18304 Federal Register / Vol. 74, No. 76 / Wednesday, April 22, 2009 / Proposed Rules 

1 Section 811 is part of Subtitle B of Title VIII 

of EISA, which has been codified at 42 U.S.C. 

17301-17305. 2 15 U.S.C. 41-58. 

but cannot be used without a 

modification. The petitioner cites an 

effort to mitigate primary water stress 

corrosion cracking (PWSCC) in Alloy 

82/182 welds after an ASME Code case 

was approved by the NRC for use in the 

appropriate regulatory guide for weld 

overlay of stainless steel material but 

not for austenitic nickel-based material 

that was subject to potential PWSCC. 

The petitioner states that this issue 

resulted in licensees having to perform 

a ‘‘work-a-round’’ by requesting usage of 

some ASME Code cases with 

modifications. The petitioner has 

concluded that use of ASME Code cases 

with modifications cannot be performed 

under § 50.55a(a)(3). 

The petitioner describes the ‘‘work-around’’ that is accepted by the NRC is 

for an applicant or licensee to propose 

an alternative to the governing ASME 

Code requirements, such as using ASME 

Code Section XI requirements, instead 

of requesting usage of an ASME Code 

case with a change or modification. The 

petitioner states that the NRC allows 

this type of alternative under 

§ 50.55a(a)(3) because the provisions of 

§ 50.55a(g) govern use of ASME Code 

Section XI. The petitioner states that, if 

the need for an alternative is urgent, the 

only choice an applicant or licensee has 

is to perform the ‘‘work-a-round’’ 

described above that the petitioner 

states has been done routinely. The 

petitioner has concluded that the NRC 

has determined that no mechanism for 

evaluating a licensee’s proposal to an 

existing NRC approved voluntary 

alternative is allowed by § 50.55a(a)(3) 

because it would be ‘‘providing an 

alternative to an alternative.’’ 

The petitioner has proposed draft 

rulemaking text to address these issues. 

The petitioner states that his proposed 

amendments to § 50.55a will clarify this 

regulation to correct administrative 

issues associated with alternatives to 

ASME Code cases when an urgent issue 

arises that cannot be solved under the 

current regulatory provisions. 

III. NRC Review of the Petition 

The NRC reviewed the issues raised 

by the petitioner and determined the 

following: 

• Code cases often provide 

alternatives that have technical merit 

and, in many instances, are 

incorporated into future ASME Code 

editions. 

• The ASME Code case process itself 

constitutes a method of how a licensee 

can seek to obtain ASME approval for a 

variation of a previously-approved code 

case. § 50.55a(a)(3) currently provides 

specific approaches for obtaining NRC 

approval of alternatives to ASME Code 

provisions. Inasmuch as ASME Code 

cases are analogous to ASME Code 

provisions, it is not unreasonable to 

provide an analogous regulatory 

approach for obtaining NRC approval of 

alternatives to ASME Code cases. 

For these reasons, the NRC has 

determined that the issues raised in this 

petition should be considered in the 

NRC’s Common Prioritization of 

Rulemaking process. The NRC uses this 

process to determine which rulemaking 

actions to pursue based on available 

resources and how the actions maintain 

safety, ensure security of nuclear 

facilities and materials, increase 

effectiveness, and maintain openness 

with stakeholders. Members of the 

public can track the progress of the 

issues raised in the petition as they go 

through the rulemaking process via the 

‘‘NRC Regulatory Agenda: Semiannual 

Report (NUREG–0936),’’ or online at 

http://www.regulations.gov; search on 

rulemaking docket ID NRC–2007–0018. 

The changes requested in the petition 

may or may not be incorporated into 10 

CFR 50.55a exactly as requested. With 

this action, PRM–50–89 is considered 

resolved and administratively closed. 

Dated at Rockville, Maryland, this 3rd day 

of April 2009. 

For the Nuclear Regulatory Commission. 

R.W. Borchardt, 

Executive Director for Operations. 

[FR Doc. E9–9197 Filed 4–21–09; 8:45 am] 

BILLING CODE P 

FEDERAL TRADE COMMISSION 

16 CFR Part 317 

[Project No. P082900] 

RIN 3084-AB12 

Prohibitions on Market Manipulation in 

Subtitle B of Title VIII of The Energy 

Independence and Security Act of 2007 

AGENCY: Federal Trade Commission. 

ACTION: Revised notice of proposed 

rulemaking; request for public 

comment. 

SUMMARY: Pursuant to Section 811 of 

Subtitle B of Title VIII of The Energy 

Independence and Security Act of 2007 

(‘‘EISA’’),1 the Federal Trade 

Commission (‘‘Commission’’ or ‘‘FTC’’) 

is issuing a Revised Notice of Proposed 

Rulemaking (‘‘RNPRM’’). The revised 

proposed Rule in this RNPRM would 

prohibit any person, directly or 

indirectly, in connection with the 

purchase or sale of crude oil, gasoline, 

or petroleum distillates at wholesale, 

from knowingly engaging in any act, 

practice, or course of business— 

including the making of any untrue 

statement of material fact—that operates 

or would operate as a fraud or deceit 

upon any person, or intentionally failing 

to state a material fact that under the 

circumstances renders a statement made 

by such person misleading, provided 

that such omission distorts or tends to 

distort market conditions for any such 

product. Violations of the revised 

proposed Rule, if such Rule is adopted, 

would require proof by a preponderance 

of the evidence. Anyone violating an 

FTC rule promulgated under Section 

811 of EISA, such as this revised 

proposed Rule would be if adopted, may 

face civil penalties of up to $1 million 

per violation per day, in addition to any 

relief available to the Commission under 

the Federal Trade Commission Act 

(‘‘FTC Act’’).2 The Commission invites 

written comments on issues raised by 

the revised proposed Rule and seeks 

answers to the specific questions set 

forth in Section IV.I. of this RNPRM. 

DATES: Written comments must be 

received by May 20, 2009. The 

Commission does not contemplate any 

extensions of this comment period. 

ADDRESSES: Interested parties are 

invited to submit written comments 

electronically or in paper form. 

Comments should refer to ‘‘Market 

Manipulation Rulemaking, P082900’’ to 

facilitate the organization of comments. 

Please note that your comment— 

including your name and your state— 

will be placed on the public record of 

this proceeding, including on the 

publicly accessible FTC website, at 

(http://www.ftc.gov/os/ 

publiccomments.shtm). 

Because comments will be made 

public, they should not include any 

sensitive personal information, such as 

an individual’s Social Security Number; 

date of birth; driver’s license number or 

other state identification number or 

foreign country equivalent; passport 

number; financial account number; or 

credit or debit card number. Comments 

also should not include any sensitive 

health information, such as medical 

records or other individually 

identifiable health information. In 

addition, comments should not include 

any ‘‘[t]rade secret or any commercial or 

financial information which is obtained 

from any person and which is privileged 

or confidential,’’ as provided in Section 

6(f) of the FTC Act, 15 U.S.C. 46(f), and 

FTC Rule 4.10(a)(2), 16 CFR 4.10(a)(2). 


dwashington3 on PROD1PC60 with PROPOSALS
Federal Register / Vol. 74, No. 76 / Wednesday, April 22, 2009 / Proposed Rules 18305 

3 See also FTC Rule 4.2(d), 16 CFR 4.2(d). The 

comment must be accompanied by an explicit 

request for confidential treatment, including the 

factual and legal basis for the request, and must 

identify the specific portions of the comment to be 

withheld from the public record. The request will 

be granted or denied by the Commission’s General 

Counsel, consistent with applicable law and the 

public interest. See FTC Rule 4.9(c), 16 CFR 4.9(c). 

4 42 U.S.C. 17001-17386. 

5 42 U.S.C. 17301. 

6 42 U.S.C. 17302. 

7 Section 813(a) provides that Subtitle B shall be 

enforced by the FTC ‘‘in the same manner, by the 

same means, and with the same jurisdiction as 

though all applicable terms of the [FTC] Act (15 

U.S.C. 41 et seq.) were incorporated into and made 

a part of [Subtitle B].’’ Section 813(b) provides that 

a violation of any provision of Subtitle B ‘‘shall be 

treated as an unfair or deceptive act or practice 

proscribed under a rule issued under [S]ection 

18(a)(1)(B) of the [FTC] Act (15 U.S.C. 

57a(a)(1)(B)).’’ 42 U.S.C. 17303. 

8 Section 814(a) of Subtitle B provides that—‘‘[i]n 

addition to any penalty applicable’’ under the FTC 

Act—‘‘any supplier that violates [S]ection 811 or 

812 shall be punishable by a civil penalty of not 

more than $1,000,000.’’ Further, Section 814(c) 

provides that ‘‘each day of a continuing violation 

shall be considered a separate violation.’’ 42 U.S.C. 

17304. 

9 Section 815(a) provides that nothing in Subtitle 

B ‘‘limits or affects’’ Commission authority ‘‘to 

bring an enforcement action or take any other 

measure’’ under the FTC Act or ‘‘any other 

provision of law.’’ Section 815(b) provides that 

‘‘[n]othing in [Subtitle B] shall be construed to 

modify, impair, or supersede the operation’’ of: (1) 

any of the antitrust laws (as defined in Section 1(a) 

of the Clayton Act, 15 U.S.C. 12(a)), or (2) Section 

5 of the FTC Act ‘‘to the extent that . . . [S]ection 

5 applies to unfair methods of competition.’’ 

Section 815(c) provides that nothing in Subtitle B 

‘‘preempts any State law.’’ 42 U.S.C. 17305. 

10 FTC, Prohibitions On Market Manipulation 

and False Information in Subtitle B of Title VIII of 

The Energy Independence and Security Act of 2007, 

73 FR 48317 (Aug. 19, 2008). The NPRM was 

preceded by the publication for comment of an 

Advance Notice of Proposed Rulemaking (‘‘ANPR’’). 

FTC, Prohibitions On Market Manipulation and 

False Information in Subtitle B of The Energy 

Independence and Security Act of 2007, 73 FR 

25614 (May 7, 2008). 

11 As the Commission stated in the ANPR and the 

NPRM, the phrase ‘‘crude oil gasoline or petroleum 

distillates’’ is used without commas in Section 811 

(as well as in the first clause of Section 812), while 

the phrase is used with commas in Section 812(3): 

‘‘crude oil, gasoline, or petroleum distillates.’’ The 

absence of commas is presumably a nonsubstantive, typographical error; therefore, the 

Continued 

Comments containing material for 

which confidential treatment is 

requested must be filed in paper form, 

must be clearly labeled ‘‘Confidential,’’ 

and must comply with FTC Rule 4.9(c), 

16 CFR 4.9(c).3

Because paper mail in the Washington 

area, and specifically to the FTC, is 

subject to delay due to heightened 

security screening, please consider 

submitting your comments in electronic 

form. Comments filed in electronic form 

should be submitted by using the 

following weblink: (https:// 

secure.commentworks.com/ftcmarketmanipulationRNPRM), (and 

following the instructions on the webbased form). To ensure that the 

Commission considers an electronic 

comment, you must file it on the webbased form at the weblink (https:// 

secure.commentworks.com/ftcmarketmanipulationRNPRM). If this 

RNPRM appears at (http:// 

www.regulations.gov/search/index.jsp), 

you may also file an electronic comment 

through that website. The Commission 

will consider all comments that 

regulations.gov forwards to it. You may 

also visit the FTC website at (http:// 

www.ftc.gov/opa/2009/04/rnprm.shtm) 

to read the RNPRM and the news release 

describing it. 

A comment filed in paper form 

should include the ‘‘Market 

Manipulation Rulemaking, P082900’’ 

reference both in the text and on the 

envelope, and should be mailed to the 

following address: Federal Trade 

Commission, Market Manipulation 

Rulemaking, P.O. Box 2846, Fairfax, VA 

22031-0846. This address does not 

accept courier or overnight deliveries. 

Courier or overnight deliveries should 

be delivered to: Federal Trade 

Commission/Office of the Secretary, 

Room H-135 (Annex G), 600 

Pennsylvania Avenue, N.W., 

Washington, DC 20580. 

The FTC Act and other laws the 

Commission administers permit the 

collection of public comments to 

consider and use in this proceeding as 

appropriate. The Commission will 

consider all timely and responsive 

public comments that it receives, 

whether filed in paper or electronic 

form. Comments received will be 

available to the public on the FTC 

website, to the extent practicable, at 

(http://www.ftc.gov/os/ 

publiccomments.shtm). As a matter of 

discretion, the Commission makes every 

effort to remove home contact 

information for individuals from the 

public comments it receives before 

placing those comments on the FTC 

website. More information, including 

routine uses permitted by the Privacy 

Act, may be found in the FTC’s privacy 

policy, at (http://www.ftc.gov/ftc/ 

privacy.shtm). 

FOR FURTHER INFORMATION CONTACT: 

Patricia V. Galvan, Deputy Assistant 

Director, Bureau of Competition, 

Federal Trade Commission, 600 

Pennsylvania Avenue, N.W., 

Washington, DC 20580, (202) 326-3772. 

SUPPLEMENTARY INFORMATION: 

I. Background 

EISA became law on December 19, 

2007.4 Subtitle B of Title VIII of EISA 

targets market manipulation in 

connection with the purchase or sale of 

crude oil, gasoline, or petroleum 

distillates at wholesale, and the 

reporting of false or misleading 

information related to the wholesale 

price of those products. Specifically, 

Section 811 prohibits ‘‘any person’’ 

from ‘‘directly or indirectly’’: (1) using 

or employing ‘‘any manipulative or 

deceptive device or contrivance,’’ (2) 

‘‘in connection with the purchase or 

sale of crude oil gasoline or petroleum 

distillates at wholesale,’’ (3) that 

violates a rule or regulation that the FTC 

‘‘may prescribe as necessary or 

appropriate in the public interest or for 

the protection of United States 

citizens.’’5

Section 812 prohibits ‘‘any person’’ 

from reporting information that is 

‘‘required by law to be reported’’—and 

that is ‘‘related to the wholesale price of 

crude oil gasoline or petroleum 

distillates’’—to a federal department or 

agency if the person: (1) ‘‘knew, or 

reasonably should have known, [that] 

the information [was] false or 

misleading;’’ and (2) intended such false 

or misleading information ‘‘to affect 

data compiled by the department or 

agency for statistical or analytical 

purposes with respect to the market for 

crude oil, gasoline, or petroleum 

distillates.’’6

Subtitle B also contains three 

additional sections that address, 

respectively, enforcement of the Subtitle 

(Section 813),7 penalties for violations 

of Section 812 or any FTC rule 

published pursuant to Section 811 

(Section 814),8 and the interplay 

between Subtitle B and existing laws 

(Section 815).9

The revised proposed Rule in this 

RNPRM retains the anti-fraud approach 

of the initial proposed Rule published 

by the Commission in a Notice of 

Proposed Rulemaking (‘‘NPRM’’) on 

August 19, 2008.10 The revised 

proposed Rule would achieve the antimanipulation objectives of Section 811 

by prohibiting any person, directly or 

indirectly, in connection with the 

purchase or sale of crude oil, gasoline, 

or petroleum distillates at wholesale, 

from (a) knowingly engaging in any act, 

practice, or course of business— 

including the making of any untrue 

statement of material fact—that operates 

or would operate as a fraud or deceit 

upon any person, or (b) intentionally 

failing to state a material fact that under 

the circumstances renders a statement 

made by such person misleading, 

provided that such omission distorts or 

tends to distort market conditions for 

any such product.11


dwashington3 on PROD1PC60 with PROPOSALS
18306 Federal Register / Vol. 74, No. 76 / Wednesday, April 22, 2009 / Proposed Rules 

Commission reads all parts of both sections to cover 

all three types of products: crude oil, gasoline, and 

petroleum distillates. See 73 FR at 25621 n.59; 73 

FR at 48320 n.40. 

