Academic journal article Energy Law Journal

Criminal Liability for False Statements: 1001 Things to Worry about during Ferc and Cftc Investigations of Energy Companies and Individuals

Academic journal article Energy Law Journal

Criminal Liability for False Statements: 1001 Things to Worry about during Ferc and Cftc Investigations of Energy Companies and Individuals

Article excerpt


There has been a lot of attention paid in recent years to the risk of enforcement actions in the energy markets. Both the Federal Energy Regulatory Commission (FERC) and the Commodity Futures Trading Commission (CFTC) have aggressively pursued allegations of fraud and market manipulation under expanded enforcement authority granted by Congress.1 The trend toward increased enforcement will likely continue. In its most recent annual report, the FERC's Office of Enforcement emphasized that its renewed priorities for the coming year are to focus on "[f]raud and market manipulation" and conduct "that threatens the transparency of regulated markets." 2 The CFTC, although responsible for diverse commodity and derivatives markets, has announced that its enforcement efforts will continue to extend to the energy sector.3

Agency action is only one part of the regulatory risk faced by energy companies. Companies operating in regulated markets face the additional concern that allegations of misconduct may attract the scrutiny of criminal prosecutors. In addition to the power to impose or seek financial penalties, both the CFTC and the FERC have the authority to refer matters to the United States Department of Justice (DOJ) for criminal investigation. The CFTC often works closely with the DOJ in conducting investigations that can result in parallel civil and criminal actions.4 Criminal referral has also long been part of the FERC's statutory enforcement authority and became more significant with the passage of the Energy Policy Act of 2005, which increased the maximum fines and terms of imprisonment for criminal offenses when based on a referral by the FERC. 5 Although there have not been criminal prosecutions related to FERC enforcement investigations or actions since the passage of the Act, it would be a mistake not to see warning signs. The most recent annual report by the Office of Enforcement, for example, indicates that an unspecified number of misconduct matters were referred to the DOJ in 2014.6

This article focuses on one aspect of the risk of criminal liability in the energy markets-the potential for a false statements prosecution arising out of a FERC or CFTC investigation. There are sound reasons to be concerned about this issue. A false statements prosecution can be an attractive option for prosecutors in complex investigations. Uncovering evidence of "market manipulation" is not a simple task for the DOJ, as the relevant statutes and regulations often do not clearly define prohibited behavior and may be difficult to apply. Federal prosecutors also generally lack industry expertise and may therefore be ill-equipped to investigate and assess complex transactions in energy markets. As a result, assembling a fraud or market manipulation case under exacting criminal law standards can be a challenge.

Putting together a criminal false statements case, on the other hand, is relatively straightforward. Any DOJ probe into the energy markets will likely arise from a pre-existing agency investigation or enforcement action, and prosecutors will therefore have the benefit of extensive fact-finding and prior witness statements. Prosecutors need only test the veracity of prior testimony to build a criminal case. With the promulgation of market conduct and other rules focused on the accuracy of communications and the dissemination of market information (and related enforcement settlements and actions), both the FERC and CFTC have signaled that misrepresentations pose a serious threat to the public interest in maintaining reliable and competitive energy markets.7 The vigorous criminal prosecution of false statements is an effective, and efficient, means to vindicate this public interest.

This article provides a brief primer on false statements for those who may not be otherwise familiar with federal criminal law. It is not intended to be comprehensive and does not address every aspect of a false statements prosecution. …

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