U.S. v. Radley
| Decision Date | 17 September 2009 |
| Docket Number | Criminal Action No. H-08-411. |
| Citation | 659 F.Supp.2d 803 |
| Parties | UNITED STATES of America v. Mark David RADLEY, et al. |
| Court | U.S. District Court — Southern District of Texas |
Belinda A. Beek, James L. Turner, Financial Litigation, Office of U.S. Attorney, U.S. Marshal, U.S. Pretrial Svcs., U.S. Probation, Houston, TX, Jerrob Duffy, Stacey Kyle Luck, Joseph A. Capone, U.S Department of Justice, Washington, DC, Joseph Konizeski, Department of Justice, Tyler Charles Murray, U.S. Atty's Office, Chicago, IL, for Plaintiff.
Charles R. Mills, Barry M. Hartman, Benjamin J. Oxley, Brian W. Stolarz, Jeffrey L. Bornstein, K&L Gates LLP, Washington, DC, Daniel T. Hartnett, Leigh D. Roadman, Martin Brown & Sullivan, Chicago, IL, Ronald Gene Woods, Attorney at Law, Houston, TX, for Defendant Mark D. Radley.
Mitchell B. Lansden, Jill L. Lansden, Mitchell B. Lansden and Associates, Houston, TX, Ryan K. Higgins, Rusty Hardin and Associates, Houston, TX, for Defendant Cody D. Claborn.
Roger Zuckerman, Matthew Kaiser, Zuckerman Spaeder LLP, Washington, DC, Gregg Bernstein Zuckerman Spaeder LLP, Baltimore, MD, Jacks C. Nickens, Gail Brownfeld, Nickens Keeton Lawless Garrell Flack LLP, Houston, TX, for Defendant James W. Summers.
The United States charges four former employees of BP America Inc. in the twenty-six count superceding indictment. Defendants have filed four separate motions to dismiss the superceding indictment on three separate grounds (Dkts. 257, 259, 260, and 261). The court held a hearing on these motions on July 2, 2009. Having considered the motions, responses, arguments of counsel, and the applicable law, the court finds that all of defendants' motions should be granted.
The following facts are alleged by the government in the superceding indictment (Dkt. 219).1 Mark David Radley, James Warren Summers, Cody Dean Claborn, and Carrie Kienenberger are former employees of BP America Production Company, a subsidiary of BP America Inc. (collectively "BP"). Dkt. 219, superceding indictment, ¶ 4. While employed at BP, defendants were assigned to the Integrated Supply & Trading group ("IST"), and were a part of the Natural Gas Liquids ("NGL") trading bench. Id. The NGL trading bench was responsible for trading natural gas liquids, including Texas Eastern Transmission Corporation ("TET") propane, the commodity at issue in this case. Id.
Defendant Radley was the bench leader of the NGL trading bench, and his responsibilities included developing and overseeing trading strategies. Id. at ¶ 8. Defendant Summers was a Vice President of NGL Trading and Radley's supervisor. Id. at ¶ 9. Summers was also responsible for supervising and approving trading strategies. Defendant Claborn was the primary trader on the NGL trading bench responsible for trading TET propane during all relevant time periods. Id. at ¶ 10. Defendant Kienenberger was a trader in TET propane on the NGL bench during all relevant time periods. Id. at ¶ 11. Dennis Abbot, an unindicted BP employee, was also a trader on the NGL trading bench at the same time. Id. at ¶ 12. All defendants were commonly granted bonuses based on the trading profits of the NGL bench. Id. at ¶ 7.
TET propane is propane that is transported in the Texas Eastern Products Pipeline Company, LLC ("TEPPCO") interstate pipeline system. TET propane is a commodity as defined by the Commodities Exchange Act ("CEA"), and is used in the petrochemical industry to produce plastics and as a source of energy for residential and commercial heating. 7 U.S.C. § 1 a(4); Dkt. 219 at ¶ 14. The NGL trading bench traded TET propane with other companies known as counterparties. Id. at ¶ 5. TET propane was predominately bought and sold "over-the-counter" in three ways: (1) directly between two parties, (2) through voice brokers, and (3) through an electronic trading platform known as Chalkboard. Voice brokers communicated information about bids, offers, and recent sales prices of TET propane. Id. at ¶¶ 16-17. Chalkboard transactions involved buyers and sellers posting anonymous bids and offers on Chalkboard's website. Id. at ¶ 18. Buyers and sellers were matched up and only learned each other's identity upon completing a transaction. Id. When a transaction was completed on Chalkboard, the price associated with the transaction was published to all traders with access to Chalkboard. Id. However, the counterparties involved were not identified. Id.