12 73 FR 25614. Rulemaking documents can be 

found at (http://www.ftc.gov/ftc/oilgas/rules.htm). 

13 73 FR at 25620-24. The comment period for the 

ANPR closed on June 23, 2008, after the 

Commission granted an extension requested by a 

major industry trade association. Letter from the 

American Petroleum Institute to FTC Secretary 

Donald S. Clark, (May 19, 2008), available at 

(http://www.ftc.gov/os/comments/ 

marketmanipulation/index.shtm). 

14 Attachment C contains a list of commenters 

who submitted comments on the ANPR, together 

with the abbreviations used to identify each 

commenter referenced in this RNPRM. Electronic 

versions of the comments can be found at (http:// 

www.ftc.gov/os/comments/marketmanipulation/ 

index.shtm). 

15 See Securities Exchange Act of 1934 (‘‘SEA’’) 

10(b), 15 U.S.C. 78j(b); 17 CFR 240.10b-5 (‘‘Rule 

10b-5’’). 

16 See Natural Gas Act 4A, 15 U.S.C. 717c-1; 

Federal Power Act 222, 16 U.S.C. 791a; Prohibition 

of Natural Gas Market Manipulation, 18 CFR 1c.1; 

Prohibition of Electric Energy Market Manipulation, 

18 CFR 1c.2. 

17 See Commodity Exchange Act (‘‘CEA’’) 9(a)(2), 

7 U.S.C. 13(a)(2). 

18 73 FR 48317. 

19 Letter from the American Petroleum Institute 

to FTC Secretary Donald S. Clark, (Sept. 5, 2008), 

available at (http://www.ftc.gov/os/comments/ 

marketmanipulation2/538416-00006.pdf). 

20 FTC, Prohibitions On Market Manipulation 

and False Information in Subtitle B of Title VIII of 

The Energy Independence and Security Act of 2007, 

73 FR 53393 (Sept. 16, 2008). 

21 Attachment A contains a list of commenters 

who responded to the NPRM, together with the 

abbreviations used to identify each commenter. In 

calculating the number of comments submitted in 

response to the NPRM, the Commission treated the 

multiple filings from Argus, CFA, CFDR, ISDA, and 

NPRA as a single comment for each commenter. 

22 Attachment B contains a list of participants in 

the workshop, together with the abbreviations used 

to identify each workshop participant. The 

discussion topics for the workshop included the use 

of SEC Rule 10b-5 as a model for an FTC market 

manipulation rule; the proper scienter standard for 

a rule; the appropriate reach of a rule; the type of 

conduct that would violate a rule; and the 

desirability of including market or price effects as 

an element of a rule violation. Information relating 

to the workshop, including a program, transcript, 

and archived webcast, can be found at (http:// 

www.ftc.gov/bcp/workshops/marketmanipulation/ 

index.shtml). 

23 CFDR (Mills), Tr. at 38; see, e.g., API at 8-9 

(‘‘[S]upport[ing] the Commission’s initial 

determination that the scope of the rule should be 

‘narrowly tailored to address fraudulent practices.’’’ 

(quoting 73 FR at 48320)); NPRA at 2 (stating that 

a rule should target fraudulent and deceptive 

practices); PMAA (Bassman), Tr. at 46-47 

(explaining that, in general, fraud is an appropriate 

basis for a Section 811 rule); ATAA at 11 

(expressing support for the Commission’s decision 

to propose an anti-fraud rule); see also ISDA (Velie), 

Tr. at 40 (expressing support for an anti-fraud rule 

if it is coupled with specific intent); ABA Energy 

(McDonald), Tr. at 246 (urging the Commission to 

focus a rule on deceptive conduct). 

24 See, e.g., MS AG at 3 (‘‘[T]he scope of the 

proposed Rule is well tailored to ensure that it will 

address . . . concerns without deterring desirable 

market practices that could ultimately benefit 

consumers.’’); PMAA at 3 (‘‘The proposed rule 

allows regulated entities to understand both its 

intent and how it will be applied . . . .’’); CA AG at 

2 (expressing support for the FTC’s proposed Rule). 

25 See, e.g., Flint Hills at 3 (‘‘[T]he breadth of the 

proposed rule would create a significant amount of 

uncertainty as to what conduct may be captured by 

the Rule, and could apply to completely legitimate 

conduct . . . .’’); API at 9 (arguing that the proposed 

Rule ‘‘would create substantial legal uncertainty for 

market participants’’ that will ‘‘deter[] firms from 

engaging in legitimate activity’’); Sutherland at 2 

(stating that the proposed Rule ‘‘is considerably 

more intrusive of legitimate business behavior than 

is necessary’’); Plains at 3 (‘‘Given the general 

nature of the proposed rule and the uncertainties 

that will exist with respect to its scope and 

applicability, the imposition of liability without any 

finding of an effect on the market . . . will restrict 

legitimate market activity . . . .’’); NPRA at 3 (stating 

that ‘‘the proposed Rule falls far short of the 

Commission’s goal’’ of prohibiting ‘‘‘manipulative 

and deceptive conduct without discouraging procompetitive or otherwise desirable market 

practices’’’ (quoting 73 FR at 48323)) (emphasis 

added by commenter). 

26 See, e.g., Sutherland at 4 (‘‘We believe that the 

Commission is mistaken in proposing to adopt the 

[SEC Rule] 10b-5 anti-fraud model . . . .’’); API at 11 

(arguing against borrowing, without modification, 

the language and precedent of Rule 10b-5); ISDA at 

6 (stating that ‘‘[s]ecurities precedent does not 

provide a helpful framework’’ for creating a Section 

811 rule); NPRA at 2 (stating that an SEC-based rule 

The Commission believes additional 

public comment on the revised 

proposed Rule will assist in evaluating 

the desirability and contours of any 

final rule. The Commission requests that 

comments focus on changes between the 

initially proposed Rule and the revised 

proposed Rule. The Commission also 

invites written responses to, and 

comments on, the questions and 

alternative rule language posed in 

Section IV.I. Because the public has 

already had the opportunity to comment 

on many of the concepts contained in 

this revised proposed Rule—through 

both written comments and workshop 

presentations and participation—the 

Commission believes that a 30-day 

comment period is appropriate, and 

requests for extension of the comment 

period are unlikely to be granted. 

II. The Rulemaking Proceeding 

The rulemaking proceeding began 

with the publication of an ANPR on 

May 7, 2008.12 In the ANPR, the 

Commission solicited comments on 

whether it should publish a rule under 

Section 811, and, if so, the appropriate 

scope and content of such a rule.13 In 

response to the ANPR, the Commission 

received 155 comments from interested 

parties.14 Commenters expressed 

differing views regarding the 

desirability of, and appropriate legal 

basis for, any such rule. Commenters 

also proposed a variety of models upon 

which to base a market manipulation 

rule, including those used by other 

federal agencies, such as the Securities 

and Exchange Commission (‘‘SEC’’),15

the Federal Energy Regulatory 

Commission (‘‘FERC’’),16 and the 

Commodity Futures Trading 

Commission (‘‘CFTC’’),17 pursuant to 

each agency’s respective market 

manipulation authority. 

After reviewing the ANPR comments, 

on August 19, 2008, the Commission 

published an NPRM, setting forth the 

text of a proposed Rule and inviting 

written comments on issues raised by 

the proposed Rule.18 The NPRM 

described the basis for and scope of the 

proposed Rule; definitions of terms in 

the Rule; conduct prohibited by the 

Rule; and the elements of a cause of 

action under the Rule. The NPRM also 

set forth questions designed to elicit 

further information from interested 

parties. In response to a petition from a 

major trade association,19 the 

Commission extended the deadline for 

submission of comments on the NPRM 

from September 18, 2008 to October 17, 

2008.20

In response to the NPRM, the 

Commission received 34 comments 

from interested parties, including 

consumers, a consumer advocacy group, 

academics, a federal agency, state 

government agencies, a Member of 

Congress, industry members, and trade 

and bar associations.21 On November 6, 

2008, Commission staff held a one-day 

public workshop on the proposed 

Rule.22 Commenters and workshop 

participants provided valuable feedback 

on several key issues relating to the 

proposed Rule, particularly regarding 

the application of a rule based on SEC 

Rule 10b-5 and the relevance of legal 

precedent under securities law to the 

petroleum industry. An overview of the 

major issues reflected in the comments 

and at the workshop follows. 

Many commenters expressed general 

support for an anti-fraud rule, noting 

that fraud provides a ‘‘good 

demarcation’’ for a market manipulation 

rule and would provide the necessary 

guidance to market participants.23

Although a few commenters 

affirmatively supported the 

Commission’s proposed Rule, as 

articulated in the NPRM,24 the majority 

of commenters raised concerns about 

the scope and application of the 

proposed Rule. Many commenters 

thought that the proposed Rule, as 

drafted, created a substantial risk of 

reaching and chilling legitimate conduct 

undertaken in the ordinary course of 

business.25

To remedy perceived shortcomings in 

the proposed Rule, some commenters 

suggested modifications, including: (1) 

rejecting SEC Rule 10b-5 as a model for 

an FTC rule,26 and (2) making other 


dwashington3 on PROD1PC60 with PROPOSALS
Federal Register / Vol. 74, No. 76 / Wednesday, April 22, 2009 / Proposed Rules 18307 

is ‘‘not an appropriate or workable model for an 

FTC market manipulation rule that applies to 

wholesale petroleum markets’’); Plains at 2 (‘‘The 

types of protective rules and doctrines that may be 

appropriate for the securities markets . . . cannot 

simply be applied without modification to the 

petroleum markets.’’). 

27 See, e.g., NPRA at 17, 31 (recommending 

modifications to the proposed Rule’s text and also 

suggesting alternative rule language); Navajo Nation 

at 7-9 (urging that the Commission define the term 

‘‘manipulative’’ in the proposed Rule); API at 11 

(requesting that the Commission modify the text of 

the proposed Rule to account for differences 

between wholesale petroleum and securities 

markets). 

28 Many commenters urged the Commission to 

require a showing of specific intent instead of 

recklessness to prove a violation of an FTC rule. 

See, e.g., CFDR at 4 (recommending that an FTC 

rule require a ‘‘[specific] intent to cause a false, 

fictitious and artificial impact on market prices or 

market activity’’); ISDA at 3-4 (urging the 

Commission to require proof of specific intent 

rather than recklessness); NPRA at 18 (stating that 

a recklessness standard is not appropriate for 

wholesale petroleum markets); Sutherland at 5 

(encouraging the Commission to require specific 

intent rather than recklessness); Muris at 11 

(recommending that the Commission require proof 

of specific intent); see also Argus at 2 (stating that 

‘‘a specific intent requirement would encourage 

those who already provide market data to index 

publishers to continue to do so’’); API at 16 (stating 

that the proposed Rule’s recklessness standard ‘‘is 

not sufficient . . . to ‘ensure that the proposed Rule 

does not chill competitive behavior’’’ (citing 73 FR 

at 48328)). But see, e.g., SIGMA at 2 (stating that 

the association is content with the scienter 

requirement that the FTC has adopted in its 

proposed Rule); MS AG at 3 (stating that ‘‘both 

intentional and reckless conduct should be covered 

by the scienter requirement’’); CAPP at 1 

(commending the Commission’s proposed scienter 

requirement, which is designed to avoid chilling 

legitimate business behavior); ATAA at 12 

(expressing support for the FTC’s proposed scienter 

requirement); PMAA at 3-4 (stating that the 

Commission’s proposed elements of proof provide 

‘‘needed clarity’’); CA AG at 2-3 (supporting the 

scienter standard proposed in the NPRM). 

29 Many commenters supported the showing of 

price effects as an element of a cause of action 

under an FTC market manipulation rule. See, e.g., 

Van Susteren at 2 (‘‘The lack of a requirement of 

a showing of price effects to establish culpability 

leaves the rule overbroad and risks inconsistent or 

unwarranted enforcement efforts by the 

Commission.’’); ISDA at 3-4 (asking that the 

Commission require proof of price effects); Muris at 

2 (encouraging the Commission to adopt an effects 

requirement); see also Plains at 3 (urging the 

Commission to make clear that only conduct that 

has a ‘‘manipulative effect on the relevant market’’ 

will be actionable); API at 34 (recommending that 

the Commission require ‘‘proof that a party’s 

deceptive or fraudulent conduct caused market 

conditions to deviate materially from the conditions 

that would have existed but for that conduct’’); 

Sutherland at 6 (urging the FTC to ‘‘require that 

market manipulation actually impact the market’’). 

But see, e.g., MS AG at 3 (asserting ‘‘that proof of 

price effects should not be required to establish a 

violation’’); ATAA at 12 (supporting the FTC’s 

decision not to require proof of price effects); IPMA 

at 4 (‘‘[A]gree[ing] that the proposed Rule should 

not require proof of an identifiable price effect.’’); 

CA AG at 3 (expressing support for the 

Commission’s decision not to include an effects 

requirement). 

30 Several commenters argued that, although the 

proposed Rule’s omissions language may be 

appropriate in securities markets, differences exist 

between securities and wholesale petroleum 

markets that make such language inapplicable to 

the latter. See, e.g., API at 25 (stating that unlike 

wholesale petroleum markets, securities markets are 

‘‘are governed by detailed disclosure obligations 

designed to protect unsophisticated investors’’); 

Muris at 2 (urging the FTC to ‘‘avoid importing 

broad disclosure requirements from highly 

regulated markets that simply have no place in 

wholesale petroleum markets’’); NPRA at 4 (arguing 

that the full disclosure rationale underlying SEC 

Rule 10b-5 does not fit wholesale petroleum 

markets); Plains at 3 (stating that in the crude oil 

markets, unlike securities markets, ‘‘there is no 

presumption that one market participant owes any 

duties to its counterparties that would require 

disclosure of any information’’). 

31 See, e.g., Boxer at 1 (advocating for a rule to 

reach ‘‘oil traded on the [NYMEX] and ICE 

exchanges’’); API at 22-23 (‘‘[T]he Commission 

should, at a minimum, provide a safe harbor for 

statements or omissions that are not made in 

connection with ‘reporting . . . to government 

agencies, to third-party reporting services, and to 

the public through corporate announcements,’ at 

least absent concrete evidence that such statements 

or omissions were part of a broader scheme to 

manipulate a market.’’ (citing 73 FR at 48326)); 

Platts at 8 (asking that the Commission adopt a safe 

harbor to alleviate concerns that the Commission 

could capture inadvertent errors under an FTC 

rule); see also Argus at 3 (‘‘The FTC should also 

refrain from mandating any particular 

methodological approach for the assessment of spot 

markets in petroleum.’’). 

