,
however, including ISDA, continued to argue that establishing a rule
violation should require proof of an actual price effect.\155\ CFDR
argued that the proposed market conditions proviso was an ``imprecise
and poor substitute for effects on market pricing,'' and that a market
manipulation rule should reach conduct that ``corrupt[s] the integrity
of market pricing.''\156\ Senator Cantwell opposed the proviso, arguing
that such language would unnecessarily limit the Commission's ability
to ``hold[] accountable those who employ any manipulative `device or
contrivance' in wholesale oil and petroleum markets.''\157\
---------------------------------------------------------------------------
\153\ One commenter, ATAA, expressed general support for the
market conditions proviso, but ultimately preferred the proposed
Rule as articulated in the NPRM, which does not contain a market
conditions proviso or similar limiting language. ATAA at 1, 5.
\154\ ISDA at 13-14.
\155\ See, e.g., API at 34 (preferring a required showing of
market effects); ISDA at 9 (``The Commission should require proof of
market effect to find a violation of the rule because public policy
only should be concerned with fraudulent activity that actually
affects market prices and, therefore, presumably harms wholesale
petroleum products markets.'' ); see also Sutherland at 4
(encouraging the Commission to require that prohibited behavior
impact the market).
\156\ CFDR at 5; see also API at 38 (```Tends to distort' is an
imprecise term, subject to expansive interpretations imposing
liability even on omissions that, in the circumstances, had no real
chance of affecting a covered market or consumers.'' ).
\157\ Senator Cantwell at 4. Commenters also expressed support
for the Commission decision to reject market or price effects
requirements. See Senator Cantwell at 3-4; CFA at 6; Greenberger at
3.
---------------------------------------------------------------------------
The Commission has concluded that the limiting proviso advances the
effective implementation of Section 811 in an important way. It ensures
that Section 317.3(b) prohibits only those material omissions that can
be expected to manipulate a wholesale petroleum market. In so doing, it
gives market participants the certainty that statements containing
material omissions will not be challenged if they do not adversely
threaten the reliability of data in a broader wholesale petroleum
market.
Significantly, however, by the proviso's own terms, establishing a
final Rule Section 317.3(b) violation does not require proof of a
specific price effect. Rather, the phrase ``distorts or is likely to
distort market conditions'' speaks only to the ability of market
participants to rely on the integrity of market data in making purchase
and sales decisions. Misleading statements of the kind that distort or
are likely to distort market data taint the integrity of the market
process.\158\
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\158\ As discussed earlier in Section III., markets absorb all
available information - good or bad - and continually adjust price
signals and other market data to any new information. When economic
actors can presume that the data of the market have not been
artificially manipulated, they are able to rely on the data to make
decisions that they believe will advance their individual economic
objectives. Participants can no longer trust that the data of the
market reflect underlying market fundamentals. The proviso contained
in final Rule Section 317.3(b) thus focuses enforcement of that
provision on conduct that inherently threatens confidence in the
market's integrity. When material omissions are of the character
that can be expected to distort observable market data, those
decisions are perforce riskier and the efficiency of the market
process is reduced. Market participants and the public are less able
to trust the underlying integrity of the market process.
---------------------------------------------------------------------------
In this regard, the core principle embodied in the proviso centers
around the character and the likely market reach of the false or
misleading information that is injected into the market by means of
misleading statements. Specifically, establishing a violation of final
Rule Section 317.3(b) requires showing that the character and likely
market reach of such false or misleading information is likely to make
market data less reliable. This evidentiary burden is lower than
proving a specific price effect or any other specific effect on a
market metric.
Focusing Section 317.3(b) enforcement on conduct that inherently
threatens market integrity because it is conduct that distorts or is
likely to distort market conditions, thus, achieves the objectives of
Section 811 while limiting interference with legitimate business
activity. For example, proof that a person intentionally reported price
information to a private data reporting company that is in the business
of providing price reports to the marketplace - and that the person
intentionally omitted material facts that the reporting company
required to be reported - would satisfy the market conditions proviso.
Similarly, intentionally omitting material information in statements in
order to mislead government officials during a national emergency would
violate Section 317.3(b) because such conduct can be expected to
threaten the integrity of the data within the market at large and on
which market participants rely.
[[Page 40700]]
c. Materiality
Section 317.3(b) of the final Rule prohibits the omission of a
``material fact.'' The standard for materiality for Section 317.3(b) is
the same as that for Section 317.3(a), which is discussed above in
Section IV.D.2.b. Thus, a fact is material if there is a substantial
likelihood that a reasonable market participant would consider it
important in making a decision to transact, because the material fact
significantly alters the total mix of information available.\159\ The
Commission has concluded that limiting the reach of final Rule Section
317.3(b) to an omission of a ``material fact'' provides market
participants with clarity as to the type of omission that is covered by
Section 317.3(b).
---------------------------------------------------------------------------
\159\ This standard conforms to the approach the Commission
followed in the RNPRM and NPRM with respect to materiality. 74 FR at
18323 n.214; 73 FR at 48326.
---------------------------------------------------------------------------
E. Section 317.4: Preemption
Section 815(c) of EISA states that ``[n]othing in this subtitle
preempts any State law.''\160\ Consequently, Section 317.4 of the final
Rule contains a standard preemption provision used in other FTC rules,
making it clear that the Commission does not intend to preempt the laws
of any state or local government, except to the extent of any
conflict.\161\ This approach is consistent with the position stated in
the RNPRM, where the Commission explained that there is no conflict,
and therefore no preemption, if state or local law affords equal or
greater protection from the manipulative conduct prohibited by the
revised proposed Rule.\162\
---------------------------------------------------------------------------
\160\ 42 U.S.C. 17305.
\161\ See, e.g., Disclosure Requirements and Prohibitions
Concerning Franchising, 16 CFR 436.10(b).
\162\ 74 FR at 18323.
