I respectfully dissent on In re TOTSA TotalEnergies Trading SA because of the lack of evidence to support the alleged charges and the consequences of asserting that legitimate commercial hedging activity is illegal. Over the past several years, the pocketbooks of Americans and consumers all over the world have been hit hard by inflation and policies that have resulted in higher gas prices and tough choices for many families. Today, the CFTC is continuing down this road of anti-energy policies by relying on flimsy evidence that is speculative and circumstantial, on the one hand, and failing to account for the substantial evidence of market conditions and fundamentals driving supply and demand in European physical gasoline markets, on the other hand. Levying such a charge against a non-U.S. energy producer is no small matter and underscores the importance for the CFTC—or any other government agency—to know what it is doing and understand the facts before it makes allegations of attempted market manipulation and imposes fines of tens of millions of dollars.

This case is a textbook example of policymakers with no industry experience second-guessing commercial business decisions in a bubble. It is undisputed that there is no evidence of artificial prices in this case. Instead of accepting that, the CFTC has once again brought the immense power of the U.S. government to bear down and obtain a settlement by misapplying the CFTC’s broad Dodd-Frank anti-fraud and anti-manipulation authorities. Far from using these new authorities as intended to go after abusive trading practices in the swaps market, the CFTC instead has used them as a blank check to go after commercial producers and merchants in the cash markets. This approach is the opposite of the CFTC’s original mandate to promote price discovery and hedging in commodity markets, and will actively discourage commercial end-users from appropriately managing their risks with the use of exchange-traded futures.

Overall, upon reviewing the administrative record, including a previously unrevealed white paper and expert reports, I am seriously concerned about the lack of direct evidence in the CFTC’s case, and the reliance on speculative, circumstantial evidence to support the alleged charges of attempted manipulation without refuting the evidence that supports the defense.

Importantly, from a policy perspective, I am seriously concerned about the impact that this speaking order will have on restricting the ability of commercial end-users to use derivatives markets for legitimate commercial hedging activity to manage their risks in a volatile geopolitical landscape and volatile energy markets.

Incomplete Administrative Record

As a threshold matter, it should be a grave concern to the Commission that Respondent’s white paper and exhibits of multiple expert reports were not included in the administrative record presented to the Commission for adjudication in this administrative proceeding. Clearly, Respondent’s white paper and expert reports presenting the law and facts are material to the Commission’s deliberation and cannot be hidden from view. However, the white paper and expert reports only came to light after inquiries from my office regarding whether Respondent had made any submissions to the Commission.

After my request for Respondent’s submissions, I only received Respondent’s white paper and expert reports on the afternoon before the Commission’s planned meeting for an on-the-record hearing to vote on this enforcement action, with less than 24 hours to review before a potential vote. I do not believe that the other Commissioners received the white paper or expert reports at that time. The Respondent’s white paper included not just one, but the following three expert witness reports: (1) the former CFTC Chief Economist, (2) a former Deloitte partner and CPA who has led over 500 audits of public and private companies and was a national practice leader, and (3) a former BP gasoline executive and trader.

The continuing irregularities in the Commission’s internal procedures are unacceptable and undermines the Commission’s ability to fairly adjudicate in its administrative proceedings on enforcement actions because of the lack of a complete administrative record. For the past two years, I have repeatedly raised these concerns internally and then publicly regarding the Commission’s internal procedures, and I have proposed numerous improvements as well as a GAO study.

The explanation I received for why the Commission did not initially receive the white paper and expert reports as part of the administrative record is because Respondent did not include a request, such as a footer on the cover page, specifically requesting that the white paper and exhibits be provided to the Commission. I am shocked by this gamesmanship of the investigative and administrative record to hoodwink the Commission. This would never be tolerated by any judge in a court of law. The public should always be treated fairly by the government—with or without all-caps bold text.

Review of Evidence

As one example, the direct evidence that was contemporaneous with the alleged manipulative activity does not support the charges, and is consistent with both later expert analysis and the CFTC’s own internal analysis regarding physical gasoline market fundamentals underlying supply and demand and Respondent’s trading activity.

After I made a request regarding the investigative record, I received evidence of contemporaneous documentation by the TOTSA internal Market Compliance Trade Monitoring team regarding certain trading incidents. When the TOTSA Market Compliance Trade Monitoring team, an independent control function, flagged the high volume of trades in this incident, they performed an investigation into the trade rationale and determined the trading activity was legitimate, as described in Respondent’s white paper.[1]

The contemporaneous trade surveillance investigation results by the independent Market Compliance Trade Monitoring team were consistent with the independent expert economic analysis performed years later finding that the physical EBOB (a type of European blended gasoline) prices were in line with typical price relationships to comparable benchmarks, and that the volume of Respondent’s trading was uncorrelated with price changes.

Although the CFTC did not have its own expert report to refute Respondent’s experts, the CFTC’s own independent analysis of global gasoline market conditions from 2017 to 2018 and the fundamentals driving supply and demand in physical gasoline markets was also consistent with Respondent’s white paper and expert reports as to the other potential reasons for legitimate physical gasoline transactions and commercial hedging activity.

The review of the other expert reports further provided evidence in the record of a legitimate basis for Respondent’s trading activity that is consistent with its commercial business in the gasoline and energy markets.

Ultimately, the CFTC’s argument boils down to this belief: a commercial producer can never sell at a discount with a hedge in place. If the CFTC continues to take this approach to global commodity markets, how can any business continue to operate without an investigation hanging over their head?

Conclusion

Actions have consequences, and these consequences do not solely exist within the confines of Washington, D.C. Make no mistake, even though today’s action is about a Swiss affiliate of a French company and European gas markets, tomorrow the CFTC could hit closer to home. The CFTC’s increasing focus on penalizing cash markets, combined with its disregard for physical market fundamentals, threatens the basic underpinnings of the global flow of commerce and trade. It is not too hard to imagine that this will end up as a future punch to the gut of the millions of Americans who have struggled to keep pace with soaring consumer prices in recent years and will further erode the amount of money that working Americans can take home from each paycheck.

I am proud of the CFTC’s aggressive track record of pursuing market manipulation all over the world, and I am proud to have supported those cases during my time as a Commissioner. However, in each of those previous matters, the CFTC had sufficient evidence to support the alleged charges. The burden of proof in any prosecution or enforcement action is on the government. The CFTC has not met that burden here.