32 See, e.g., Pirrong at 2 (asserting that the 

proposed Rule’s focus on fraud and deceit is 

misguided and contending that market power is the 

biggest threat to efficiently functioning petroleum 

markets); CFA2 at 19 (urging the Commission to 

take ‘‘vigorous action to reign in the speculative 

bubble’’ in energy commodities markets); Consumer 

(urging the Commission to address excessive 

speculation in commodities markets); Navajo 

Nation at 3 (expressing concern that the proposed 

Rule may fall short in addressing manipulative 

conduct). 

33 See, e.g., NPCA at 1; MPA at 2; IPMA at 3-4 

(requesting that the Commission treat an oil 

company’s decision to sell only gasoline preblended with ethanol at the terminal rack as a 

potentially manipulative practice); Murkowski at 1 

(recommending that the Commission use its 

authority to address anti-competitive conduct in 

circumstances in which ‘‘a single company gains 

exclusive control of energy-related infrastructure . . . 

for moving domestic crude to a consuming 

market’’). 

34 See, e.g., CFTC (Arbit) at 1 (urging the 

Commission to ‘‘incorporate an exception from its 

rule for commodity futures and options trading 

activity on regulated futures exchanges’’); CFTC 

(Chilton) at 2; CFDR at 8 (asking that the 

Commission refrain from encroaching on the 

CFTC’s exclusive jurisdiction over futures 

transactions); Brown-Hruska at 8-9 (‘‘[I]t is my hope 

that the Commission will narrow the focus of the 

rule tightly upon manipulative and deceptive 

conduct in the wholesale petroleum markets [to 

avoid overlap with the CFTC].’’); ISDA at 14 (‘‘[T]he 

Commission should clarify that it will refer to the 

CFTC any manipulative activity that it becomes 

aware of that does not directly involve a wholesale, 

physical petroleum products transaction.’’); MFA at 

2 (recommending that the Commission adopt a safe 

harbor for futures markets activities); Sutherland at 

2 (urging the Commission to reconsider its decision 

to reach futures markets activities under any 

Section 811 rule). But see, e.g., Pirrong at 8 (noting 

that objections that ‘‘FTC actions against 

manipulation will interfere with the [CFTC’s] 

jurisdiction over commodity market manipulation 

. . . are moot, because Congress has decided 

otherwise’’); CA AG at 3 (‘‘EISA . . . provide[s] the 

FTC with the power to monitor for and prevent 

fraud and deceit in the commodity futures market, 

insofar as it affects oil and gas futures.’’); CFA2 at 

19 (urging the Commission to take ‘‘vigorous action 

to reign in the speculative bubble and return the 

futures markets to their proper role to improve the 

functioning of physical commodity markets’’). 

35 ATAA at 4-5 (asserting that the FTC properly 

concluded that oil pipelines are subject to the 

proposed Rule); IPMA at 4 (‘‘We agree that 

Commission jurisdiction should extend to 

pipelines.’’). But see AOPL at 1 (urging the 

Commission to revise its proposed Rule ‘‘to clarify 

that it does not apply to interstate common carrier 

oil pipelines regulated by the [FERC] under the 

Interstate Commerce Act (‘ICA’)’’). 

36 See, e.g., ATA at 3 (urging the Commission to 

‘‘expand the scope of [the proposed Rule] to include 

alternative and renewable energy markets’’); IPMA 

at 4 (agreeing that ‘‘manipulation of non-petroleum 

based commodities such as ethanol’’ that affect the 

price of gasoline should be ‘‘subject to Commission 

enforcement’’); NPRA (Drevna), Tr. at 221-22 

(agreeing that the Commission should reach 

blending components that are inputs to gasoline or 

diesel); SIGMA (Columbus), Tr. at 222-23 (agreeing 

that mandated alternative fuels and components 

should be covered under a rule). But see MFA at 

3 (asking that the Commission exclude from the 

Rule’s coverage ethanol and commodities that may 

be used in the process of making ethanol ‘‘that are 

the subject of futures and options trading’’). 

changes in the text of the proposed 

Rule.27 Commenters also offered 

recommendations regarding the 

elements of proof the Commission 

should require in order to establish a 

rule violation. Specifically, the 

commenters discussed: (1) whether a 

showing of recklessness should be 

sufficient to establish the requisite level 

of scienter required by a rule;28 (2) 

whether a showing of price effects 

should be required in order to prove a 

rule violation;29 and (3) whether 

prohibiting statements that are 

misleading because they omit material 

facts is appropriate for a rule that 

applies to wholesale petroleum 

markets.30

Commenters also presented varying 

views regarding the proper reach of an 

FTC market manipulation rule.31 A few 

commenters believed that the proposed 

Rule should reach conduct other than 

fraud, and these commenters suggested 

that the Commission should modify the 

focus of the proposed Rule32 or amend 

it to reach specific types of conduct.33

Most argued that an FTC market 

manipulation rule should not reach 

activity in futures markets.34 Several 

offered views as to whether an FTC rule 

should reach pipelines35 or renewable 

fuels, including ethanol.36 The 

Commission has considered these 

comments and, where appropriate, has 

revised the initial proposed Rule to 

address these concerns. 

III. Basis for the Rule 

Section 811 of EISA provides the legal 

basis for any petroleum market 

manipulation rule. Section 811 


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37 42 U.S.C. 17301; see also 73 FR at 48320. 38 Some commenters opined on the meaning of 

the language ‘‘in the public interest or for the 

protection of United States citizens’’ in the ANPR. 

See, e.g., CFDR, ANPR, at 4-5 (‘‘The public interest 

and the protection of U.S. citizens . . . are best 

served by the adoption of a clear legal standard for 

market manipulation that will allow market 

participants to conduct their business with a clear 

understanding of the relevant legal boundaries.’’); 

MFA, ANPR, at 17 (‘‘FTC rules that purport to 

overlap with CFTC exclusive jurisdiction would not 

serve the public interest.’’); Flint Hills, ANPR, at 17- 

18 (stating that the statutory language—‘‘in the 

public interest’’—reflects Congress’ intention that 

the Commission draw upon its long experience in 

articulating ‘‘the public interest’’ under its other 

statutes). 

39 See, e.g., ATAA at 3 (noting that the proposed 

Rule is necessary to guard against conduct that 

undermines the integrity of petroleum markets); MS 

AG at 2 (‘‘The proposed Rule will benefit 

consumers significantly because market 

manipulation can artificially inflate prices of 

petroleum products and cause consumers to pay 

more for essential goods, such as gasoline.’’); IPMA 

at 4 (‘‘The proposed Rule does meet the rulemaking 

standard that it is ‘necessary or appropriate in the 

public interest or for the protection of United 

States[] citizens.’’’); see also PMAA at 2 (stating that 

the proposed Rule fulfilled ‘‘the Commission’s 

intention to, ‘prohibit manipulative and deceptive 

conduct without discouraging pro-competitive or 

otherwise desirable market practices’’’ (quoting 73 

FR at 48323)); ATA at 2 (supporting the proposed 

Rule ‘‘as an additional tool to help preserve the 

integrity of vital energy markets’’). 

40 Most commenters directed their comments to 

the application of the Rule, rather than to whether 

the proposed Rule met the rulemaking standard 

articulated in Section 811. 

41 Sutherland at 2. 

42 NPRA at 15-16; see also API at 1 (arguing that 

a rule is unnecessary because ‘‘repeated FTC 

investigations have found no evidence of significant 

harmful or illegal conduct [in petroleum markets]’’). 

43 42 U.S.C. 17301. 

44 Several commenters expressed concern that a 

lack of clarity about the type of conduct covered by 

the proposed Rule could chill legitimate conduct, 

owing to potentially significant monetary penalties 

that might be imposed for any violation. See, e.g., 

API at 9-10 n.12 (‘‘[V]iolations of a market 

manipulation rule would expose market 

participants to substantial monetary penalties. This 

significantly increases the risk of chilling desirable 

practices as companies seek to minimize the risk of 

liability.’’); Muris at 2 (arguing that the necessary 

generality of the proposed Rule, ‘‘[c]oupled with the 

extraordinarily high penalties . . . creates the risk of 

chilling legitimate business decisions’’); NPRA at 3 

(arguing that the harsh penalties associated with a 

Section 811 rule and the uncertainty created by the 

proposed application of SEC precedent, ‘‘would 

prompt corporate compliance systems that would 

impair the procompetitive and cost-efficient 

functioning of wholesale petroleum markets’’). 

45 73 FR at 48322. 

46 73 FR at 48322 (stating that the Commission 

‘‘[was] not invoking the entire body of SEC law in 

this rulemaking, but rather the anti-fraud provisions 

of SEC Rule 10b-5’’). 

47 See, e.g., CFDR (Mills), Tr. at 38-39 (‘‘From my 

point of view, fraud is a good demarcation for any 

antimanipulation rule, because it provides a basis 

by which people can govern themselves and know 

with some understanding of what kind of conduct 

is going to violate a rule or not.’’); API (Long), Tr. 

at 33 (stating that ‘‘in general, fraud is a useful 

limiting concept’’); PMAA (Bassman), Tr. at 47 

(‘‘[U]sing fraud . . . is very clear, because none of the 

people operating in this market operate without the 

benefit of legal counsel. Any legal counsel 

understands the concept of fraud, and fraud does 

belong here.’’); ATAA at 11 (stating that the 

‘‘proposed rule properly contains a broad anti-fraud 

provision’’); ABA Energy (McDonald), Tr. at 246 

(urging the Commission to ‘‘focus on deceptive 

conduct that hinders the operations of markets by 

misleading participants’’); see also ISDA (Velie), Tr. 

at 40 (‘‘[W]e think fraud is a good standard, as long 

as it’s coupled with specific intent to manipulate a 

market.’’); Flint Hills (Hallock), Tr. at 46 (‘‘I think 

it’s important to keep a focus, though, on the aim 

of the fraud, and the aim of the fraud that I believe 

that the agency has been looking for is fraud upon 

a market . . . .’’); NPRA at 2 (‘‘NPRA endorses the 

FTC’s determination that implementation of the 

EISA should be accomplished through a rule 

against fraud and deception that harms the 

competitive functioning of wholesale petroleum 

markets and, ultimately, consumers.’’). 

48 See, e.g., MS AG at 2 (‘‘The proposed Rule will 

benefit consumers significantly because market 

manipulation can artificially inflate prices of 

petroleum products and cause consumers to pay 

prohibits ‘‘any person’’ from ‘‘directly or 

indirectly’’ using or employing ‘‘any 

manipulative or deceptive device or 

contrivance’’—in connection with the 

purchase or sale of crude oil, gasoline, 

or petroleum distillates at wholesale— 

that violates a rule or regulation that the 

Commission ‘‘may prescribe’’ ‘‘as 

necessary or appropriate in the public 

interest or for the protection of United 

States citizens.’’37

The Commission has carefully 

considered concerns raised by 

commenters about the propriety of a 

rule.38 Most of the commenters who 

addressed the rulemaking standard 

agreed generally that a Section 811 rule 

would be necessary or appropriate, and 

that it would be in the public interest to 

combat fraud in wholesale petroleum 

markets.39 A few commenters, however, 

specifically questioned the necessity or 

appropriateness of the proposed Rule.40

Sutherland, for example, argued that the 

proposed Rule failed to ‘‘balance the 

Congressional directive for regulatory 

oversight with the goal of allowing 

economic efficiency,’’ and was ‘‘more 

intrusive of legitimate business behavior 

than is necessary.’’41 NPRA stated that 

the proposed Rule’s reliance on SEC 

Rule 10b-5 and related legal precedent 

as a model would create confusion and 

potentially discourage procompetitive 

activity, and, thus, would be neither 

necessary nor appropriate in the public 

interest.42

As stated in the NPRM, Section 811 

of EISA targets manipulative or 

deceptive conduct in wholesale 

petroleum markets. In enacting this 

provision, Congress specifically 

authorized the Commission to 

determine whether a rule would be 

appropriate and in the public interest. 

Based upon its experience and 

perspective from several decades of 

protecting consumers and analyzing 

competition in petroleum markets, the 

Commission believes that it is both 

appropriate and in the public interest to 

publish a revised proposed rule 

prohibiting fraudulent and deceptive 

conduct in wholesale petroleum 

markets that serves no legitimate 

purpose. 

To achieve these objectives, the 

revised proposed Rule defines, for 

market participants, the Section 811 

statutory prohibition of the use or 

employment of any ‘‘manipulative or 

deceptive device or contrivance.’’43 Like 

the initially proposed Rule, the revised 

proposed Rule would prohibit conduct 

that injects false information into 

market transactions. However, the 

revised proposed Rule more precisely 

identifies the conduct prohibited, and 

thus achieves a more appropriate 

balance between consumer protection 

interests and compliance burdens.44

Consequently, the Commission believes 

that it is both appropriate and in the 

public interest to publish the revised 

proposed Rule. 

IV. Discussion of the Revised Proposed 

Rule 

A. The Revised Proposed Rule is an 

Anti-Fraud Rule 

The Commission stated in the NPRM 

that its proposed Rule was modeled on 

the SEC’s broad, anti-fraud Rule 10b-5.45

The Commission further stated that it 

intended to rely on only relevant SEC 

precedent in applying its rule.46

Although some commenters supported 

this approach, others raised concerns 

about basing a rule on SEC Rule 10b-5. 

The revised proposed Rule retains the 

anti-fraud concept of SEC Rule 10b-5, 

but it is further tailored to wholesale 

petroleum markets. The following 

discussion addresses the use of SEC 

Rule 10b-5 as a model, and provides 

Commission responses to commenter 

concerns about this approach. The 

Commission invites written comments 

on the revised proposed Rule, 

particularly regarding the modifications 

made to the initially proposed Rule, and 

responses to the questions in Section 

IV.I. 

Many commenters expressed general 

support for an anti-fraud rule, 

contending that a fraud standard would 

provide necessary guidance to market 

participants.47 A few commenters 

specifically endorsed the proposed Rule 

as articulated in the NPRM, without 

modification.48 Some commenters also 


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more for essential goods, such as gasoline.’’); PMAA 

at 2 (stating that the proposed Rule prohibits 

manipulative and deceptive conduct without 

chilling pro-competitive behavior); CA AG at 2 

(expressing support for the FTC’s proposed Rule). 

49 See, e.g., SIGMA at 2 (expressing support for 

the Commission’s decision to base its proposed 

Rule on Rule 10b-5); ATAA at 11 (‘‘[ATAA] 

supports the proposed rule’s use of SEC Rule 10b5 as the model for a rule designed to proscribe 

market manipulation.’’); see also PMAA at 2 

(supporting the Commission’s decision not to 

‘‘slavishly follow[]’’ the Rule 10b-5 model); Boxer 

at 1 (‘‘I think it’s [great] to have Rule 10b-5 

essentially extended to the oil traded on the 

[NYMEX] and ICE exchanges . . . .’’). 

50 SIGMA at 2. 

51 See, e.g., CFDR at 2 (‘‘The Commission . . . 

rightly looks to securities law precedents for 

guidance in shaping the legal standards and 

jurisprudence under EISA.’’); ATAA at 11 (‘‘[Rule 

10b-5] provides the FTC with a well-developed 

framework to follow.’’). 