---------------------------------------------------------------------------
No commenters addressed preemption of state law. Accordingly, the
final Rule adopts the preemption provision proposed in the RNPRM.\163\
---------------------------------------------------------------------------
\163\ See 74 FR at 18323.
---------------------------------------------------------------------------
F. Section 317.5: Severability
Section 317.5 of the final Rule contains a standard severability
provision used in other FTC rules.\164\ This provision makes clear that
if any part of the Rule is held invalid by a court, the rest of the
Rule will remain in effect. The Commission received no comments on this
issue. Accordingly, the Commission adopts without alteration the
severability provision proposed in the RNPRM.\165\
---------------------------------------------------------------------------
\164\ See, e.g., Telemarketing Sales Rule, 16 CFR 310.9; Used
Motor Vehicle Trade Regulation Rule, 16 CFR 455.7.
\165\ 74 FR at 18323.
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G. Regulatory Flexibility Act
The Regulatory Flexibility Act of 1980 (``RFA'')\166\ generally
requires a description and analysis of proposed and final rules that
will have a significant economic impact on a substantial number of
small entities. Specifically, the RFA requires an agency to provide an
Initial Regulatory Flexibility Analysis (``IRFA'')\167\ with a proposed
Rule and a Final Regulatory Flexibility Analysis (``FRFA'')\168\ with a
final rule, if any. The Commission is not required to do such analyses
if a rule would not have such an economic effect.\169\
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\166\ 5 U.S.C. 601-612.
\167\ 5 U.S.C. 603.
\168\ 5 U.S.C. 604.
\169\ See 5 U.S.C. 605(b).
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Although the scope of the final Rule may reach a substantial number
of small entities as defined in the RFA, the Commission does not
believe that the Rule will have a significant economic impact on those
businesses.\170\ The Commission specifically requested comments on the
economic impact of the revised proposed Rule and received none.\171\
Given that there are no reporting requirements, document or data
retention provisions, or any other affirmative duties imposed, it is
unlikely that the final Rule imposes costs to comply beyond standard
costs associated with ensuring that behavior and statements are not
fraudulent or deceptive. Therefore, the Commission believes that the
final Rule will not have a significant economic impact on a substantial
number of small entities. Notwithstanding this belief, the Commission
has prepared a FRFA, as set forth below.
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\170\ The RFA definition of ``small entity'' refers to the
definition provided in the Small Business Act, which defines a
``small-business concern'' as a business that is ``independently
owned and operated and which is not dominant in its field of
operation.'' 15 U.S.C. 632(a)(1). As noted above, Section 317.2(d)
of the final Rule defines a ``person'' as ``any individual, group,
unincorporated association, limited or general partnership,
corporation, or other business entity.''
\171\ Although no commenters addressed whether the revised
proposed Rule would have an economic impact on small entities, some
commenters contended that the revised proposed Rule would be costly
and burdensome to the industry. None of these commenters submitted
data for the Commission to analyze any such economic impact of the
Rule. See, e.g., API at 8 (adhering to the revised proposed Rule
will force participants to enact burdensome compliance procedures
raising industry costs and restricting efficient and procompetitive
conduct); SIGMA at 2 (including rack sales in the definition of
``wholesale'' will impose significant compliance requirements on the
gasoline marketing industry).
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1. Need for and Objectives of the Final Rule
Section 811 grants the Commission the authority to promulgate a
rule that is ``necessaryor appropriate in the public interest or for
the protection of United States citizens.''\172\ As discussed above,
the Commission believes that promulgating the final Rule is appropriate
to prevent manipulative practices affecting wholesale markets for
petroleum products, and the Commission has tailored the Rule
specifically to reach manipulative behavior that likely impacts those
commodities described in Section 811. The final Rule supplements the
Commission's existing antitrust and consumer protection law enforcement
tools.
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\172\ 42 U.S.C. 17301.
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2. Significant Issues Raised by the Public Comment, Summary of the
Agency's Assessment of these Issues, and Changes, if any, Made in
Response to Such Comments
The Commission received 155 comments in response to its ANPR, 34
comments in response to its NPRM, and 17 comments in response to its
RNPRM. Further, the Commission staff sought additional comment by
holding a one-day public workshop to discuss the issues arising from
the comments. The comments and the workshop transcript are part of the
rulemaking record and are available at the Commission's website.\173\
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\173\ See (http://www.ftc.gov./ftc/oilgas/rules.htm).
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Based on the record in this proceeding, the Commission has
concluded that the final Rule should be a broad, anti-fraud rule guided
by the principles of SEC Rule 10b-5. Like the initially proposed Rule
and the revised proposed Rule, the final Rule broadly prohibits
fraudulent or deceptive conduct. However, in response to commenters'
concerns, the Commission has modified the final Rule in three ways to
clarify the type of conduct that would violate the Rule and to mitigate
chilling of legitimate conduct.
First, the final Rule, like the revised proposed Rule, consolidates
the initially proposed Rule's three-part conduct prohibition into a
two-part conduct prohibition that ``more clearly and precisely
denote[s] the unlawful conduct [the Rule] prohibits.''\174\ Second,
each paragraph of the conduct prohibition in the final Rule contains an
explicit and tailored scienter standard. The different scienter
standards address concerns raised by commenters that the initially
proposed Rule, which had only
[[Page 40701]]
a single, scienter standard, would have unacceptably chilled legitimate
conduct.\175\ Third, one paragraph of the final Rule, the omissions
paragraph, contains a market conditions proviso that will limit the
paragraph to only those omissions that can be expected to result in
manipulative conduct harmful to consumers without interfering with
legitimate business conduct.
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\174\ 74 FR at 18316.
\175\ See id.