Based on information collected from propane traders and voice brokers, prices of TET propane sales were published daily in the Oil Price Information Service ("OPIS"). Id. at ¶ 21. At the end of every trading day, OPIS published the highest and lowest priced transactions as well as the "OPIS average," the midpoint between the high and low transactions for that day. Id. at 22. OPIS published prices based on when the TET propane was to be delivered. A price outside of the range of recent transactions would likely affect the OPIS average for that day, and OPIS published prices had the potential to affect prices paid by traders and end users. Id. In fact, TET propane traders sometimes entered into contracts for future delivery based on the daily or monthly OPIS average price prevailing at the time of delivery. Id. at 23. Parties entering into an "OPIS average transaction" would not know the actual price to be paid at the time of execution. Id. Accordingly, a sale which affected the OPIS average would in turn affect the prices of any OPIS average transactions. Id.
TET propane was bought and sold by parties with different time periods for delivery. Id. at ¶ 19. When traders entered into an "any" contract, the seller was obligated to deliver TET propane to the buyer on or before the last calendar day of a month. Id. Defendants are charged in conjunction with their trading of February 2004 TET propane, propane required to be delivered on or before February 29, 2004. Specifically, the government alleges that they conspired to manipulate the price of February 2004 TET propane, corner the market for February 2004 TET propane, and defraud counterparties who purchased February 2004 TET propane based on the OPIS average price. Id. at ¶ 25.
The government generally alleges that defendants conspired to acquire dominance in the 2004 TET propane market and withhold a portion of the commodity from sale in order to artificially inflate the price. Id. at ¶ 26. This would enrich BP when it sold propane at artificially high prices and would increase the price for OPIS average transactions. Id. at ¶ 27. Defendants allegedly conspired to conceal their actions and enrich themselves by obtaining bonuses based on BP's profits generated from the sales of TET propane at artificially high prices. Id. at ¶¶ 28-29.
In order to execute their plan, defendants allegedly used BP's resources to buy contracts for delivery of large amounts of TET propane at the end of February, 2004, even though BP had no commercial need for TET propane. Id. at ¶ 31. These purchases of large quantities of February 2004 TET propane gave BP a dominant long position in TET propane, meaning that it would benefit if the cost of propane went up during the month because it would be entitled to buy it a previously negotiated lower price. In order to capitalize on this position, defendants allegedly set out to increase the price of TET propane. To do this, defendants allegedly misled the market about the true supply of February 2004 TET propane by presenting "show" offers designed to falsely convey that BP wished to sell propane and simultaneously present multiple bids to buy on Chalkboard, creating the impression that multiple counterparties wished to buy propane. Id. at ¶¶ 32-33. After achieving the desired price increase, defendants would then sell TET propane at the higher price and would also sell TET propane at the OPIS average price, which was also higher due to defendants' action. Id. at ¶¶ 37-38.
The government alleges the following overt acts that it claims were in furtherance of the conspiracy described above. At the beginning of February, 2004, defendant Radley and Dennis Abbot discussed their plans to execute a plan that would demonstrate that they could "control the market at will." Id. at ¶ 39. They also discussed how they would gain approval for the plan from defendant Summers, which they subsequently obtained. Id. After gaining approval, Radley, Claborn, and Abbot discussed implementation of the plan which included gaining a dominant long position in February 2004 TET propane and then waiting until "some of these shorts come in," in order to profit on the price increase. Id. at ¶ 41. They also discussed how they could escape scrutiny by incorporating the OPIS average price into their transactions because it would make it harder for market watchers to determine whether a given price was artificial. Id. at ¶ 72.
After some discussion, defendants then began actual trading of February 2004 TET propane. On February 9, 2004, Claborn purchased 150,000 barrels of TET propane, to be delivered before February 19, 2004 at a price of 61 cents per gallon. Id. at ¶ 43. Two days later, Abbott purchased an additional 100,000 barrels, to be delivered by the same date, for 64 cents per gallon. Id. On February 23, 2004, Claborn posted an anonymous offer on Chalkboard to sell February 2004 TET propane at 76.75 cents per gallon even though the most recent transaction was for 75 cents per gallon, and there was one offer pending for 76.5 cents per gallon. Id. at ¶ 44.
Around the same time, defendants and others began concealing their plan and agreed not to use words such as squeeze, leverage, or corner. Id. at ¶ 45. When other traders began questioning BP's motives in purchasing so much propane, Claborn stated that BP would be "consuming it at some point," and that other traders alleging an attempted...
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