52 As a threshold matter, some of these 

commenters disagreed with the Commission’s 

tentative determination in the NPRM that the 

language of Section 811 indicated that the FTC 

should model a Section 811 rule after Rule 10b-5, 

arguing that if this had truly been the intent of 

Congress, it would have included an explicit 

directive in the statute similar to the directive in the 

FERC’s anti-manipulation authority. See 15 U.S.C. 

717c-1; 16 U.S.C. 824v; FERC, Prohibition of Energy 

Market Manipulation, 71 FR 4244, 4246 (Jan. 26, 

2006). See, e.g., NPRA at 15-16 (stating that the 

language of Section 811 does not require that the 

Commission model an FTC rule after SEC Rule 10b5); API at 12 (‘‘The language of Section 811 thus 

authorizes the Commission to take a different 

approach than the [FERC] . . . .’’); ISDA at 6 (stating 

that, unlike the FERC’s market manipulation 

statute, Section 811 does not contain express 

language directing it to rely on securities 

precedent). 

53 See, e.g., API at 15 (‘‘The Rule 10b-5 regulatory 

regime is deeply intertwined with the disclosure 

obligations imposed by Section 10(b) and other 

provisions of the SEA, the scope of which, in turn, 

are highly dependent on the fiduciary duties and 

obligations that exist between various market 

participants.’’); see also ISDA at 7 (stating that 

disclosure requirements are ‘‘[i]nterwoven and 

inextricably part of securities regulation’’). 

54 See, e.g., NPRA at 4, 7 (arguing that due to the 

absence of fiduciary and other duties and disclosure 

obligations in wholesale petroleum markets, it 

would be ‘‘bad public policy to apply [Rule 10b-5] 

to purchasers or sellers in wholesale petroleum 

markets’’); ISDA at 7 (stating that in the absence of 

legal trust relationships, it is unclear if Rule 10b5 principles are applicable to wholesale petroleum 

markets); Pirrong Tr. at 36 (stating that a Rule 10b5 case raises ‘‘issues related to fiduciary duty that 

are inherent in the securities laws, but which are 

not really appropriate or really that relevant in a 

commodities context’’); API at 25 (arguing that 

unlike wholesale petroleum markets, the securities 

marketplace is a regulated industry ‘‘governed by 

detailed disclosure obligations designed to protect 

unsophisticated investors’’); Plains at 3 (stating that 

in crude oil markets, unlike securities markets, 

‘‘there is no presumption that one market 

participant owes any duties to its counterparties 

that would require disclosure of any information’’). 

55 See, e.g., API at 9 (applying Rule 10b-5 

precedent ‘‘without any modification . . . would 

create confusion and chill pro-competitive 

behavior’’); NPRA at 16 (‘‘[A] blanket transfer of the 

language and precedent of Rule 10b-5 from 

securities markets to wholesale petroleum markets 

would likely create significant confusion and 

discourage procompetitive activity.’’). 

56 See, e.g., Flint Hills at 5 (stating that the 

proposed Rule does not ‘‘provide practical, clear, 

articulate guidance to its staff, traders and others 

dealing on [its] behalf’’ as to prohibited conduct); 

API at 8 (stating that the benefits of an FTC rule 

are outweighed by ‘‘potentially significant 

compliance costs’’ and the risk of ‘‘interfer[ing] 

with the efficient functioning of petroleum markets 

and deter[ring] procompetitive, welfare-enhancing 

behavior’’); NPRA at 3 (‘‘[A]s drafted, the language 

of the proposed rule instead would prompt 

corporate compliance systems that would impair 

the procompetitive and cost-efficient functioning of 

wholesale petroleum markets.’’); see also ISDA at 9 

(‘‘Under the proposed Rule, market participants are 

likely to be concerned that their competitive trading 

strategies or inadvertent miscalculations may later 

be misconstrued by regulators . . . .’’). 

57 API and NPRA suggested that the Commission 

retain the elements of a violation but not the 

language of the proposed Rule, or at least modify 

the language of the proposed Rule to clarify its 

application. API at 15-16; NPRA at 16-17 (stating 

that the elements of SEC Rule 10b-5 detached from 

securities precedent and with modifications are a 

‘‘better starting point’’ for a rule rather than the 

specific language of Rule 10b-5); see also API at 12 

(‘‘The language of Section 811 thus authorizes the 

Commission . . . to modify the Rule 10b-5 regime in 

light of its extensive experience with the petroleum 

industry.’’); ISDA at 6 (stating that, unlike the 

FERC’s market manipulation statute, Section 811 

does not contain express language directing it to 

rely on securities precedent). 

58 Some commenters recommended that the 

Commission adopt the CEA’s specific intent 

standard. See, e.g., ISDA at 10-11 (stating that the 

CEA’s intent requirement is better suited for 

commodities markets than the FTC’s proposed 

scienter requirement); API at 21-22 (advocating for 

a specific intent standard similar to that of the 

CEA); see also NPRA at 32 (stating that the 

proposed Rule should require specific intent in 

order to harmonize the proposed Rule with the 

CFTC’s market manipulation authority); CFDR at 7 

(stating that a specific intent standard ‘‘would 

substantially help to harmonize the legal standard 

between the Commission’s rule and the CFTC’s 

interpretation of the CEA’’). 

59 See, e.g., ISDA at 3-4 (asking that the 

Commission require proof of price effects); Plains 

at 3 (urging the Commission to make clear that only 

conduct that has a ‘‘manipulative effect on the 

relevant market’’ will be actionable); API at 34 

(recommending that the Commission require ‘‘proof 

that a party’s deceptive or fraudulent conduct 

caused market conditions to deviate materially from 

the conditions that would have existed but for that 

conduct’’). 

60 A few commenters asserted that the standards 

applied to commodities markets, including futures 

commodities markets, under the CEA are more 

applicable to petroleum markets than is securities 

legal precedent. See, e.g., ISDA at 11 (stating that 

CEA ‘‘precedent is much more analogous to the 

markets the EISA seeks to protect’’); API at 15 

(urging the Commission to ‘‘draw on relevant 

commodities law precedents in addition to 

elements of Rule 10b-5’’); see also Brown-Hruska at 

4 (‘‘[T]he mission of the Commission is more 

analogous to that of the commodities market 

regulator, the CFTC, which has the responsibility to 

ensure that the prices derived from and used by 

futures markets are fair and free from fraud and 

manipulation.’’). See generally Pirrong at 5 

(recommending that the Commission follow a 

modified CEA price manipulation model). But see 

NPRA (DeSanti), Tr. at 251 (‘‘I want to be explicit 

that the NPRA does not support using [a] CEA 

model here.’’). 

61 See, e.g., Navajo Nation (Piccone), Tr. at 37-38 

(arguing that a rule should address nonfraudulent, 

manipulative acts such as a refiner denying 

producers access to other markets); Navajo Nation 

at 3 (seeking confirmation that an FTC rule ‘‘will 

be applied to prohibit all manipulative conduct that 

artificially distorts wholesale petroleum markets or 

undermines incentives to find and develop reserves 

of domestic crude oil’’); see also CFA (Cooper), Tr. 

at 160 (stating that fraud is too narrow a focus and 

the proposed Rule also should cover market power 

issues); CFA2 at 8 (urging the FTC to ‘‘identify and 

attack the broad range of practices and structural 

conditions that can and have been moving prices in 

the markets’’). 

agreed with the Commission’s decision 

to model the proposed Rule after SEC 

Rule 10b-5.49 For example, SIGMA 

argued that a SEC Rule 10b-5 model 

would ‘‘ensure[] consumer protection 

while affording business owners a 

wealth of certainty with respect to their 

market practices.’’50 A few commenters 

expressly embraced the Commission’s 

decision to use the legal precedent 

under SEC Rule 10b-5 for guidance in 

interpreting a Section 811 rule.51

Other commenters expressed concern 

about the Commission’s reliance on SEC 

Rule 10b-5 language and its legal 

precedent.52 Generally, these 

commenters argued that the legal 

precedent developed under SEC Rule 

10b-5 cannot be divorced from the 

language of Rule 10b-5 itself.53 They 

contended that securities markets are 

characterized by legal relationships of 

trust and an emphasis on full disclosure 

which do not exist in wholesale 

petroleum markets.54 These commenters 

argued that relying upon SEC Rule 10b5 legal precedent therefore would create 

confusion and uncertainty as to what 

conduct would violate the proposed 

Rule.55 Some commenters asserted that, 

as a result, the proposed Rule 

potentially would chill legitimate 

business conduct, and that its uncertain 

scope would make it difficult for 

companies to create effective programs 

for compliance with the Rule.56

Many commenters offered 

modifications to the proposed Rule 

intended to adapt it to wholesale 

petroleum markets.57 Commenters who 

urged the Commission to diverge from 

SEC Rule 10b-5 legal precedent 

suggested revising the proposed Rule to 

include express language requiring both 

a showing of specific intent—to satisfy 

the scienter requirement58—and a 

showing of price effects.59 Some 

commenters recommended that the 

Commission draw instead upon legal 

precedent construing the CEA.60 Others 

argued that an anti-fraud manipulation 

rule would not go far enough, or that it 

should reach different types of 

conduct.61 One commenter, for 

example, suggested that the rule should 

target the exercise of market power 

intended to benefit a derivatives 


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62 Pirrong at 2-5 & n.2 (defining ‘‘derivatives’’ to 

include ‘‘exchange-traded futures contracts, and 

options on futures, and forward and options 

contracts traded in the over-the-counter . . . 

market’’). 

63 MPA at 2 & n.1 (noting that MPA’s members 

share the experiences described by IPMA and 

TOMA in their ANPR comments and IPMA in its 

NPRM comment, and that distributors and retailers 

can often obtain more competitive prices if they buy 

unblended gas separately from ethanol, which they 

then add to the gasoline before selling it at retail); 

see also NPCA at 1; IPMA at 2-3. MPA also 

recommended that the Commission reach the 

aforementioned conduct, which has ‘‘an adverse 

effect on competition’’ under an FTC rule. MPA at 

2. The Commission does not intend to focus on 

anti-competitive conduct in its application of the 

final Rule, which remains the province of antitrust 

law. The approach is consistent with Section 815 

of EISA. See 42 U.S.C. 17305(b); see also ABA 

Energy (McDonald), Tr. at 244 (arguing that the 

final Rule should not reach conduct that is already 

covered by the antitrust laws, such as the unilateral 

exercise of market power). 

64 See 73 FR at 25619; 73 FR at 48322. The antimanipulation authority granted to the FERC also 

contains the identical conduct prohibition, and the 

statute granting that authority explicitly directed 

the FERC to rely upon SEA Section 10(b) in 

defining the terms ‘‘manipulative or deceptive 

device or contrivance.’’ See 15 U.S.C. 717c-1; 16 

U.S.C. 824v. 

65 The language of Section 811 reflects 

congressional intent that the Commission look to 

SEC Rule 10b-5 in crafting a market manipulation 

rule. See Evans v. United States, 504 U.S. 255, 260 

n.3 (‘‘‘[I]f a word is obviously transplanted from 

another legal source, whether the common law or 

legislation, it brings the old soil with it.’’’) (quoting 

Felix Frankfurter, Some Reflections on the Reading 

of Statutes, 47 Colum. L. Rev. 527, 537 (1947)); 

Morissette v. U.S., 342 U.S. 246, 263 (1952) (noting 

where Congress borrows terms of art it ‘‘presumably 

knows and adopts the cluster of ideas that were 

attached to each borrowed word’’); see also 

National Treasury Employees Union, et al. v. 

Chertoff, 452 F.3d 839, 858 (D.C. Cir. 2006) (stating 

that ‘‘there is a presumption that Congress uses the 

same term consistently in different statutes’’). 

66 Superintendent of Ins. of N.Y. v. Bankers Life 

& Cas. Co., 404 U.S. 6, 12 (1971) (stating that 

preserving the integrity of securities markets is one 

of the purposes of Rule 10b-5); U.S. v. Russo, 74 

F.3d 1383, 1391 (2d Cir. 1996) (‘‘[F]rauds which 

‘mislead[] the general public as to the market value 

of securities’ and ‘affect the integrity of the 

securities markets’ . . . fall well within [Rule 10b5].’’) (citations omitted); In re Ames Dep’t Stores, 

Inc. Stock Litig., 991 F.2d 953, 966 (2d Cir. 1993) 

(stating that frauds affecting the integrity of 

securities markets fall under Rule 10b-5). 

67 To do otherwise would violate a canon of 

statutory construction. See TRW, Inc. v. Andrews, 

534 U.S. 19, 31 (2001) (‘‘It is ‘a cardinal principle 

of statutory construction’ that ‘a statute ought, upon 

the whole, to be so construed that, if it can be 

prevented, no clause, sentence, or word shall be 

superfluous, void, or insignificant.’’’) (citations 

omitted). 

68 Section 813(a) of EISA provides that Subtitle 

B shall be enforced by the FTC ‘‘in the same 

manner, by the same means, and with the same 

jurisdiction as though all applicable terms of the 

[FTC] Act (15 U.S.C. 41 et seq.) were incorporated 

into and made a part of [Subtitle B].’’ 42 U.S.C. 

17303 (emphasis added). 

69 AOPL at 1 & n.3 (urging the Commission to 

clarify that it will not apply a Section 811 rule to 

reach common carrier oil pipelines, defining ‘‘oil 

pipelines’’ to include crude oil and petroleum 

products pipelines). 

position.62 Other commenters 

specifically urged the Commission to 

prohibit refiners and suppliers from 

refusing to sell unblended gasoline to 

distributors.63

Based on the rulemaking record 

developed thus far, as well as its 

extensive experience with the 

petroleum industry, the Commission 

believes that modifying the 

proscriptions of the initially proposed 

Rule will better focus it on wholesale 

petroleum markets, which differ 

significantly from securities markets. As 

explained in the ANPR and the NPRM, 

the conduct prohibition in Section 811 

is identical to language found in SEA 

Section 10(b), which prohibits the use of 

any ‘‘manipulative or deceptive device 

or contrivance.’’64 The Commission 

believes that this language directs the 

agency to be guided by SEC Rule 10b5,65 a broad anti-fraud rule.66 However, 

the inclusion of the language ‘‘as 

necessary or appropriate’’ in Section 

811 further directs the Commission to 

use its expertise to tailor the rule in a 

manner appropriate for wholesale 

petroleum markets.67

The Commission has modified the 

initially proposed Rule after considering 

comments provided during the public 

comment period and at the public 

workshop. The modifications should 

clarify the requirements imposed by the 

revised proposed Rule for market 

participants. The Commission 

recognizes that, in the absence of a more 

extensive regulatory scheme, the 

omissions provision in Section 317.3 of 

the initially proposed Rule could 

discourage legitimate business conduct 

in wholesale petroleum markets that 

benefits consumers. Therefore, the 

Commission has consolidated the three 

subsections of Section 317.3 into two 

subsections, and has added language 

both to sharpen its focus on fraudulent 

and deceptive conduct and to reduce 

potential adverse effects on legitimate 

business conduct. Specifically, the 

Commission has added an explicit 

scienter standard for each subsection of 

Section 317.3, and has added language 

to the omissions provision now 

contained in Section 317.3(b) to ensure 

that it prohibits only the omission of 

material facts that is both misleading 

under the circumstances and distorts or 

tends to distort market conditions for 

the covered products. 