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3. Description and Estimate of Number of Small Entities Subject to the
Final Rule Or Explanation Why no Estimate is Available
The final Rule applies to entities engaging in the purchase or sale
of crude oil, gasoline, or petroleum distillates. These potentially
include petroleum refiners, blenders, wholesalers, and dealers
(including terminal operators that sell covered commodities). Although
many of these entities are large international and domestic
corporations, the Commission believes that a number of these covered
entities may be small entities.\176\ According to the SBA size
standards, and utilizing SBA source data, the Commission estimates that
between approximately 1,700 and 5,200 covered entities would be
classified as small entities.\177\
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\176\ Directly covered Directly covered entities under the final
Rule are classified as small businesses under the Small Business
Size Standards component of the North American Industry
Classification System (``NAICS'') as follows: petroleum refineries
(NAICS code 324110) with no more than 1,500 employees nor greater
than 125,000 barrels per calendar day total Operable Atmospheric
Crude Oil Distillation capacity; petroleum bulk stations and
terminals (NAICS code 424710) with no more than 100 employees; and
petroleum and petroleum products merchant wholesalers (except bulk
stations and terminals) (NAICS code 424720) with no more than 100
employees. See Small Business Administration (``SBA''), Table of
Small Business Size Standards Matched to North American Industry
Classification System Codes (Aug. 22, 2008), available at (http://
www.sba.gov/idc/groups/public/documents/sba_homepage/serv_sstd_
tablepdf.pdf).
\177\ The SBA publication providing data on the number of firms
and number of employees by firm does not provide sufficient
precision to gauge the number of small businesses that may be
impacted by the final Rule accurately. The data are provided in
increments of 0-4 employees, fewer than 20 employees, and fewer than
500 employees. SBA, Employer Firms, & Employment by Employment Size
of Firm by NAICS Codes, 2006, available at (http://www.sba.gov/advo/
research/us06_n6.pdf). Thus, for the 228 petroleum refiners listed,
188 show that they have less than 500 employees. Although the
Commission is unaware of more than five refiners with less than
125,000 barrels of crude distillation capacity, the data may be kept
by refinery, rather than refiner. Similar problems exist for the
bulk terminal and bulk wholesale categories listed above, in which
the relevant small business cut-off is greater than 100 employees.
Although the Commission sought additional comment on the number of
small entities covered by the revised proposed Rule, it received
none. Accordingly, the small business data set forth in this FRFA
are the best estimates available to the Commission at this time.
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4. Description of Projected Reporting, Recordkeeping, and Other
Compliance Requirements of the Final Rule, Including an Estimate of the
Classes of Small Entities that Will Be Subject to the Rule and the Type
of Professional Skills that Will Be Necessary to Comply
The final Rule does not contain any requirement that covered
entities create, retain, submit, or disclose any information.
Accordingly, the Rule will impose no recordkeeping or related data
retention and maintenance or disclosure requirements on any covered
entity, including small entities.\178\ Given that there are no
reporting requirements, document or data retention provisions, or any
other affirmative duties imposed, it is unlikely that the final Rule
imposes costs to comply beyond standard costs (or skills) associated
with ensuring that behavior and statements are not fraudulent or
deceptive.
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\178\ Final Rule Section 317.3(b) applies only if a covered
entity voluntarily provides information - or is compelled to provide
information by statute, order, or regulation - but then
intentionally fails to disclose a material fact that makes the
information misleading. See Section IV.D.3 above.
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5. Steps the Agency Has Taken to Minimize Any Significant Economic
Impact on Small Entities, Consistent With the Stated Objectives of the
Applicable Statutes, Including the Factual, Policy, and Legal Reasons
for Selecting the Alternative(s) Finally Adopted, and Why Each of the
Significant Alternatives, if Any, Was Rejected
The final Rule is narrowly tailored to reduce compliance burdens on
covered entities, regardless of size. In formulating the Rule, the
Commission has taken several significant steps to minimize potential
burdens. As an initial matter, the Rule contains no recordkeeping or
disclosure obligations. The Rule focuses on preventing manipulation and
deception in wholesale petroleum markets. The Commission has declined
to include specific conduct or duty requirements, such as a duty to
supply product or a duty to provide access to pipelines and terminals.
The Rule also clarifies that covered entities need not disclose price,
volume, or other data to the market.
H. Paperwork Reduction Act
The final Rule does not impose any new information collection
requirements under the provisions of the Paperwork Reduction Act of
1995 (``PRA'').\179\
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\179\ 44 U.S.C. 3501-3521. Under the PRA, federal agencies must
obtain approval from the Office of Management and Budget (``OMB'')
for each collection of information they conduct or sponsor.
``Collection of information'' means agency requests or requirements
that members of the public submit reports, keep records, or provide
information to a third party. 44 U.S.C. 3502(3)(A).
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List of Subjects in 16 CFR Part 317
0
Accordingly, for the reasons set forth in the preamble, the Commission
amends Title 16, Chapter I, Subchapter C of the Code of Federal
Regulations by adding part 317 to read as follows:
PART 317 - PROHIBITION OF ENERGY MARKET MANIPULATION RULE
Sec.
317.1 Scope.
317.2 Definitions.
317.3 Prohibited practices.
317.4 Preemption.
317.5 Severability.
Authority: 42 U.S.C. 17301-17305; 15 U.S.C. 41-58.
Sec. 317.1 Scope.
This part implements Subtitle B of Title VIII of The Energy
Independence and Security Act of 2007 (``EISA''), Pub. L. 110-140, 121
Stat. 1723 (December 19, 2007), codified at 42 U.S.C. 17301-17305. This
Rule applies to any person over which the Federal Trade Commission has
jurisdiction under the Federal Trade Commission Act, 15 U.S.C. 41 et
seq.
Sec. 317.2 Definitions.
The following definitions shall apply throughout this Rule:
(a) Crude oil means any mixture of hydrocarbons that exists:
(1) In liquid phase in natural underground reservoirs and that
remains liquid at atmospheric pressure after passing through separating
facilities; or
(2) As shale oil or tar sands requiring further processing for sale
as a refinery feedstock.
