Brattle is an industry leader in the detection and analysis of manipulative behavior in commodity, energy, financial, and securities markets. We provide analytical support related to internal and government investigations of suspicious behavior and the associated expert testimony in government enforcement actions and related civil litigation.
We advise and assist clients in the U.S. and EU with the implementation of compliance programs and development of internal surveillance systems. We also assist international government agencies in the establishment of market monitoring and enforcement regimes. Brattle’s finance and energy professionals combine to provide deep expertise in the regulatory and physical dimensions of commodities, securities, and financial markets, with a thorough understanding of the use of derivatives and other hedging practices used in broader portfolio management.
Our approach to the analysis of manipulation claims is based on a logical framework that is used to evaluate behavior in a manner that is consistent with the methods used in agency enforcement actions. This approach allows us to deconstruct trading portfolios to confirm or refute manipulative activity such as uneconomic trading and fraud, as well as to distinguish legitimate trading practices like hedging from speculative positions that could benefit from manipulation.
We are well-versed in the anti-manipulation rules of the Securities and Exchange Commission (SEC), Federal Energy Regulatory Commission (FERC), Commodity Futures Trading Commission (CFTC), and Federal Trade Commission (FTC), as well as equivalent rules in place in the European Union (REMIT, MAD and the pending MAD II). We have also worked on manipulation cases brought pursuant to state laws or actions by the U.S. Department of Justice.
We provide clients with a holistic perspective concerning the types of behavior that may be deemed manipulative, one that is consistent with past enforcement outcomes and current enforcement cases.
Our services to clients in this area include:
- Analyses related to investigations, enforcement actions, and litigation, including:
- Initial assessments and analysis of behavior of concern: On learning of a government inquiry or in response to potential litigation concerning manipulation claims, clients and their counsel need to quickly assess whether such actions are groundless or have merit. We can assist this effort in a logical and efficient manner that is consistent with the approach used by the agencies in these cases.
- Assistance with deposition preparation and discovery: It is imperative that potential deponents understand the full ramifications of their activity before submitting to agency discovery. Our framework and analytical capabilities greatly assist such efforts by providing a foundation for understanding the weight of possible lines of questioning before they may arise.
- Assessment of posture for settlement: Where potentially manipulative exposure is found, we assist clients is determining the optimal posture for settlement such that exposure to civil penalties and damages are minimized. Given the increased possibility of criminal exposure associated with manipulation claims, we will assist client in defending against assertions of fraud and/or conspiracy that underlie such prosecutions.
- Expert testimony and litigation support: Brattle has provided expert testimony in support of agencies, plaintiffs, and defendants to market manipulation claims. Our analytic framework provides a thoroughly agnostic mechanism for the analysis of such claims, resulting in a consistent approach that is equally advantageous and applicable to all potential claimants and defendants.
- Compliance seminars and implementation of compliance programs: We assist companies in communicating to their traders and compliance personnel meaningful guidance as to behavior that may run afoul of the agencies’ anti-manipulation rule, and provide assistance in the creation and maintenance of meaningful compliance programs.
- Internal or market surveillance: Brattle assists clients in creating screens for the detection and analysis of potentially manipulative behavior. Through counsel, we assist clients in the implementation and auditing of these screening tools to assist in the optimization of screening methodologies to minimize the likelihood of false positives and false negatives and the resulting waste of resources.
- Internal analysis of suspicious behavior and agency self-reports: We regularly assist clients in evaluating the significance of trading behavior that may run afoul of agency manipulation rules and/or rules which govern disruptive trading practices. Where directed by counsel, we support clients in self-reporting behavior of concern to the relevant agencies.
L'Autorità per l'energia elettrica e il gas commissioned Brattle to assist it in developing a series of indicators to help identify market manipulation and/or market abuse in the Italian wholesale natural gas market. New legislation at the European level – notably the Regulation on Energy Market Integrity and Transparency (REMIT) as well as the Market Abuse Regulation (MAR) – have extended the duties of National Regulatory Authorities with respect to monitoring for such behavior.
A Brattle client requested an independent analysis concerning the suspected manipulation of precious metals spot, futures, and options contracts traded on Comex and Globex. Our analysis used data from the exchanges and the suspected firm to deconstruct its trading books. Trading instruments were separated into potential manipulation triggers and targets, such that the cause and effect of the behavior of concern could be evaluated analytically. Where this economic analysis suggested behavior of concern, contemporaneous email and instant messages were evaluated to confirm or refute manipulative intent.
Over the period of a decade The Brattle Group provided litigation support and expert testimony in four separate proceedings before the FERC seeking refunds from sellers in the California Power Exchange (PX), the California Independent System Operator (ISO), and the bilateral markets in the Pacific Northwest in the aftermath of the Energy Crisis of 2000-2001. Our clients included the largest utility companies in California, the California Attorney General, and the California Public Utilities Commission. Brattle experts offered testimony on manipulative gaming schemes, the exercise of market power, price discrimination, fraudulent misrepresentation in electricity and ancillary services sales, and the price impacts of such seller behavior on prices. Brattle testimony linked manipulative activities directly to violations of the PX and ISO tariffs and sellers’ market-based-rate authorizations and also explained why the resulting distorted prices in bilateral contracts were contrary to the public interest in the context of the Mobile-Sierra Doctrine.
Assisting a large electricity trader in evaluating its potential exposure given an agency investigation into the industry’s financial trading activity. Analysis uses the trader’s internal trading records and publically available data from the Regional Transmission Organization (RTO) to evaluate if there is potential liability under the FERC’s anti-manipulation rule, as evaluated using the framework. Where concerning behavior is found, we review other client records to determine whether the trading at issue served a stand-alone legitimate business purpose, thus exonerating potential assertions of manipulative intent.
Market Power and Market Manipulation in Energy Markets: From the California Crisis to the Present
Gerald A. Taylor, Shaun D. Ledgerwood, Romkaew P. Broehm, and Peter S. Fox-Penner
Published by PUR Inc.
Market Manipulation Push is Widening the Compliance Gap
January 23, 2015
Published in Risk.net
Using Virtual Bids to Manipulate the Value of Financial Transmission Rights
Published in The Electricity Journal, Vol. 26, Issue 9
Uneconomic trading and market manipulation
Published in Energy Risk
A Unifying Approach to Market Manipulation Compliance
Presented at the Platts European Gas and Power Trading Conference, London, UK
Market Manipulation post Hunter vs. FERC: A Framework for Unified Analysis
Panel presentation delivered at the Harvard Electricity Policy Group’s 71st Plenary Session, Calgary, AB
A Framework for Analyzing Market Manipulation
Published in Review of Law & Economics, Volume 8, No. 1
A Comparison of Anti-Manipulation Rules in U.S. and EU Electricity and Natural Gas Markets: A Proposal for a Common Standard
Published in Energy Law Journal