Defending Against Allegations of Fraud and Manipulation: The Role of the Economist Under the New CFTC Rules
Rosa M. Abrantes-Metz
Global Economics Group, LLC; New York University - Leonard N. Stern School of Business - Department of Economics
January 9, 2012
In this paper I review the key aspects of the new anti-manipulation and anti-fraud rules of the U.S. Commodities and Futures Trading Commission implemented last summer, representing a significant expansion of the Commission’s enforcement authority. I argue that the role of the economist may consequently be increased, not only due to the expanded set of activities covered by the new rules which will likely lead to more cases, but also due to the lower burden of proof for charges of fraudulent and manipulative practices. These lower standards will require more elaborate, more in depth, and more creative economic and empirical analyses by defendants’ experts.
The paper starts by reviewing some classical manipulation and alleged manipulation cases, emphasizing the role of the economist in general and of empirical analyses in particular. It then describes the power of empirical screens to flag anticompetitive behavior, and summarizes the Commission’s market screening and monitoring program. I use as an example of the power of these empirical approaches the alleged Libor manipulation and conspiracy currently under investigation by the Commission and other agencies worldwide, which was originally flagged by screens. After establishing the power of empirical screens to detect potentially illegal behavior, I proceed with two hypothetical examples of how empirical analyses may be used on the other side, to defend against allegations of fraud and manipulation. I conclude the paper with an example of an innovative approach to screening for manipulation developed by economic experts on behalf of defendants, which was successfully used to assist in establishing the lack of conclusive evidence of price artificiality and the absence of a material manipulation in a private litigation matter.
Number of Pages in PDF File: 37
Keywords: CFTC, manipulation, commodities, fraud, screens, economic and empirical analyses
JEL Classification: C10, C22, G13, G28, G38, K14, K21, K22
Date posted: January 9, 2012