(b) Gasoline means:
(1) Finished gasoline, including, but not limited to, conventional,
reformulated, and oxygenated blends; and
(2) Conventional and reformulated gasoline blendstock for oxygenate
blending.
(c) Knowingly means that the person knew or must have known that
his or her conduct was fraudulent or deceptive.
(d) Person means any individual, group, unincorporated association,
limited or general partnership, corporation, or other business entity.
[[Page 40702]]
(e) Petroleum distillates means:
(1) Jet fuels, including, but not limited to, all commercial and
military specification jet fuels; and
(2) Diesel fuels and fuel oils, including, but not limited to, No.
1, No. 2, and No. 4 diesel fuel, and No. 1, No. 2, and No. 4 fuel oil.
(f) Wholesale means:
(1) All purchases or sales of crude oil or jet fuel; and
(2) All purchases or sales of gasoline or petroleum distillates
(other than jet fuel) at the terminal rack or upstream of the terminal
rack level.
Sec. 317.3 Prohibited practices.
It shall be unlawful for any person, directly or indirectly, in
connection with the purchase or sale of crude oil, gasoline, or
petroleum distillates at wholesale, to:
(a) Knowingly engage in any act, practice, or course of business -
including the making of any untrue statement of material fact - that
operates or would operate as a fraud or deceit upon any person; or
(b) Intentionally fail to state a material fact that under the
circumstances renders a statement made by such person misleading,
provided that such omission distorts or is likely to distort market
conditions for any such product.
Sec. 317.4 Preemption.
The Federal Trade Commission does not intend, through the
promulgation of this Rule, to preempt the laws of any state or local
government, except to the extent that any such law conflicts with this
Rule. A law is not in conflict with this Rule if it affords equal or
greater protection from the prohibited practices set forth in Sec.
317.3.
Sec. 317.5 Severability.
The provisions of this Rule are separate and severable from one
another. If any provision is stayed or determined to be invalid, it is
the Commission's intention that the remaining provisions shall continue
in effect.
By direction of the Commission, Commissioner Kovacic dissenting.
Donald S. Clark
Secretary
Note: The following text will not be codified in Title 16 of the
Code of Federal Regulations.
Statement of Chairman Jon Leibowitz
When Congress passed the Energy Independence and Security Act of
2007, it authorized the Commission to develop a rule to prevent
manipulation in wholesale energy markets.\1\ The goal of Congress was
for the Commission to detect and prevent market manipulation that might
lead to higher gas prices for consumers. After a thorough and intensive
process, the Commission has started to do just that. The rule issued by
the Commission today is a broad anti-fraud measure that will help us
prohibit conduct that harms consumers but that may not violate
antitrust laws.
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\1\ Congress authorized the rule in section 811 of the Act using
language from an earlier bill offered by Senator Maria Cantwell. See
Petroleum Consumer Price Gouging Protection Act, S. 1263, 110th
Cong. Sec. Sec. 4 and 5(a) (2007).
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We are going to use this authority as aggressively as possible to
stop market manipulation that drives up prices at the pump.
Trade associations representing the oil industry have voiced
concern about the new rule. They argue that it will chill business
conduct in the service of stopping something that they don't believe is
happening in the first place. These industry advocates have proposed
several specific changes that would weaken the rule - requiring a
higher scienter standard under the general liability provision,
requiring an explicit market distortion element for the entire rule,
and entirely eliminating liability for omissions.\2\
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\2\ See generally, Comments of the American Petroleum Institute
and the National Petrochemical and Refiners Association in Response
to Revised Notice of Proposed Rulemaking (May 20, 2009), available
at (http://www.ftc.gov/os/comments/marketmanipulation3/541354-
00009.pdf).
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I am fundamentally opposed to these proposals. They would
effectively neuter the rule and, as my colleague Commissioner Rosch
notes in his concurring statement, they would undermine Congressional
intent. For example, the proposed changes would make it harder - if not
impossible - to prosecute those who manipulate the market by
intentionally omitting critical information from their communications,
even when those omissions distort market conditions and raise gasoline
prices for all Americans. Such omissions can be every bit as deceptive
as any other type of fraudulent conduct, so it is crucial that we have
the ability to prevent and prosecute them. A rule that does not allow
us to go after such conduct would limit our ability to protect
consumers.
The rule as proposed already takes into account legitimate industry
concerns. In fact, we responded directly to those concerns by modifying
the more expansive proposal in the draft rule we released last summer,
originally based on the Securities and Exchange Commission rule
10b-5, to accommodate industry worries.\3\ The current rule, as
modified, strikes the right balance; it gives the Commission the
authority to stop fraudulent conduct in energy markets but does not
undermine appropriate business activity.
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\3\ See, e.g., id. at 1 (``In particular, API and NPRA welcome
the Commission's recognition that wholesale petroleum markets differ
significantly from securities markets and the Commission's efforts
to tailor the proposed rule to reflect those differences.'' ).
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It is only the fact that gas prices were over four dollars per
gallon a year ago that keeps us from thinking that prices are too high
today. If we water down this rule as suggested by the industry, it
would hinder our ability to stop manipulation of wholesale petroleum
markets. That would undermine the intent of Congress, and undermine the
efforts of the Commission to protect consumers and do our job.
Dissenting Statement of Commissioner William E. Kovacic
Since early 2008, a task force of the staff of the Federal Trade
Commission (FTC) has devoted extraordinary care, skill, and effort to
the development of a rule to implement Title VIII of The Energy
Independence and Security Act of 2007.\1\ Their performance on this
project - from the early research on the possible content of a rule
through the public consultations and drafting of options for the
Commission's consideration - is a model of superb public
administration. I thank and congratulate them.
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\1\ 42 U.S.C. Sec. Sec. 17301-17305.
