Its not often I write about criminal cases but this is one that all executives in the commodities industry need to know about.  In Brooks v. United States, 681 F.3d 678 (5th Cir. 2012), the Court affirmed the convictions of three executives in the natural gas industry for falsely reporting natural gas trades in violation of the Commodity Exchange Act.  The government claimed that the energy executives reported false data to two privately owned industry publications in a manner that would benefit their corporate financial positions.  According to the Court, market index prices for physical gas (meaning the gas is sold by physically delivering it to a particular location) are prominently published in two privately owned newsletters.  Both publications are highly influential to the market price for physical gas.

The CEA provides that it is unlawful for any person who knowingly delivers inaccurate reports concerning market information or conditions that affect or tend to affect the price of any commodity.  The issue in front of the Court was whether the reports to the publications were “reports” pursuant to the CEA.  The defendants argued that the term “reports” in the CEA refers only to formal reports under the statute that are submitted to regulators or customers.  In a matter of first impression, the Court held that the defendants’ communications to the industry publications constituted “reports” under the CEA.  The United States Supreme Court declined to review the Court’s ruling last month.

Energy executives should take note of the case and its potential impact.  As a result of the Court’s ruling, any false or fraudulent statements made to third parties could result in a potential criminal liability to the individual executives, and civil liability for the corporate entity.