The Commission has retained the 

general anti-fraud prohibition contained 

in Section 317.3(c) of the initially 

proposed Rule in revised proposed 

Section 317.3(a). Thus, revised 

proposed Section 317.3(a) would 

prohibit any person from knowingly 

engaging in conduct—including making 

any untrue statement of material fact— 

that operates or would operate as a 

fraud or deceit on any person. Revised 

proposed Section 317.3(a) would not 

prohibit omissions of material facts. 

Such omissions would instead be 

covered by revised proposed Section 

317.3(b), which would prohibit any 

person from intentionally failing to state 

a material fact which both makes a 

given statement misleading under the 

circumstances and distorts or tends to 

distort market conditions for a covered 

product. These modifications are 

intended to eliminate redundancy and 

more precisely define the conduct that 

revised proposed Rule Section 317.3 

would prohibit; that is, fraudulent or 

deceptive conduct that injects false 

information into wholesale petroleum 

market transactions. 

The Commission believes that this 

framework best reflects both 

congressional intent and the nature of 

the markets covered by the revised 

proposed Rule. The Commission 

recognizes, however, that this approach 

may be too narrow to prevent all 

manipulative conduct. The Commission 

therefore does not foreclose the 

possibility of extending the scope of any 

final rule in the future if new 

information or enforcement experience 

warrant such modifications. 

B. Section 317.1: Scope 

Section 813 provides the Commission 

with the same jurisdiction and power 

under Subtitle B of EISA as does the 

FTC Act, 15 U.S.C. 41 et seq.68 With 

certain exceptions, the FTC Act 

provides the agency with jurisdiction 

over nearly every economic sector. 

Because EISA does not expand or 

contract coverage under the FTC Act, 

any ‘‘person’’ currently subject to the 

Commission’s jurisdiction—that is, any 

individual, group, unincorporated 

association, limited or general 

partnership, corporation, or other 

business entity—would be covered by 

the revised proposed Rule. Conversely, 

any ‘‘person’’ not subject to Commission 

jurisdiction under the FTC Act would 

also not be subject to Commission 

jurisdiction under the revised proposed 

Rule. 

In response to the NPRM, some 

commenters asked the Commission to 

clarify the jurisdictional scope of any 

final rule. With respect to pipelines, one 

commenter, AOPL, asserted that 

‘‘interstate common carrier oil pipelines 

regulated by the FERC under the ICA are 

exempt from Commission jurisdiction’’ 

and should be excluded from the 

coverage of any FTC rule.69 AOPL 


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70 AOPL at 14. 

71 AOPL asserted that comprehensive regulation 

of oil pipelines by the FERC makes regulation by 

the FTC under any final rule ‘‘neither necessary nor 

appropriate in the public interest or for the 

protection of U.S. citizens.’’ AOPL at 11. 

72 AOPL at 11-12 (contending that ‘‘there is little 

or no potential for manipulation of oil commodities 

prices on the part of oil pipelines’’ because 

regulations and competition limit pipeline 

companies’ ability to engage in anticompetitive 

conduct). 

73 ATAA at 4 (arguing that the Commission 

should reach manipulative conduct relating to oil 

pipelines in order to give full effect to EISA); see 

also Navajo Nation (Piccone), Tr. at 37-38 (arguing 

that Congress gave the FTC new authority to combat 

anti-competitive practices, including practices by 

pipelines); IPMA at 4 (‘‘We agree that Commission 

jurisdiction should extend to pipelines.’’). 

74 ATAA at 5 (asserting that the FERC ‘‘exercises 

what at best can be described as ‘light-handed’ 

regulation of oil pipelines and [it] has never 

pursued ‘price manipulation’ claims at all’’); see 

also Navajo Nation (Hollis), Tr. at 239 (explaining 

the FERC’s limited authority over oil pipelines). 

75 Under the Clayton Act, the Commission has the 

power and authority to regulate mergers and 

acquisitions of pipelines. See Clayton Act, Sections 

7 and 11, 15 U.S.C. 18, 21. 

76 Section 2 of the CEA states that ‘‘[t]he [CFTC] 

shall have exclusive jurisdiction . . . with respect to 

accounts, agreements . . . and transactions involving 

contracts of sale of a commodity for future delivery 

. . . traded or executed on a contract market 

designated . . . pursuant to [S]ection 7 or 7a of this 

title’’ of the CEA. 7 U.S.C. 2(a)(1)(A). 

77 See, e.g., CFTC (Arbit) at 1 (‘‘We again urge the 

FTC to incorporate an exception from its rule for 

commodity futures and options trading activity on 

regulated futures exchanges, which is subject to the 

CFTC’s exclusive jurisdiction granted by the 

[CEA].’’); CFTC (Chilton) at 2 (‘‘I urge the FTC to 

incorporate an exception for futures trading subject 

to the exclusive jurisdiction of the CEA.’’); MFA at 

2 (urging the Commission on behalf of futures 

associations and exchanges to grant a safe harbor for 

futures and options trading). But see CA AG at 3- 

4 (advocating against application of safe harbors 

designed specifically to avoid overlap with the 

CFTC’s regulatory jurisdiction and warning of 

potential jurisdictional limitations created by 

‘‘shackling the FTC with the restrictions placed 

upon CFTC authority’’); ATAA at 4 (‘‘[T]he rule 

proscribes ‘manipulation or deceptive conduct’ in 

a narrow and straightforward manner that does not 

‘improperly intrude upon the jurisdiction of the 

CFTC or any other agency.’’’); Pirrong at 8 (noting 

that in giving the FTC market manipulation 

authority, Congress has in some respects rendered 

moot any questions of the FTC’s interference with 

the CFTC’s jurisdiction); CFA2 at 19-20 (urging the 

Commission to reach conduct in futures markets). 

78 See, e.g., MFA at 3 (‘‘Congress designed the 

CFTC’s exclusive jurisdiction to make absolutely 

certain that the provisions of the CEA . . . would be 

the sole legal standards applicable to futures 

trading.’’); CFTC (Arbit) at 3 (stating that Congress 

granted the CFTC exclusive jurisdiction over 

futures trading to avoid applying inconsistent 

standards to futures markets); see also CFDR at 9 

(stating that it seems illogical to apply a rule 

specifically intended to govern activities in the 

commodities markets to futures markets); CFTC 

(Chilton) at 1 (stating that applying a Section 811 

rule to futures markets ‘‘would seriously undermine 

the Congressional grant of exclusive jurisdiction in 

the CEA, and impair the CFTC’s ability to 

effectively oversee futures activity’’); see also 

Sutherland at 2 (asserting that the proposed Rule 

‘‘impinges upon the [CFTC’s] exclusive jurisdiction 

with respect to the futures and other purely 

financial markets’’). 

79 See, e.g., Sutherland at 2 (‘‘The proposed rule 

creates a duplicative and potentially highly 

burdensome enforcement regime.’’); CME (Dow), Tr. 

at 29 (explaining that application of an FTC rule to 

futures markets is a ‘‘recipe for disaster . . . because 

it results in overlapping regulatory regimes by 

multiple regulators’’); MFA at 3 (arguing that the 

legislative history and the language of CEA’s 

exclusive jurisdiction provision demonstrates that 

Congress believed that applying conflicting or 

duplicative regulations to futures markets would 

‘‘impair the operations of U.S. futures markets’’); 

Brown-Hruska at 8-9 (recommending that the 

Commission narrow the focus of the rule to 

manipulative and deceptive conduct in wholesale 

petroleum markets to avoid regulatory overlap ‘‘that 

would give rise to legal uncertainty in the 

exchange-traded and over-the-counter derivative 

markets’’). 

80 MFA at 3 (urging the Commission ‘‘to avoid 

having [the Rule’s] provisions contradict and 

conflict with CEA legal requirements’’ by requiring 

specific intent and a showing of price effects as 

elements of an offense). 

81 7 U.S.C. 2(a)(1)(A). 

82 This position is consistent with the views of 

commenters who urged the FTC to work with the 

CFTC where appropriate, including the CFTC itself. 

See, e.g., CFTC (Arbit) at 3 (‘‘[T]he CFTC looks 

forward to working in close cooperation with the 

FTC to efficiently prosecute illegal activity in the 

petroleum industry where our agencies share 

jurisdiction.’’); Sutherland at 4 (‘‘[C]ooperative 

arrangements in place between the FTC and CFTC 

. . . can be tailored to allow each agency to pursue 

the compliance matters within its greatest 

competence—the physical markets in the case of 

the FTC and the financial markets in the case of the 

CFTC.’’); MFA at 9 (urging the Commission and the 

CFTC to coordinate enforcement in areas outside 

the CEA’s exclusive jurisdiction provision for 

futures markets). 

further suggested that the Commission 

provide a ‘‘safe harbor protecting oil 

pipelines against any culpability under 

the rule so long as they are acting in 

accordance with the ICA and FERC 

regulation of oil pipelines pursuant to 

the ICA.’’70 In support of this position, 

AOPL argued that the FERC already 

regulates pipelines extensively71 and 

that the potential for manipulation of 

commodities prices by oil pipelines is 

small.72 Another commenter, ATAA, 

opposed any safe harbors or exemptions 

for pipelines in order to give full effect 

to the purpose of EISA.73 According to 

ATAA, it is important for the 

Commission to police this area because 

‘‘it is far from clear that FERC’s 

jurisdiction extends to price 

manipulation,’’ and because the ‘‘FERC 

has never pursued ‘price manipulation’ 

claims’’ against oil pipelines.74

In response, the Commission notes 

that not all pipelines necessarily fall 

outside the coverage of the FTC Act.75

Certain pipeline companies or their 

activities may fall outside the coverage 

of the FTC Act to the extent that they 

are acting as ‘‘common carriers.’’ 

However, pipeline companies and their 

owners or affiliates are often involved in 

multiple aspects of the petroleum 

industry—including the purchase or 

sale of petroleum products, and the 

provision of transportation services— 

and they may engage in conduct in 

connection with wholesale petroleum 

markets covered by EISA. 

FERC regulation of pipelines would 

be an insufficient basis upon which to 

exempt pipeline companies if they 

engage in prohibited conduct in 

connection with the wholesale purchase 

or sale of crude oil, gasoline, or 

petroleum distillates. The Commission 

therefore must assess on a case-by-case 

basis whether any particular ‘‘person’’ 

as defined in the revised proposed 

Rule—or any conduct at issue—may fall 

outside the scope of the revised 

proposed Rule, and/or whether the 

conduct at issue falls under the ‘‘in 

connection with’’ language in the 

revised proposed Rule, which is 

discussed below. 

Some commenters argued that any 

final rule should not extend to fraud in 

futures markets, as the Commission had 

proposed. Many of these commenters 

observed that the CFTC has exclusive 

jurisdiction pursuant to Section 

2(a)(1)(A) of the CEA,76 and that the 

Commission should therefore grant a 

safe harbor for futures markets 

activities.77 These commenters argued 

in particular that Congress granted the 

CFTC exclusive jurisdiction over futures 

markets in order to create uniform rules 

and to avoid applying inconsistent legal 

standards to futures markets.78 They 

further argued that if an FTC rule 

applied to futures trading, market 

participants could face duplicative and 

possibly inconsistent enforcement by 

multiple agencies based on the same 

conduct.79 One commenter maintained 

that if the Commission declined to 

adopt a safe harbor, the Commission 

should harmonize any final rule with 

the elements of a cause of action for 

price manipulation under the CEA, 

which are not part of the statutory 

provision.80

At this time, the Commission does not 

intend to adopt a blanket safe harbor for 

futures market activities. Nonetheless, 

the Commission recognizes the CFTC’s 

jurisdiction ‘‘with respect to accounts, 

agreements . . . and transactions 

involving contracts of sale of a 

commodity for future delivery.’’81

Consistent with its longstanding 

practice of coordinating its enforcement 

efforts with other federal or state law 

enforcement agencies where it has 

overlapping or complementary 

jurisdiction, the Commission intends to 

work cooperatively with the CFTC in 

furtherance of the Commission’s duty to 

prevent fraud in wholesale petroleum 

markets.82


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83 See, e.g., NPRA at 15 (‘‘The greater the 

emphasis on SEC authorities as a source of the 

Commission’s Rule, the greater the likelihood that 

courts would follow the SEC model to imply a 

private right of action under EISA as well.’’); Flint 

Hills at 4 (noting that the closer the Commission 

adheres to a SEC Rule 10b-5 model, the more 

difficult it will be to design a compliance program 

to preclude third-party litigation). 

84 See, e.g., Sutherland at 7 (‘‘[The Commission] 

should make clear that neither EISA nor the 

proposed Rule creates any private right of action.’’); 

Plains at 1 (‘‘We urge the Commission to make it 

clear that its proposed rule does not create any 

private right of action and that the rule may be 

enforced only by the Commission itself.’’); API at 

10 (‘‘The Commission should make clear in any 

final Rule that it does not create a private right of 

action.’’). 

85 See API at 10 (agreeing that ‘‘Congress did not 

expressly provide for a private right of action in 

Section 811’’). 

86 73 FR at 48325-26. 

87 73 FR at 48325. 

88 73 FR at 48325. 

89 PMAA at 3 (‘‘The definition[] of ‘crude oil’ . . . 

seem[s] appropriate.’’); Navajo Nation at 7 (adopting 

the FTC’s proposed definition of ‘‘crude oil’’ in its 

recommended rule text). 

90 The word ‘‘exist’’ in the definition has been 

replaced with the word ‘‘exists’’; the phrase ‘‘the 

mixture’’ has been changed to ‘‘any mixture’’; and 

in the first part of the definition, the phrase ‘‘which 

remain’’ has been changed to ‘‘that remains.’’ 

91 73 FR at 48325. 

92 PMAA at 3 (‘‘The definition[] of . . . ‘gasoline’ 

. . . seem[s] appropriate.’’); IPMA at 4 (agreeing with 

the Commission’s proposed definition of 

‘‘gasoline’’); Navajo Nation at 7 (adopting the FTC’s 

proposed definition of ‘‘gasoline’’ in its 

recommended rule text). 

93 See, e.g., ATA at 1 (encouraging the 

Commission to include renewable fuels markets in 

the proposed Rule’s reach); PMAA at 3 (stating that 

the Commission should reach the manipulation of 

ethanol under the rule); see also IPMA at 4 

(‘‘[A]gree[ing] with the language that manipulation 

of non-petroleum based commodities such as 

ethanol and other oxygenates that directly or 

indirectly affect the price of gasoline should be 

subject to Commission enforcement under the 

proposed Rule.’’). 

94 MFA at 12 (requesting that the Commission 

‘‘delete its reference to ‘ethanol’ as a subset of 

‘gasoline’’’). 

95 See 73 FR at 48325. 

Finally, some commenters voiced the 

concern that if the Commission relies 

upon the text and judicial construction 

of SEC Rule 10b-5 language and 

securities law precedent, courts would 

be more inclined to find an implied 

private right of action under any final 

rule.83 Commenters urged the 

Commission to clarify that any final rule 

would not create or imply a private right 

of action.84 In response, the Commission 

notes that EISA does not expressly 

create a private right of action.85

Whether a private right of action might 

be implied, however, is a question of 

legislative intent for Congress or the 

courts, not the Commission, to resolve. 