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I disagree with the choices taken by the Commission today in
promulgating a Final Rule. In connection with wholesale transactions
involving ``crude oil, gasoline, or petroleum distillates,'' Section
317.3(a) of the Commission's Final Rule makes it illegal to ``Knowingly
engage in any act, practice, or course of business . . . that operates
or would operate as a fraud or deceit'' on any person.\2\ Section
317.3(b) of the Final Rule makes it illegal for a party
``[i]ntentionally'' to ``fail to state a material fact'' where ``such
omission distorts or is likely to distort market conditions . . .
.''\3\ Compared to Paragraph 3(a), Paragraph 3(b) imposes a more
demanding scienter requirement. To violate Paragraph 3(b), the person
must act ``intentionally'' rather than ``knowingly,'' a state of mind
that exists when the person ``knew or must have known that his or her
conduct was
[[Page 40703]]
fraudulent or deceptive.''\4\ Paragraph 3(b) also contains the
requirement, missing in Paragraph 3(a), that the behavior ``distort
market conditions.''
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\2\ Prohibitions on Market Manipulation, Statement of Basis and
Purpose and Final Rule (to be codified at 16 C.F.R. Sec. 317.3(a)).
\3\ Id. (to be codified at 16 C.F.R. Sec. 317.3(b)).
\4\ Id. (to be codified at 16 C.F.R. Sec. 317.2(c)).
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I dissent from the Commission's promulgation of the Final Rule. To
my mind, a minimally acceptable rule would have departed from the
Commission's Final Rule in two major respects. First, it would have
incorporated into Paragraph 3(a) the requirements that the conduct be
intentional and either actually or likely distorts market conditions.
Second, the rule would not have contained a separate command dealing
with omissions, thus deleting Paragraph 3(b) of the Commission's Final
Rule.\5\ As it stands, I cannot say that the Final Rule is in the
public interest.\6\
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\5\ Such a rule would be similar to the alternative rule
proposed in the Revised Notice of Proposed Rule Making, 74 Fed. Reg.
18304, 18327 (Apr. 22, 2009).
\6\ See 42 U.S.C. Sec. 17301 (permitting the Commission to
adopt a rule to implement the Energy Independence and Security Act
if it finds such a rule to be in the ``public interest'').
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When implemented, the Final Rule will cover a vast number of
routine transactions - literally thousands daily - in petroleum
products. These transactions are the indispensable means by which
gasoline, diesel fuel, and jet fuel move from refineries to end users.
Society has an immense stake in avoiding unnecessary disruption to
these undertakings. Violations of the Commission's Final Rule are
punishable with civil penalties of $1 million per violation, and each
day on which the misconduct continues is treated as a separate
offense.\7\
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\7\ 42 U.S.C. Sec. 17304.
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By reason of the drafting choices described above, the Commission
has taken inadequate precautions to ensure that the aims of the
underlying legislation are attained without imposing social costs that
swamp the benefits Congress sought to achieve. Because the Final Rule's
requirements are unlikely to proscribe only genuinely harmful conduct,
there is a serious danger that it will impede routine contracting that
is benign or procompetitive and thereby make Americans worse off by
damaging the flow of commerce in petroleum products. The Commission's
extensive work since the 1960s in reviewing petroleum industry mergers
and allegations of anticompetitive conduct ought to have made the
agency more attentive to these considerations. The FTC's previous
inquiries have determined that price fluctuations for petroleum
products result principally from market forces: prices decline when
supply rises or demand falls.\8\ This experience does not gainsay the
potential harm that consumers could suffer from manipulation of market
prices. It does suggest, however, that the contributions of a rule
against market manipulation for petroleum products to the solution of
the nation's larger energy problems are likely to be small. At the same
time, the breadth of the substantive commands of the Commission's Final
Rule, its applicability to an expansive range of routine contracting,
and the severity of the penalties for violations create serious
possibilities for deterring suppliers from participating in
transactions that pose no threat to consumers. By incorporating the
scienter and market distortion elements of Paragraph 3(b) into
Paragraph 3(a), the Commission could have minimized these hazards. It
unfortunately chose not to do so.
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\8\ See Federal Trade Commission, Investigation of Gasoline
Price Manipulation and Post-Katrina Gas Price Increases (2006), at
(http://www.ftc.gov/reports/060518PublicGasoline PricesInvestigation
ReportFinal.pdf); Federal Trade Commission, Gasoline Price Changes:
The Dynamic of Supply, Demand, and Competition (2005), at (http://
www.ftc.gov/reports/gasprices05/050705gaspricesrpt.pdf).
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The inclusion in the Final Rule of the omissions provision,
Paragraph 3(b), is a second regrettable decision. A proscription on
certain acts, practices, or courses of business, alone is sufficiently
broad to capture fraudulent omissions. Because the Final Rule is
modeled on SEC Rule 10b-5, a separate and distinct omissions
prohibition could invite subsequent interpretations that the Final Rule
requires affirmative disclosures. Although the Commission explains in
the Statement of Basis and Purpose that accompanies the Final Rule that
it does not interpret Paragraph 3(b) as requiring an affirmative duty
to disclose,\9\ it is likely that other adjudicators will be called on
to interpret the Final Rule. These adjudicators may not reach the same
conclusion as the Commission, especially to the extent that the Final
Rule becomes the subject of litigation in state courts under state
consumer protection laws.\10\
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\9\ See Statement of Basis and Purpose and Final Rule at 33 n.92
(``Consistent with its position in the NPRM and the RNPRM, the
Commission currently does not expect to impose specific conduct or
duty requirements such as . . . a duty to disclose, or a duty to
update or correct information.'' ).
\10\ Some states model their consumer protection laws on the FTC
Act, and some allow private causes of action under these laws.
Because the Energy Independence and Security Act provides that a
violation of the Act ``shall be treated as an unfair or deceptive
act or practice proscribed under a rule issued under Section
18(a)(1)(B) of the [FTC Act],'' 42 U.S.C. Sec. 17303, it is not
unreasonable to assume that the Final Rule may provide a cause of
action under some state consumer protection laws.
