To view Part I on “Who Will Assure Compliance in the U.S. Cap-and Trade Market?” please click here.

The Waxman-Markey Bill currently being marked up by Congress contains strict penalties for fraud and market manipulation.  Intent on sending a strong deterrent message to market participants, Section 401(f) of the proposed bill prohibits price or market manipulation, fraud and false or misleading statements or reports.  The subcommittee also made violation of Section 401(f) a felony punishable by fines of up to $25 million (or $5 million if the violator is an individual) or imprisonment of not more than 20 years or both.  The government can also recover costs associated with the prosecution and prohibit the violator from holding or trading a regulated instrument for up to five years.  The bill lists punishable actions for knowing violations in connection with a transaction involving a regulated instrument, including-

• using any manipulative or deceptive device or contrivance in violation of regulations
• cornering or attempting to corner the regulated instrument
• cheating or defrauding, or attempting to cheat or defraud, any other person
• delivering or causing to be delivered a false, misleading or inaccurate report concerning information or conditions that affect or tend to affect the price of a regulated instrument
• making, or causing to be made, in any document, required to be filed, a false or misleading statement with respect to a material fact, or to omitting any material fact required to be stated therein or necessary to make the statements therein not misleading
• falsifying, concealing or covering up by any trick, scheme or artifice a material fact; making any false, fictitious, or fraudulent statements or representations; making or using any false writing or document that contains a false, fictitious, or fraudulent statement or entry to an entity on or through which transactions in regulated instruments occur, or are settled or cleared; acting in furtherance of its official duties under the legislation.

In its current form, the bill provides FERC with a raft of punishment mechanisms, including prohibitions on trading, suspension of registration for up to six months, a daily civil penalty of $1 million while the violation continues disgorgement, restitution and the ability to enforce cease and desist proceedings.

Given the overriding central principle of ensuring environmental integrity, effective enforcement and compliance rules and activities are increasingly coming under strict scrutiny as trading schemes proliferate here in the United States and around the world.  Regulators will need stringent penalties to deter violations of the governing laws and rules.  These tools, however, will be effective only if they are meaningfully, fairly and swiftly enforced.

For further information about this topic, please contact Akin Gump.