C. Section 317.2: Definitions 

The revised proposed Rule provides 

definitions for six terms: ‘‘crude oil,’’ 

‘‘gasoline,’’ ‘‘knowingly,’’ ‘‘person,’’ 

‘‘petroleum distillates,’’ and 

‘‘wholesale.’’ Five of these terms were 

defined in the initial NPRM, and the 

definitions of those five terms herein 

remain largely the same as those in the 

initially proposed Rule.86 In addition, 

the revised proposed Rule now includes 

a definition of the term ‘‘knowingly.’’ 

These definitions establish the scope of 

the revised proposed Rule’s coverage 

and provide guidance as to the 

Commission’s intended enforcement of 

the Rule. 

Several commenters addressed the 

definitions proposed in the initial 

NPRM, and some of them also suggested 

additional definitions. These comments, 

together with the Commission analysis 

of the definitions that are included in 

the revised proposed Rule, are 

discussed below. 

1. Section 317.2(a): ‘‘Crude oil’’ 

Section 317.2(a) of the initially 

proposed Rule defined ‘‘crude oil’’ to 

mean: ‘‘the mixture of hydrocarbons 

that exist: (1) in liquid phase in natural 

underground reservoirs and which 

remain liquid at atmospheric pressure 

after passing through separating 

facilities, or (2) as shale oil or tar sands 

requiring further processing for sale as 

a refinery feedstock.’’87 As explained in 

the NPRM, the Commission intended 

the definition to include ‘‘liquid crude 

oil and any hydrocarbon form that can 

be processed into a refinery feedstock,’’ 

but to exclude ‘‘natural gas, natural gas 

liquids, or non-crude refinery 

feedstocks.’’88

Two commenters, PMAA and Navajo 

Nation, supported the proposed 

definition of ‘‘crude oil,’’89 and no 

commenter provided a basis for 

changing it. Section 317.2(a) of the 

revised proposed Rule thus retains the 

substantive definition of ‘‘crude oil’’ in 

the initially proposed Rule. However, 

the definition in the revised proposed 

Rule has three non-substantive 

modifications.90 Section 317.2(a) of the 

revised proposed Rule therefore defines 

‘‘crude oil’’ as ‘‘any mixture of 

hydrocarbons that exists: (1) in liquid 

phase in natural underground reservoirs 

and that remains liquid at atmospheric 

pressure after passing through 

separating facilities, or (2) as shale oil or 

tar sands requiring further processing 

for sale as a refinery feedstock.’’ 

2. Section 317.2(b): ‘‘Gasoline’’ 

Section 317.2(b) of the initially 

proposed Rule defined ‘‘gasoline’’ to 

mean: ‘‘(1) finished gasoline, including, 

but not limited to, conventional, 

reformulated, and oxygenated blends, 

and (2) conventional and reformulated 

gasoline blendstock for oxygenate 

blending.’’91 Three commenters 

generally supported the proposed 

definition.92

Several commenters offered views on 

whether ethanol or renewable fuels 

should be included as covered products 

under any final rule. Some of them 

expressed general support for including 

ethanol or renewable fuels.93 One 

commenter specifically opposed 

including ethanol in the definition of 

‘‘gasoline.’’94

Section 317.2(b) of the revised 

proposed Rule retains, without 

modification, the definition of 

‘‘gasoline’’ in the initially proposed 

Rule. Consistent with its position in the 

NPRM, the Commission intends to 

capture those commodities regularly 

traded as finished gasoline products or 

as gasoline products requiring only 

oxygenate blending to be finished, 

under this definition.95

The Commission tentatively has 

determined not to treat products not 

listed in Section 811—such as 

renewable fuels (e.g., ethanol) and 

blending components (e.g., alkylate and 

reformate)—as separate covered 

products under its definition of 

‘‘gasoline.’’ The Commission may 

nonetheless apply the revised proposed 

Rule to conduct implicating noncovered commodities if appropriate 

under the ‘‘in connection with’’ 

language in the revised proposed Rule, 

as discussed below in Section 

IV.D.2.a.2. This approach would 

provide the Commission with sufficient 

flexibility to achieve the statutory goal 

of protecting wholesale petroleum 

markets from manipulation without 

expanding the reach of a Section 811 

rule to cover products not identified in 

the statute. 

3. Section 317.2(c): ‘‘Knowingly’’ 

Section 317.2(c) of the revised 

proposed Rule defines ‘‘knowingly’’ to 

mean ‘‘with actual or constructive 

knowledge such that the person knew or 

must have known that his or her 

conduct was fraudulent or deceptive.’’ 

This definition has been added to 

provide guidance as to the level of 

scienter required to establish a violation 

of the general anti-fraud provision 

contained in revised proposed Rule 

Section 317.3(a). Consistent with the 

position the Commission adopted in the 

NPRM, the definition of ‘‘knowingly’’ 

derives from the extreme recklessness 

standard articulated by the Seventh 

Circuit and the District of Columbia 

Circuit Courts of Appeals in decisions 

delineating the appropriate scienter 


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96 73 FR at 48329 (citing SEC v. Steadman, 967 

F.2d 6436, 641-42 (D.C. Cir. 1992)); see also 

Sundstrand Corp. v. Sun Chemical Corp., 553 F.2d 

1033, 1045 (7th Cir. 1977), cert. denied, 434 U.S. 

875 (1977). 

97 73 FR at 48325. 

98 PMAA at 3 (‘‘The definition[] of . . . ‘person’ . . . 

seem[s] appropriate.’’); Navajo Nation at 8 (adopting 

the FTC’s proposed definition of ‘‘person’’ in its 

recommended rule text). 

99 See 73 FR at 48325. 

100 See, e.g., Telemarketing Sales Rule, 16 CFR 

310.2(v); Disclosure Requirements and Prohibitions 

Concerning Franchising, 16 CFR 436.1(n). 

101 73 FR at 48325. 

102 73 FR at 48325. 

103 PMAA at 3 (‘‘The definition[] of . . . ‘petroleum 

distillates’ . . . seem[s] appropriate.’’); Navajo Nation 

at 8 (adopting the FTC’s proposed definition of 

‘‘petroleum distillates’’ in its recommended rule 

text). 

104 Sutherland at 7. 

105 ATA at 3. 

106 73 FR at 48326. 

107 See, e.g., Navajo Nation at 8 (adopting the 

FTC’s proposed definition of ‘‘wholesale’’ in its 

recommended rule text); PMAA at 3 (‘‘PMAA is in 

agreement with the Commission’s definition of 

‘wholesale’ . . . .’’). 

108 MS AG at 3; PMAA at 3; see also IPMA at 

4 (agreeing that ‘‘‘wholesale’ means purchases at the 

terminal rack or upstream of the terminal rack’’); 

Platts (Kingston), Tr. at 154 (stating that ‘‘[w]hen I 

hear wholesale, I tend to think of [it] as rack’’). 

109 PMAA at 3. 

110 API and NPRA, for example, suggested that 

the Commission limit the term ‘‘wholesale’’ to 

‘‘bulk purchases or sales in contract quantities of 

20,000 barrels or more, delivered or received via 

pipeline, marine transport or rail, at or near a 

location for which a price publication firm 

publishes a reference price.’’ API at 30; NPRA at 30- 

31, see also SIGMA at 3 (suggesting that the 

Commission define ‘‘wholesale’’ to include only 

‘‘transactions involving quantities of product equal 

to or greater than the minimum pipeline tenders or 

barge volumes via which a terminal or terminal 

cluster receives supplies’’). 

111 API at 29; NPRA at 30. 

112 SIGMA at 2 (contending that although 

‘‘[p]articular pricing practices at the rack level may 

have an impact on a particular supplier’s 

customers,’’ such practices would likely not ‘‘alter 

overall price levels in the markets served out of a 

terminal or terminal cluster’’); see also API at 30; 

NPRA at 30 n.46 (‘‘Wholesale rack prices are 

limited to a relatively small geographic area.’’). 

113 Additionally, API and NPRA argued that the 

Commission already has a price monitoring 

program for terminal rack pricing in place and it 

has not identified a ‘‘problem at the wholesale rack 

level that would suggest a regulatory remedy is 

required.’’ API at 29-30; NPRA at 30. 

114 73 FR at 48326; see NPRA at 30; API at 29- 

30 (stating that its reasons for excluding practices 

at the terminal rack level and below ‘‘from the 

scope of the Rule are not definitional, but rather 

based on public policy’’). 

standard under SEC Rule 10b-5.96 The 

Commission discusses in further detail 

the intended application of the term 

‘‘knowingly’’ in Section IV.D.2.b.1. 

below. 

4. Section 317.2(d): ‘‘Person’’ 

Section 317.2(c) of the initially 

proposed Rule defined the term 

‘‘person’’ to mean: ‘‘any individual, 

group, unincorporated association, 

limited or general partnership, 

corporation, or other business entity.’’97

PMAA and Navajo Nation were the only 

commenters to address this definition, 

and both agreed that the definition is 

appropriate.98 The Commission believes 

that this definition is consistent with 

the jurisdictional reach of the FTC 

Act,99 as well as with prior usage in 

other FTC rules.100 Therefore, the 

initially proposed definition of 

‘‘person’’ is retained without 

modification and set forth in Section 

317.2(d) of the revised proposed Rule. 

5. Section 317.2(e): ‘‘Petroleum 

distillates’’ 

Section 317.2(d) of the initially 

proposed Rule defined ‘‘petroleum 

distillates’’ to mean ‘‘(1) jet fuels, 

including, but not limited to, all 

commercial and military specification 

jet fuels, and (2) diesel fuels and fuel 

oils, including, but not limited to, No. 

1, No. 2, and No. 4 diesel fuel, and No. 

1, No. 2, and No. 4 fuel oil.’’101 The 

initially proposed Rule also defined 

‘‘petroleum distillates’’ to include 

‘‘finished fuel products, other than 

‘gasoline,’ produced at a refinery or 

blended in tank at a terminal.’’102 Two 

commenters supported the proposed 

definition of ‘‘petroleum distillates,’’103

while another asked whether the 

definition of ‘‘petroleum distillates’’ 

included heavy fuel oils (e.g., No. 5 and 

No. 6 fuel oils).104 Another commenter 

argued that any final rule should reach 

biodiesel and other renewable fuels.105

The definition of ‘‘petroleum 

distillates’’ now in revised proposed 

Rule Section 317.2(e) remains 

unchanged from the initially proposed 

Rule. The Commission clarifies that the 

term ‘‘petroleum distillates’’ includes 

middle distillate refinery fuel streams, 

and thus encompasses all product 

streams above heavy fuel oils, up to and 

including lighter products such as onroad diesel, heating oil, and kerosenebased jet fuels. The definition, therefore, 

does not include heavy fuel oils. 

As discussed in the definition of 

‘‘gasoline,’’ the Commission tentatively 

has determined not to extend the 

definition of ‘‘petroleum distillates’’ to 

include renewable fuels, such as 

biodiesel. To do so would expand the 

reach of the revised proposed Rule 

beyond the products—‘‘crude oil[,] 

gasoline or petroleum distillates’’— 

expressly specified in Section 811 of 

EISA. The Commission further 

addresses the intended application of 

the revised proposed Rule to conduct 

implicating non-covered products, such 

as renewable fuels, in its discussion of 

the ‘‘in connection with’’ language in 

Section IV.D.2.a.2. below. 

6. Section 317.2(f): ‘‘Wholesale’’ 

Section 317.2 (e) of the initially 

proposed Rule defined the term 

‘‘wholesale’’ to mean ‘‘purchases or 

sales at the terminal rack level or 

upstream of the terminal rack level. 

Transactions conducted at wholesale do 

not include retail gasoline sales to 

consumers.’’106 A few commenters 

generally agreed with the Commission’s 

proposed definition,107 and two 

commenters, MS AG and PMAA, 

expressly supported including sales at 

the terminal rack level.108 PMAA 

asserted that manipulation at the rack 

level would directly affect ‘‘the 

thousands of PMAA members whose 

trucks load at these terminal racks tens 

of thousand times each day.’’109

Other commenters, however, opposed 

including transactions at or downstream 

of the terminal rack level, and they 

proposed revising the definition of 

‘‘wholesale’’ to limit its meaning to 

purchases or sales of product in ‘‘bulk’’ 

quantities.110 A few commenters argued 

that, although the term by definition 

included rack sales, public policy 

considerations supported limiting its 

scope. These commenters contended 

that ‘‘rack pricing decisions are 

qualitatively different from those that 

arise in market-based bulk 

transactions,’’111 and that rack pricing 

practices were unlikely to affect overall 

price levels in markets served by a 

terminal or group of terminals.112 They 

further argued that applying the Rule to 

rack transactions ‘‘could jeopardize the 

ability of wholesale suppliers to 

respond to market conditions,’’ and 

would also impose significant 

compliance burdens on the industry.113

The Commission finds the arguments 

advocating the exclusion of rack sales 

from the definition of ‘‘wholesale’’ to be 

unpersuasive, and at this time 

tentatively has determined not to limit 

the definition to bulk volume sales. As 

the Commission stated in the NPRM, 

and as some commenters conceded, 

terminal rack sales are ‘‘wholesale’’ 

transactions as that term is commonly 

defined.114 Excluding rack sales from 

the definition would place the revised 

proposed Rule at odds with the express 

language of EISA, which directs the 

Commission to prohibit manipulative 

conduct in wholesale markets. 

Moreover, prohibited conduct may in 

fact occur at the terminal rack level in 

connection with wholesale petroleum 

transactions, to the detriment of 

consumers. Such a determination 

requires analysis on a case-by-case 


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115 One commenter stated that the Commission’s 

proposed definition ‘‘leaves uncertainty as to the 

status of retail transactions that involve large end 

users.’’ Sutherland at 7. 

116 A common definition of ‘‘wholesale’’ is ‘‘‘the 

sale of goods in quantity, as to retailers or jobbers, 

for resale.’’’ See 73 FR at 48326 (citing (http:// 

dictionary.reference.com/browse/wholesale)) 

(emphasis added). 

117 See SIGMA at 1 (agreeing that any Section 811 

rule should not apply to retail gasoline sales); 

NPRA at 29; API at 30. 

118 The definition of ‘‘wholesale’’ in the NPRM 

had stated that ‘‘[t]ransactions conducted at 

wholesale do not include retail gasoline sales to 

consumers.’’ 73 FR at 48326. 

119 See generally Van Susteren at 1 (noting that 

EISA provided neither a definition for ‘‘market 

manipulation’’ nor the specific elements that 

constitute a Section 811 violation). 

120 One commenter suggested using SEC Rule 

10b-5 language to define this term. IPMA at 3-4 

(contending ‘‘that the [SEA] and SEC Rule 10b-5 

definition of ‘manipulative device or contrivance’ 

as ‘employ[ing] any device, scheme, or artifice to 

defraud’ is appropriate in this case’’). 

121 Navajo Nation at 3. Specifically, Navajo 

Nation recommended the following definition for 

‘‘manipulative device, scheme or contrivance’’ be 

added: ‘‘[C]onduct without substantial efficiency 

justification that is intended to artificially 

stimulate, depress or distort market prices or that 

foreseeably could artificially stimulate, depress, or 

distort market prices.’’ Id at 8. 