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In light of this substantial liability risk, the omissions
component may well force the many firms that engage in legitimate
transactions with their competitors on a daily basis to choose between
two problematic paths of conduct: one way to avoid a potentially
wrongful omission is to disclose more private information to your
rival; a second approach is to limit investments in acquiring
potentially relevant marketplace information and to reduce the number
of encounters that could be examined through the lens of the
Commission's Final Rule. Neither alternative is good for consumers.
Excessive disclosure of private information among competitors threatens
competition and is precisely the type of conduct that the FTC
investigates and challenges under the antitrust laws. A competition
agency should not be in the business of telling rivals to give each
other more information about their business operations. A decision to
gather less marketplace information or to engage in fewer transactions
promises to translate into higher prices that may not accurately
reflect underlying supply and demand conditions.
Last, the Commission's Final Rule has the capacity to deflect
needed attention away from root causes of the country's energy problems
and to divert effort away from the pursuit of effective solutions. For
example, there is a legitimate debate to be had about whether gasoline
prices adequately reflect external costs, such as those associated with
environmental damage, national security, or traffic congestion. We also
might usefully debate the proper mix of increased domestic oil
production, nuclear power, or renewable energy sources to enhance
energy security. By focusing valuable attention on measures that have
little capacity to address these and other fundamental issues, the
Commission's Final Rule may serve to relax the urgency that the nation
ought to feel to devise approaches that truly come to grips with the
larger dimensions of the energy problem.
Concurring Statement of Commissioner J. Thomas Rosch
I concur in the form of the Oil Price Manipulation Rule that the
Commission has adopted. In doing so, however, I want to make it clear
that I agree with Commissioner Kovacic's misgivings. The ``conduct''
prong of the Rule does
[[Page 40704]]
not require proof of an exercise of market power having an adverse
impact on the market as a whole, as is normally required in challenges
to conduct under the Sherman Act. Further, it is not clear that the
state of mind that must be proved establishes a sufficient limiting
principle. On the other hand, although the ``omissions'' prong of the
Rule does arguably require proof that the omission adversely impacts
the market as a whole, like Rule 10b-5 it does not require proof of the
state of mind that the ``conduct'' prong requires and hence may not
establish a sufficiently limiting principle either. The net result is
that the Rule may chill oil companies from, among other things,
voluntarily providing their data to independent data-reporting firms,
as they do now, for fear that they may be held liable for an
inadvertent omission. That would be unfortunate because at least in
some circumstances, having abundant data of that sort can be pro-
competitive. See United States v. United States Gypsum Co., 438 U.S.
422 (1978); see also U.S. Dep't of Justice and Federal Trade Comm'n,
Statement of Antitrust Enforcement Policy in Health Care, Statement 6
(``Provider Participation in Exchanges of Price and Cost Information'')
(August 1996), available at (http://www.usdoj.gov/atr/public/
guidelines/0000.pdf). It would be especially unfortunate if the Rule
were interpreted or applied so as to permit follow-on private actions.
All of this said, however, Congress apparently intended that the
Commission fashion a Rule that goes beyond the Sherman Act and that
resembles SEC Rule 10b-5. See Federal Trade Commission, Prohibitions on
Market Manipulation in Subtitle B of Title VIII of the Energy
Independence and Security Act of 2007, at 14 n.44 (July 28, 2009).\1\ I
believe that we must adhere to the Congressional intent in this regard.
In exercising prosecutorial discretion, however, I, for one, intend to
keep these misgivings in mind.
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\1\ In addition to the text of Section 811, which reflects
congressional intent that the Commission look to SEC Rule 10b-5 in
crafting a market manipulation rule, I also find the statements of
Sen. Cantwell (the bill's sponsor) which are consistent with this
text persuasive. See 151 Cong. Rec. S10238 (daily ed. Sept. 20,
2005) (statement of Sen. Cantwell introducing S. 1735, a bill to
Improve the Federal Trade Commission's Ability to Protect Consumers
from Price-Gouging During Energy Emergencies, which was reintroduced
in the 110th Congress as S.1263); New Haven Bd. of Educ. v. Bell,
465 U.S. 512, 526-27 (1982) (``Although the statements of one
legislator made during debate may not be controlling, Senator Bayh's
remarks, as those of the sponsor of the language ultimately
enacted'' - in a context where ``no committee report discusses the
provisions'' - ``are an authoritative guide to the statute's
construction.'' ).
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Federal Register
Attachment A
RNPRM Commenters
Association of Oil Pipe Lines (``AOPL'')
American Petroleum Institute and the National Petrochemical and
Refiners Association (``API'')
Argus Media Inc. (``Argus'')
Air Transport Association of America, Inc. (``ATAA'')
Maria Cantwell, United States Senator, State of Washington
(``Senator Cantwell'')
Canadian Association of Petroleum Producers (``CAPP'')
Consumer Federation of America, Mark Cooper, Director of Research
(``CFA'')
New York City Bar Association Committee on Futures & Derivatives
Regulation (``CFDR'')
U. S. Commodity Futures Trading Commission, Terry S. Arbit, General
Counsel (``CFTC'')
Michael Greenberger (``Greenberger'')
Illinois Petroleum Marketers Association (``IPMA'')
International Swaps and Derivatives Association, Inc. (``ISDA'')
Futures Industry Association, CME Group, Managed Funds Association,
Intercontinental Exchange, Inc., National Futures Association (``MFA'')
Platts (``Platts'')
Petroleum Marketers Association of America (``PMAA'')
Society of Independent Gasoline Marketers of America (``SIGMA'')
Sutherland Asbill & Brennan LLP (``Sutherland'')
Federal Register
Attachment B
NPRM Commenters
Association of Oil Pipe Lines (``AOPL'')
American Petroleum Institute (``API'')
Argus Media Inc. (``Argus'')
American Trucking Associations, Inc. (``ATA'')
Air Transport Association of America, Inc. (``ATAA'')
Andrew Boxer, Ellis Boxer & Blake (``Boxer'')
Sharon Brown-Hruska, National Economic Research Associates, Inc.