122 NPRA at 28 (agreeing ‘‘fundamental[ly]’’ with 

the FTC’s definition of ‘‘manipulative or deceptive 

act’’ in the NPRM). NPRA suggested that the FTC 

further define the type of information injected into 

the market, by specifying that the information must 

be about important aspects of supply or demand. Id. 

at 21. 

123 Muris at 2; see also ISDA at 10 (stating that 

CEA legal precedent has defined ‘‘manipulative’’ as 

‘‘‘an intentional exaction of a price determined by 

forces other than supply and demand’’’ (quoting 

Frey v. CFTC, 931 F.2d 1171, 1175 (7th Cir. 1991)). 

But see NPRA (DeSanti), Tr. at 250-51 (arguing 

against the use of the CFTC’s definition of ‘‘market 

manipulation’’). 

124 See Section IV.A. for a discussion of the Rule 

as an anti-fraud rule. 

125 73 FR at 48326 (proposing language nearly 

identical to that employed in SEC Rule 10b-5); see 

also 17 CFR 240.10b-5. 

126 See, e.g., CA AG at 2 (agreeing with the 

conduct provisions of the proposed Rule); MS AG 

at 2 (endorsing the Commission’s proposed Rule); 

ATA at 2 (stating that the proposed Rule properly 

prohibits manipulation); see also SIGMA at 2 (‘‘In 

particular, the Commission’s decision to base its 

rule on Section 10b-5 of the [SEA] properly ensures 

consumer protection while affording business 

owners a wealth of certainty with respect to their 

market practices.’’). 

127 PMAA at 3. 

128 ATAA at 12. 

basis. Furthermore, the inclusion in the 

revised proposed Rule of an explicit 

scienter requirement limiting the reach 

of the Rule to ‘‘knowing’’ or 

‘‘intentional’’ conduct should assuage 

commenter concerns about reaching 

rack transactions. Thus, the revised 

proposed Rule covers terminal rack 

sales. 

The Commission has, however, 

modified the proposed definition of 

‘‘wholesale’’ in recognition of the 

differences that may exist in the 

patterns of distribution for crude oil, 

gasoline, and petroleum distillates.115

As the Commission noted in the NPRM, 

the term ‘‘wholesale’’ may encompass 

one or both of the following concepts: 

(1) the sale of large quantities of 

product, and (2) the sale of a product for 

anticipated resale.116 With regard to the 

sale of products listed in Section 811, 

the Commission recognizes that crude 

oil is sold in bulk quantities 

independent of terminal racks. 

Similarly, large quantities of jet fuel are 

often sold directly to airlines at airports 

independent of any terminal rack. 

Therefore, the Commission is revising 

the proposed definition of ‘‘wholesale’’ 

to address these differences, clarifying 

that all bulk sales of crude oil and jet 

fuel—even when not for resale—are 

encompassed by the revised proposed 

definition. 

Specifically, Section 317.2(f) of the 

revised proposed Rule defines 

‘‘wholesale’’ to mean ‘‘(1) all purchases 

or sales of crude oil or jet fuel; and (2) 

all purchases or sales of gasoline or 

petroleum distillates (other than jet fuel) 

at the terminal rack level or upstream of 

the terminal rack level.’’ As modified, 

this revised definition would not extend 

to retail sales of gasoline, diesel fuels, or 

fuel oils to consumers;117 therefore, the 

language in the originally proposed 

definition excluding such sales is now 

redundant and has been deleted.118

7. Other Suggested Definitions 

A few commenters suggested adding 

definitions to any final rule to clarify its 

scope and operation.119 Specifically, 

several commenters proposed 

definitions for the terms ‘‘manipulative 

or deceptive device or contrivance,’’ a 

phrase included in the text of Section 

811.120 One commenter recommended 

that an FTC rule include a broad 

definition of the terms ‘‘manipulative or 

deceptive device, scheme or 

contrivance’’ that encompasses 

‘‘manipulative conduct that artificially 

distorts wholesale petroleum markets or 

undermines incentives to find and 

develop reserves of domestic crude 

oil.’’121 Borrowing language from the 

NPRM, another commenter urged the 

Commission to define a ‘‘manipulative 

or deceptive act’’ as an act that ‘‘injects 

materially false or deceptive 

information into the marketplace.’’122

One commenter proposed that any rule, 

regardless of scope, should define 

‘‘manipulation [as] an act that is 

deceptive, that causes an effect on 

market prices, and [that] is intended by 

the actor to have such a result.’’123

As described in greater detail in the 

discussion of Section 317.3 below, the 

Commission believes that the conduct 

prohibition in the revised proposed 

Rule would give meaning to the term 

‘‘manipulative or deceptive devices or 

contrivances’’ found in Section 811, 

obviating the need for an additional 

definition in the Rule itself. Moreover, 

modifications to the proposed Rule’s 

language clarify the type of conduct that 

the revised proposed Rule would 

prohibit, providing better guidance to 

market participants about its scope. 

Consistent with its position in the 

NPRM, the Commission intends to focus 

on fraudulent and deceptive conduct 

that injects false information into 

market transactions.124 At this time, the 

Commission believes that it remains 

unnecessary to define either 

‘‘manipulative or deceptive device or 

contrivance’’ or ‘‘manipulative or 

deceptive act.’’ 

D. Section 317.3: Prohibited Practices 

1. Initial Proposed Rule 

Section 317.3 of the initially proposed 

Rule contained three subparts (a) - (c), 

which respectively would have made it 

unlawful for any person: 

(a) To use or employ any device, 

scheme, or artifice to defraud, 

(b) To make any untrue statement of 

a material fact or to omit to state a 

material fact necessary in order to make 

the statements made, in the light of the 

circumstances under which they were 

made, not misleading, or 

(c) To engage in any act, practice, or 

course of business that operates or 

would operate as a fraud or deceit upon 

any person.125

The NPRM discussed the scope and 

application of each subpart and 

articulated the elements of a cause of 

action under the proposed Rule. 

Commenters responded to the NPRM by 

discussing both the language of the 

proposed Rule and its proposed 

elements. Several industry commenters 

addressed the conduct provisions 

contained in proposed Section 317.3(a)- 

(c). Some commenters believed that the 

conduct provisions were generally 

appropriate,126 and some expressed 

specific support for individual subparts. 

For example, PMAA advised that it 

would support the language used in 

proposed Section 317.3(a), as long as the 

proposed Rule also contained a scienter 

requirement.127 ATAA also supported 

proposed Section 317.3(c), noting that 

‘‘[t]his flexible standard is exactly the 

sort of general prohibition of illegality 

that the FTC has successfully enforced 

over its almost 100 year history.’’128 In 

addition, some commenters agreed with 


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129 See, e.g., Sutherland at 2 (‘‘We welcome the 

Commission’s decision not to propose specific 

conduct obligations or other affirmative duties that 

superimpose government norms for the rules of the 

marketplace.’’); ATA at 2 n.3 (‘‘We support the 

FTC’s attempt to preserve flexibility by issuing 

general conduct prohibitions so as to allow for 

adaptation to changing market conditions and to 

avoid a ‘laundry list of specifically proscribed 

conduct [that] could quickly become out of date.’’’ 

(quoting 73 FR at 48322-23)); ATAA at 11 (‘‘[T]he 

proposed rule properly contains a broad anti-fraud 

provision.’’); see also Platts at 9 (‘‘Platts generally 

agrees with a non-prescriptive approach for entities’ 

participation in price formation processes.’’). 

Although they did not endorse a ‘‘laundry list’’ 

approach, a few other commenters sought to ensure 

that a rule would proscribe specific conduct as 

manipulative under a rule. See NPCA at 1; MPA at 

2; IPMA at 3-4 (requesting that the Commission 

treat an oil company’s decision to sell only gasoline 

pre-blended with ethanol at the terminal rack as a 

potentially manipulative practice). 

130 See, e.g., API at 9-10, 26 (arguing that the 

proposed Rule was overly broad and would prompt 

market participants to adopt compliance programs 

that restrict voluntary disclosures); ISDA at 9 

(arguing that market liquidity, particularly in times 

of greater market stress, would be adversely affected 

if ambiguous rule provisions artificially constrain 

‘‘critical market activities’’ or dissuade potential 

market participants from entering the market); 

NPRA at 3 (‘‘Market participants believe they will 

need to implement conservative compliance 

systems due to the uncertainty created by the 

Commission’s proposal to apply SEC precedent to 

enforcement of the Rule . . . .’’); Flint Hills at 3 

(noting with approval the concerns raised by NPRA 

that the ‘‘breadth of the proposed rule would create 

a significant amount of uncertainty as to what 

conduct may be captured by the Rule’’); Plains at 

3 (‘‘Given . . . the uncertainties that will exist with 

respect to the [proposed Rule’s] scope and 

applicability, the imposition of liability without any 

finding of an effect on the market or third parties 

will restrict legitimate market activity . . . .’’). 

131 NPRA at 15-17 (arguing that the three 

elements of proof required for the proposed Rule, 

rather than the specific language of SEC Rule 10b5, provide a better starting point for the 

development of an FTC rule). 

132 NPRA at 31. NPRA further recommended that 

the Commission add the language ‘‘manipulative or 

deceptive’’ to modify the phrase ‘‘device, scheme, 

or artifice to defraud’’ in proposed Section 317.3(a). 

Id. at 32. 

133 See, e.g., ISDA at 8 (noting that ‘‘[w]hile this 

clause may be reasonably clear in the securities 

context in which it has been applied, it is not clear 

to ISDA’s members what this would require of 

commercial participants in physical, wholesale 

petroleum markets’’). 

134 See MFA (Young), Tr. at 45 (arguing that the 

language ‘‘any person’’ in proposed Section 317.3(c) 

is overreaching); NPRA at 31. 

135 See, e.g., Flint Hills at 3-4 (‘‘[I]nstructing 

employees not to knowingly lie to their purchasers 

about supply conditions in order to drive up market 

prices draws a bright line that can be clearly 

communicated and audited without the need to 

limit legitimate conduct.’’). 

136 Several ANPR commenters noted that 

reporting false information to private reporting 

services and to government agencies can be 

troublesome because market participants rely on 

information from private reporting services and 

government agencies to conduct business 

transactions. See, e.g., API, ANPR, at 50 (stating that 

firms rely on private reporting services to 

understand industry trends and as a basis for 

contract pricing and that providing false or 

misleading information to these services ‘‘could be 

problematic’’); Plains, ANPR, at 4 (urging the 

Commission to prohibit the dissemination of false 

or misleading information made with the intent to 

defraud); PMAA, ANPR, at 7 (stating that because 

its members rely on private and government data 

reports, the Commission should publish a rule that 

ensures the accuracy of this data); Muris at 10 

(‘‘Deliberate false reports of transaction details to 

influence a price index should be a violation of a 

manipulation rule.’’). 

137 See, e.g., ISDA (Velie), Tr. at 41-42, 58 

(agreeing that the Commission should focus on lies 

and other false statements if made with the specific 

intent to manipulate the market); MFA (Young), Tr. 

at 45 (agreeing that the dissemination of outright 

lies that cause an artificial market price should be 

prohibited); CFDR (Mills), Tr. at 48-49 (urging the 

Commission to only target false statements that act 

as a fraud on the marketplace rather than those 

made in bilateral negotiations between 

counterparties); API at 9 (suggesting that the Rule 

be limited to ‘‘intentionally deceptive or fraudulent 

statements or acts designed to manipulate a 

wholesale petroleum market’’); PMAA at 3; see also 

ATA at 2 (stating that the Commission should go 

after ‘‘[d]eceptive or manipulative practices . . . used 

to disseminate false information or omit material 

information that causes market participants to 

perceive a change in the supply or demand’’); 

ATAA at 2 (‘‘The FTC’s efforts in preventing market 

manipulation and the providing of false information 

are an important part of addressing the nation’s and 

the airline industry’s energy crisis.’’); CFA (Cooper), 

Tr. at 56-57 (contending that the Commission 

should reach all false statements under the Rule, 

regardless of context, that have a potential to affect 

the market). 

138 See PMAA at 3 (approving of the use of 

established securities law precedent regarding false 

material facts and omissions of material fact). 

139 See, e.g., NPRA at 7 (stating that, unlike 

securities markets, wholesale petroleum market 

participants do not have ‘‘a duty to disclose to a 

counterparty the types of material, nonpublic 

information about [their] own compan[ies] with 

which Rule 10b-5 is concerned’’); ISDA at 7 (noting 

that unlike securities markets, wholesale petroleum 

markets are not characterized by relationships that 

give rise to duties to disclose); API at 25 

(‘‘Permitting courts to base liability on failure to 

disclose facts . . . may make sense in the highly 

regulated securities industry, in which regulated 

parties often have access to material non-public 

information about the issuer that may affect the true 

value of the security, and therefore are governed by 

detailed disclosure obligations designed to protect 

unsophisticated investors.’’); see also CFDR (Mills), 

Tr. at 129 (stating that in the securities arena, courts 

rely on the existence of fiduciary and other 

relationships to impose an affirmative duty on 

market participants to provide more information, 

and in the absence of such a relationship, 

participants do not have a duty to provide 

additional information). 

140 Commenters also asserted that to the extent 

disclosures are required for market participants to 

comply with an FTC rule, there may be conflicts 

with other laws. See, e.g., NPRA at 10 (‘‘It would 

be inconsistent with established antitrust law for a 

market manipulation rule to have the perverse 

effect of requiring competitors to disclose to each 

other a wide range of competitively sensitive 

information . . . .’’); Flint Hills (Hallock), Tr. at 126 

(stating that ‘‘there can arise situations where . . . 

information exchanges [are] being encouraged [by 

the proposed Rule], whereas the antitrust laws 

would greatly discourage those sorts of information 

exchanges’’); AOPL (Stuntz), Tr. at 176-77 

(contending that if the Rule is applied to oil 

pipelines, the omissions requirement would 

conflict with the ICA). 

141 See, e.g., API at 26 (‘‘By reducing the amount 

of information in the marketplace, the omissions 

standard set forth in the NPRM could have a serious 

and harmful impact on the efficiency of petroleum 

markets.’’); CAPP at 2 (stating that the omissions 

language is likely to have a chilling effect because 

it is ambiguous in its application); Flint Hills at 3- 

4 (agreeing that the omissions provision is 

ambiguous in its application and would present 

compliance difficulties); NPRA at 33 (suggesting 

Continued 

including general, rather than specific, 

conduct prohibitions in the proposed 

Rule.129

Most industry commenters, however, 

argued that a perceived lack of 

specificity about the conduct the 

proposed Rule would prohibit would 

lead to adverse consequences, such as a 

reduction in voluntary information 

disclosures by industry participants, 

and a reduction in the number of new 

participants entering the 

marketplace.130 For example, NPRA 

opposed the use of the phrase ‘‘device, 

scheme, or artifice to defraud’’ in 

proposed Section 317.3(a),131 arguing 

that the proposed Rule should ‘‘identify 

more precisely the types of conduct that 

the FTC may target as market 

manipulation . . . to avoid the 

unintended chilling of procompetitive 

conduct.’’132 Commenters also 

expressed concerns about applying 

proposed Section 317.3(c) to wholesale 

petroleum markets.133 One commenter 

argued that subpart (c) should only 

cover conduct that has an effect on the 

market, rather than on any individual 

person.134

With respect to subpart (b) of the 

initially proposed Rule, commenters 

have generally supported its prohibition 

of untrue statements of material fact.135

Thus, in response to the ANPR, several 

commenters generally agreed that a rule 

should ban untrue statements because 

they interfere with well-functioning 

markets.136 Similarly, in response to the 

NPRM, many commenters and 

workshop participants agreed that the 

proposed Rule should prohibit 

materially false statements, provided 

that such statements affected the 

marketplace.137

By contrast, although one commenter 

endorsed the proposed Section 317.3(b) 

prohibition of misleading statements 

through the omission of material 

facts,138 nearly all the other commenters 

who addressed proposed Section 

317.3(b) opposed it. Commenters argued 

that prohibiting such omissions would 

not make sense in petroleum markets, 

because participants in wholesale 

petroleum markets—unlike securities 

market participants—have no legal 

obligation to disclose certain 

information to counter parties.139 They 

also argued that basing liability upon 

the failure to disclose material facts in 

wholesale petroleum markets would 

create confusion140 and chill legitimate 

business conduct.141 These commenters 


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deletion of the omissions language because failing 

to do so ‘‘would tend to chill procompetitive 

information disclosures due to a fear of liability for 

having made an incomplete or insufficiently 

caveated, not to mention simply mistaken, 

statement’’); see also Muris at 12 (‘‘[I]t is 

particularly important that the Commission identify 

with clarity omissions of information that would be 

actionable under the rule.’’). 