(``Brown-Hruska'')
California Attorney General, Edmund G. Brown Jr. (``CA AG'')
Canadian Association of Petroleum Producers (``CAPP'')
Consumer Federation of America, Mark Cooper, Director of Research
(``CFA1''; ``CFA2'')
New York City Bar Association, Committee on Futures & Derivatives
Regulation (``CFDR'')
U. S. Commodity Futures Trading Commission, Terry S. Arbit, General
Counsel(``CFTC (Arbit)'')
U. S. Commodity Futures Trading Commission, Bart Chilton,
Commissioner (``CFTC (Chilton)'')
John Q. Public (``Consumer'')
Flint Hills Resources, LP (``Flint Hills'')
Winfried Fruehauf, National Bank Financial (``Fruehauf'')
James D. Hamilton, University of California, San Diego
(``Hamilton'')
Illinois Petroleum Marketers Association (``IPMA'')
International Swaps and Derivatives Association, Inc. (``ISDA'')
Futures Industry Association, CME Group, Managed Funds Association,
Intercontinental Exchange, Inc., National Futures Association (``MFA'')
Michigan Petroleum Association/Michigan Association of Convenience
Stores (``MPA'')
Mississippi Attorney General, Jim Hood (``MS AG'')
Lisa Murkowski, United State Senator, State of Alaska
(``Murkowski'')
Timothy J. Muris and J. Howard Beales, III (``Muris'')
Navajo Nation, Resolute Natural Resources Company, and Navajo
Nation Oil and Gas Company (``Navajo Nation'')
Nebraska Petroleum Marketers & Convenience Store Association
(``NPCA'')
National Petrochemical and Refiners Association (``NPRA'')
Craig Pirrong, The University of Houston: Bauer College of Business
(``Pirrong'')
Plains All American Pipeline, L.P. (``Plains'')
Platts (``Platts'')
Petroleum Marketers Association of America (``PMAA'')
Society of Independent Gasoline Marketers of America (``SIGMA'')
Sutherland Asbill & Brennan LLP (``Sutherland'')
David J. Van Susteren, Fulbright & Jaworski LLP (``Van Susteren'')
Federal Register
Attachment C
Workshop Participants
American Bar Association Section of Antitrust Law's Fuel & Energy
Industry Committee (``ABA Energy''): Bruce McDonald, Jones Day LLP
Association of Oil Pipe Lines (``AOPL''): Linda G. Stuntz, Stuntz,
Davis & Staffier, PC
American Petroleum Institute (``API''): Jonathan Gimblett,
Covington & Burling LLP
[[Page 40705]]
American Petroleum Institute (``API''): Robert A. Long, Jr.,
Covington & Burling LLP
Argus Media Inc. (``Argus''): Dan Massey
Consumer Federation of America (``CFA''): Mark Cooper
New York City Bar Association, Committee on Futures & Derivatives
Regulation (``CFDR''): Charles R. Mills, K&L Gates
CME Group (``CME''): De'Ana Dow
Flint Hills Resources, LP (``Flint Hills''): Alan Hallock
International Swaps and Derivatives Association, Inc. (``ISDA''):
Athena Y. Velie, McDermott, Will & Emery LLP
Futures Industry Association, CME Group, Managed Funds Association,
Intercontinental Exchange, Inc., National Futures Association
(``MFA''): Mark D. Young, Kirkland & Ellis LLP
Resolute Natural Resources Company (``Navajo Nation''): James
Piccone
Navajo Nation Oil and Gas Corporation (``Navajo Nation''): Perry
Shirley
National Petrochemical and Refiners Association (``NPRA''): Susan
S. DeSanti, Sonnenschein Nath & Rosenthal LLP
National Petrochemical and Refiners Association (``NPRA''): Charles
T. Drevna
Craig Pirrong, The University of Houston: Bauer College of Business
(``Pirrong'')
Platts (``Platts''): John Kingston
Petroleum Marketers Association of America (``PMAA''):
Robert Bassman, Bassman, Mitchell & Alfano, Chtd.
Society of Independent Gasoline Marketers of America (``SIGMA''):
James D. Barnette, Steptoe & Johnson LLP
Society of Independent Gasoline Marketers of America (``SIGMA''):
R. Timothy Columbus, Steptoe & Johnson LLP
David J. Van Susteren, Fulbright & Jaworski LLP (``Van Susteren'')
Federal Register
Attachment D
ANPR Commenters
American Bar Association/Section of Antitrust Law (``ABA'')
Association of Oil Pipe Lines (``AOPL'')
American Petroleum Institute and the National Petrochemical and
Refiners Association (``API'')
Patrick Barrett (``Barrett'')
Lawrence Barton (``Barton'')
Dave Beedle (``Beedle'')
Stanley Bergkamp (``Bergkamp'')
Louis Berman (``Berman'')
Bezdek Associates, Engineers PLLC (``Bezdek'')
Katherine Bibish (``Bibish'')
John Booke (``Booke'')
Bradley (``Bradley'')
Jeremy Bradley (``J. Bradley'')
Charles Bradt (``Bradt'')
Wendell Branham (``Branham'')
Lorraine Bremer (``Bremer'')
Gloria Briscolino (``Briscolino'')
Rick Brownstein (``Brownstein'')
Byrum (``Byrum'')
Canadian Association of Petroleum Producers (``CAPP'')
Jeff Carlson (``Carlson'')
Jacquelynne Catania (``Catania'')
Marie Cathey (``Cathey'')
New York City Bar, Association Committee on Futures & Derivatives
Regulation (``CFDR'')
U. S. Commodities Futures Trading Commission (``CFTC'')
Manuel Chavez (``Chavez'')
Michael Chudzik (``Chudzik'')
D. Church (``Church'')
Earl Clemons (``Clemons'')
Dan Clifton (``Clifton'')
Kim Cruz (``Cruz'')
Jerry Davidson (``Davidson'')
Don Deresz (``Deresz'')
Charlene Dermond (``Dermond'')
Kimberly DiPenta (``DiPenta'')
Penny Donaly (``Donaly1'')
Penny Donaly (``Donaly2'')
Penny Donaly (``Donaly3'')
Penny Donaly (``Donaly4'')
Deep River Group, Inc. (``DRG'')
Harold Ducote (``Ducote'')
Mary Dunaway (``Dunaway'')
Econ One Research, Inc. (``Econ One'')
Terri Edelson (``Edelson'')
Kevin Egan (``Egan'')
DJ Ericson (``Ericson'')
Mark Fish (``Fish'')
Flint Hills Resources, LP (``Flint Hills'')
Bob Frain (``Frain'')
Joseph Fusco ( ``Fusco'' )
Tricia Glidewell (``Glidewell'')
Robert Gould (``Gould'')
James Green (``Green'')
Michael Greenberger (``Greenberger'')
Christine Gregoire, Governor, State of Washington (``Gregoire'')
Hagan (``Hagan'')
Toni Hagan (``Toni'')
Charles Hamel (``Hamel'')
Chris Harris (``Harris'')
Thomas Herndon (``Herndon'')
Johnny Herring (``Herring'')
Hess Corporation (``Hess'')
David Hill (``Hill'')
Hopper (``Hopper'')
Sharon Hudecek (``Hudecek'')
IntercontinentalExchange, Inc. (``ICE'')
Institute for Energy Research (``IER'')
Independent Lubricant Manufacturers Association (``ILMA'')
Illinois Petroleum Marketers Association (``IPMA'')
International Swaps and Derivatives Association, Inc. (``ISDA'')
Micki Jay (``Jay'')
Kenneth Jensen (``Jensen'')
Paul Johnson (``Johnson'')
Tacie Jones (``Jones'')
Joy (``Joy'')
John Kaercher (``Kaercher'')
Kas Kas (``Kas'')
Kipp (``Kipp'')
Paola Kipp (``P. Kipp'')
Jerry LeCompte (``LeCompte'')
Kurt Lennert (``Lennert'')
Loucks (``Loucks'')
Robert Love (``Love'')
R. Matthews (``Matthews'')
Catherine May (``May'')
Mike Mazur (``Mazur'')
Sean McGill (``McGill'')
Kathy Meadows (``Meadows'')
Futures Industry Association, CME Group, Managed Funds Association,
IntercontinentalExchange, National Futures Association (``MFA'')
Bret Morris (``Morris'')
Theresa Morris-Ramos (``Morris-Ramos'')
Scott Morosini (``Morosini'')
Timothy J. Muris and J. Howard Beales, III (``Muris'')
Navajo Nation Resolute Natural Resources Company and Navajo Nation
Oil and Gas Company (``Navajo Nation'')
Laurie Nenortas (``Nenortas'')
James Nichols (``Nichols'')
Virgil Noffsinger (``Noffsinger'')
Noga (``Noga'')
Richard Nordland (``Nordland'')
National Propane Gas Association (``NPGA'')
Kerry O'Shea, (``O'Shea'')
Jeffery Parker (``Parker'')
Pamela Parzynski (``Parzynski'')
Brook Paschkes (``Paschkes'')
Brijesh Patel (``Patel'')
Stefanie Patsiavos (``Patsiavos'')
P D (``PD'')
Guillermo Pereira (``Pereira'')
James Persinger (``Persinger'')
Mary Phillips (``Phillips'')
Plains All American Pipeline, LLP (``Plains'')
Platts (``Platts'')
Betty Pike (``Pike'')
Petroleum Marketers Association of America (``PMAA'')
Joel Poston (``Poston'')
Radzicki (``Radzicki'')
Gary Reinecke (``Reinecke'')
Steve Roberson (``Roberson'')
Shawn Roberts (``Roberts'')
Linda Rooney (``Rooney'')
Mel Rubinstein (``Rubinstein'')secret (``secret'')
Joel Sharkey (``Sharkey'')
Society of Independent Gasoline Marketers of America (``SIGMA'')
Daryl Simon (``Simon'')
David Smith (``D. Smith'')
[[Page 40706]]
Donald Smith (``Do. Smith'')
Mary Smith (``M. Smith'')
Donna Spader (``Spader'')
Stabila (``Stabila'')
Alan Stark (``A. Stark'')
Gary Stark (``G. Stark'')
Robert Stevenson (``Stevenson'')
Ryan Stine (``Stine'')
Maurice Strickland (``Strickland'')
Sutherland, Asbill, and Brennan, LLP (``Sutherland'')
L. D. Tanner (``Tanner'')
Dennis Tapalaga (``Tapalaga'')
Tennessee Oil Marketers Association (``TOMA'')
Theisen (``Theisen'')
Greg Turner (``Turner'')
U. S. citizen (``U.S. citizen'')
U. S. Department of Justice, Criminal Fraud Section (``USDOJ'')
Jeff Van Hecke (``Van Hecke'')
Louis Vera (``Vera'')
Thomas Walker (``Walker'')
Victoria Warner (``Warner'')
Lisa Wathen (``Wathen'')
Watson (``Watson'')
Gary Watson (``G. Watson'')
Joseph Weaver (``Weaver'')
Webb (``Webb'')
Vaughn Weming (``Weming'')
Douglas Willis (``Willis'')
[FR Doc. E9-19257 Filed 8-11-09: 8:45 am]
BILLING CODE 6750-01-S