142 See, e.g., Brown-Hruska at 7 (stating that 

unlike securities markets, ‘‘[a] prohibition that may 

result in the prosecution of omissions discourages 

the collection and profitable use of market 

information in decisions regarding supply, 

transactions, and pricing [in commodities and 

physical petroleum markets] and could harm 

market efficiency and impair market function’’); 

Flint Hills at 4 (stating that if the Rule covers 

omissions it will be difficult to design a compliance 

program that does not restrict legitimate conduct); 

NPRA at 13-14 (explaining that if the Commission 

prohibits omissions under the Rule, companies will 

instruct their employees to reveal less information 

in order to avoid potential liability). Commenters 

were also concerned that entities would use the 

omissions provisions to bring vexatious litigation. 

See, e.g., Flint Hills at 4 (stating that in-house 

counsels would advise their clients to ‘‘reveal as 

little information as possible’’ to avoid third-party 

challenges based on omissions and unintentional 

misstatements); NPRA at 10-11 (expressing concern 

that a ‘‘‘full disclosure’ rule would distort [a 

company’s] decisions about whether to disclose 

information that may be incomplete’’ due to its fear 

of counterparty litigation); Brown-Hruska at 8 

(warning that an overbroad interpretation of the 

term ‘‘misleading’’ in Section 317.3(b) ‘‘is likely to 

give rise to ex post opportunistic behavior on the 

part of counterparties who did not possess the 

allegedly omitted information and are unhappy 

with the deal they struck’’) (emphasis in original); 

see also API at 24 (stating that the proposed Rule 

leaves ‘‘open the possibility of liability arising from 

‘incomplete’ disclosures’’). 

143 This provision of the revised proposed Rule, 

therefore, sets forth conduct that would be 

manipulative or deceptive, pursuant to Section 811. 

144 As the Commission noted in the ANPR and 

the NPRM, ‘‘nothing in connection with this 

Section 811 [r]ulemaking, any subsequently enacted 

rules, or related efforts should be construed to alter 

the standards associated with establishing a 

deceptive or an unfair practice in a case brought by 

the Commission.’’ Specifically, intent need not be 

shown to establish that a particular act or practice 

is deceptive or unfair, and therefore violates Section 

5 of the FTC Act. See, e.g., FTC v. Bay Area 

Business Council, Inc., 423 F.3d 627, 635 (7th Cir. 

2005); FTC v. Freecom Communications, Inc., 401 

F.3d 1192, 1202 (10th Cir. 2005); FTC v. Amy Travel 

Serv., Inc., 875 F.2d 564, 573-74 (7th Cir. 1989). 73 

FR at 25619 n.55; 73 FR at 48322 n.61. 

145 Consistent with its position in the NPRM, the 

Commission currently does not expect to impose 

specific conduct or duty requirements, such as a 

duty to supply product, a duty to provide access to 

pipelines or terminals, a duty to disclose, or a duty 

to update or correct information. In particular, the 

revised proposed Rule would not require covered 

entities to disclose price, volume, and other data to 

individual market participants, or the market at 

large, beyond any obligation that may already exist. 

See 73 FR at 48326-27. 

146 See 73 FR at 48332. 

asserted that the proposed Rule 

therefore would discourage companies 

from disclosing information 

voluntarily—in order to avoid liability 

for material omissions—and, as a 

consequence, would reduce the flow of 

information in petroleum markets and 

interfere with market efficiency and 

functions.142

2. Revised Proposed Rule 

Section 317.3 sets forth the conduct 

prohibited by the revised proposed 

Rule. Specifically, this provision states: 

It shall be unlawful for any person, 

directly or indirectly, in connection 

with the purchase or sale of crude oil, 

gasoline, or petroleum distillates at 

wholesale, to: 

(a) knowingly engage in any act, 

practice, or course of business— 

including the making of any untrue 

statement of material fact—that operates 

or would operate as a fraud or deceit 

upon any person; or 

(b) intentionally fail to state a material 

fact that under the circumstances 

renders a statement made by such 

person misleading, provided that such 

omission distorts or tends to distort 

market conditions for any such 

product.143

The revised proposed Rule would 

broadly prohibit fraudulent or deceptive 

conduct, which may take various forms, 

including the intentional omission of 

material information. The modifications 

to the conduct provisions in the initially 

proposed Rule are intended to clarify 

the type of conduct that likely would 

violate the Rule. First, the Commission 

has consolidated the conduct 

prohibitions language in Section 317.3 

of the initially proposed Rule to more 

clearly and precisely denote the 

unlawful conduct it prohibits. Second, 

to address the concern that the proposed 

Rule would chill legitimate conduct, the 

revised proposed Rule explicitly sets 

forth a scienter standard for each of the 

two conduct provisions.144 Third, while 

the revised proposed Rule would also 

prohibit material omissions, the 

Commission has modified the 

prohibition to address specific concerns 

about the risk of deterring voluntary 

disclosures of information, by requiring 

a showing that the omission at issue 

distorts or tends to distort market 

conditions. With these modifications, 

the Commission believes the revised 

proposed Rule would serve the public 

interest by appropriately prohibiting 

manipulative conduct that injects false 

information into market transactions, 

without unnecessarily burdening 

legitimate business practices. 

Specifically, Section 317.3(a) of the 

revised proposed Rule would prohibit 

any conduct that operates or would 

operate as a fraud or a deceit, provided 

that the alleged violator engaged in the 

prohibited conduct knowingly; that is— 

as defined in the revised proposed 

Rule—with extreme recklessness. 

Revised proposed Rule Section 317.3(b) 

separately would prohibit statements 

that are misleading because they both 

intentionally omit material facts and 

threaten the integrity of wholesale 

petroleum markets. In particular, 

Section 317.3(b) requires a showing that 

the alleged violator intends to mislead 

by ‘‘intentionally’’ omitting material 

facts from statements where they are 

needed in order to render such 

statements not misleading. The intent 

requirement and the proviso that the 

omission threaten the integrity of a 

petroleum market are intended to 

address many commenters’ concerns 

that the omissions provision in initially 

proposed Rule Section 317.3(b) would 

have chilled legitimate business 

conduct by failing to focus more 

precisely on prohibiting fraudulent and 

deceptive conduct likely to harm 

wholesale petroleum markets. 

The Commission does not intend the 

revised proposed Rule to prohibit 

inadvertent mistakes, unintended 

conduct, or legitimate conduct 

undertaken in the ordinary course of 

business.145 The revised proposed Rule 

also would not impose any 

recordkeeping requirements.146 In short, 

the revised proposed Rule would 

prohibit fraudulent or deceptive 

conduct in wholesale petroleum 

markets without unduly impeding 

beneficial market behavior. 

The following section discusses the 

modifications in Section 317.3 and 

relevant comments. The RNPRM first 

discusses the meaning of the following 

phrases embedded in the preamble: 

‘‘directly or indirectly’’ and ‘‘in 

connection with.’’ It then reviews the 

two conduct provisions, including in 

particular the scienter standard, 

prohibited conduct, and other concepts 

that are pertinent to each provision. The 

Commission seeks comments on the 

specific formulation of revised proposed 

Rule Section 317.3, and in particular on 

whether the Rule would effectively 

prohibit fraudulent and deceptive 

behavior in wholesale petroleum 

markets without unduly burdening 

legitimate business conduct. 

a. Preamble Language 

(1) ‘‘Directly or Indirectly’’ 

In the NPRM, the Commission stated 

that ‘‘[m]anipulative or deceptive 

conduct involving non-petroleum based 

commodities that directly or indirectly 

affect[s] the price of gasoline . . . may be 

the subject of Commission enforcement 

under the proposed Rule.’’ One 

commenter, MFA, questioned the 


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147 MFA at 10. 

148 MFA at 11. MFA further argues that because 

ethanol is subject to futures trading and, thus, is ‘‘a 

statutory ‘commodity’ under the CEA,’’ ethanol is 

subject to the exclusive jurisdiction of the CFTC 

and should be exempt from any FTC market 

manipulation rule. Id. This argument is addressed 

above in Section IV.B. 

149 ‘‘It is unlawful for any person, directly or 

indirectly, to use or employ . . . .’’ 42 U.S.C. 17301 

(emphasis added). 

150 In the NPRM, the Commission relied upon 

guidance from the Supreme Court decision in 

Zandford to conclude that the ‘‘in connection with’’ 

requirement is satisfied where fraudulent conduct 

coincides ‘‘with a purchase or sale of crude oil, 

gasoline, or petroleum distillates at wholesale.’’ 73 

FR at 48329 (citing SEC v. Zandford, 535 U.S. 813, 

820 (2002)). 

151 See Zandford, 535 U.S. 813. 

152 API at 27-28 (citing Zandford, 535 U.S. at 

819). 

153 API at 30-32; NPRA at 33 (stating that the 

Commission should not interpret the ‘‘in 

connection with’’ language as reaching upstream 

conduct and statements, including operational and 

supply decisions); see also CFDR (Mills), Tr. at 218- 

19 (asserting that supply decisions without 

misleading statements do not otherwise rise to the 

level of a fraud). 

154 API also recommended that the Commission, 

‘‘at a minimum, make clear in the final Rule that 

a firm’s ability to provide an objective business 

justification for the challenged supply decision 

should provide an affirmative defense to liability 

under the Rule.’’ API at 32. 

155 See, e.g., NPRA at 33 (arguing that by reaching 

supply decisions under a rule, the Commission 

‘‘could seriously distort refiners’ decision making 

and disrupt competitive activity in petroleum 

markets’’); API (Long), Tr. at 214-15 (contending 

that the FTC’s oversight of ordinary supply and 

operational decisions ‘‘could have devastating 

effects on the market’’). 

156 73 FR at 48329; Zandford, 535 U.S. at 820. 

157 ATA at 3; IPMA at 4 (agreeing that 

manipulation of ethanol and other oxygenates 

should be covered where changes in ethanol prices 

directly or indirectly affect wholesale gasoline 

prices); MPA at 2; NPCA at 1; NPRA (Drevna), Tr. 

at 221-22 (contending that the Commission should 

‘‘absolutely’’ consider blending components); 

SIGMA (Columbus), Tr. at 222-23 (agreeing that a 

rule should reach ‘‘[a]nything that’s mandated as a 

component’’). 

158 ATA asserted that the Commission’s effort to 

address manipulation of energy markets will be 

incomplete if the Commission failed to address 

manipulation in markets for alternative fuels. ATA 

at 3; see also IPMA at 1-2 (stating that increasingly, 

ethanol or other oxygenates have been added to 

gasoline because of environmental concerns or 

other reasons); SIGMA (Columbus), Tr. at 224 (‘‘I 

assure you [that] ethanol is a mandated component 

in [gasoline] . . . .’’). 

159 MFA at 11-12; MFA (Young), Tr. at 224 

(arguing that Congress did not intend for corn and 

sugar—subcomponent parts—to be covered under 

the Rule). 

160 MFA contended that SEC precedent, upon 

which the Commission relies, has never used the 

‘‘in connection with’’ requirement to reach 

collateral markets that may affect securities. Rather, 

MFA argues, the SEC has focused on securities 

markets. MFA at 10-11. 

correct interpretation of the phrase 

‘‘directly or indirectly,’’ used in the 

preamble to Section 317.3 of the 

proposed Rule. MFA argued that 

Section 811 of EISA ‘‘does not authorize 

the Commission to prohibit any 

misconduct that directly or indirectly 

affects wholesale gasoline prices.’’147

Rather, according to MFA, ‘‘[t]he phrase 

‘directly or indirectly’ modifies ‘use or 

employ’ in Section 811, nothing more or 

less.’’148

The Commission intends that the 

phrase ‘‘directly or indirectly’’—which 

originates in Section 811 of EISA149 and 

is also included in revised Section 

317.3—delineates the level of 

involvement necessary to establish 

personal liability under the revised 

proposed Rule. In particular, it means 

that the revised proposed Rule will 

impose liability not only upon any 

person who directly engages in 

manipulation, but also against any 

person who does so indirectly. Thus, 

the Commission intends that the phrase 

‘‘directly or indirectly’’ in the revised 

proposed Rule be interpreted and 

applied to prevent a person from 

engaging in the prohibited conduct, 

either alone or through others. 

(2) ‘‘In Connection With’’ 

Section 811 authorizes the 

Commission to prohibit manipulative 

conduct undertaken ‘‘in connection 

with’’ the purchase or sale of crude oil, 

gasoline, or petroleum distillates at 

wholesale. In the NPRM, the 

Commission proposed to construe the 

phrase ‘‘in connection with’’ broadly, 

consistent with SEC legal precedent 

interpreting this language.150 The 

Commission continues to believe that 

the Rule should reach market 

manipulation that occurs in the 

wholesale purchase or sale of products 

covered by Section 811 (and defined in 

the revised proposed Rule)—and ‘‘in 

connection with’’ such purchases or 

sales—provided that there is a sufficient 

nexus between the prohibited conduct 

and the markets for these products.151

The rulemaking record reflects 

commenter concerns about how the 

Commission might use the ‘‘in 

connection with’’ language to reach 

specific conduct or non-covered 

products. In particular, some 

commenters expressed concerns about 

whether the language might reach 

supply and operational decisions. API 

asserted that the SEC’s broad 

interpretation of ‘‘in connection with’’— 

arising from the fact that the SEA was 

enacted ‘‘to respond to the massive 

economic crisis of 1929 . . .’’—was 

inappropriate for the petroleum 

industry.152 Commenters also urged the 

Commission to limit any rule it 

publishes to statements or acts 

pertaining to ‘‘specific wholesale 

petroleum transactions,’’ and not to 

cover upstream statements or conduct, 

including supply or operational 

decisions.153 Otherwise, these 

commenters argued, an FTC rule would 

result in the Commission regulating 

those activities,154 thereby creating a 

substantial risk of disrupting procompetitive activity in petroleum 

markets.155

The Commission disagrees with the 

notion that the ‘‘in connection with’’ 

language should never reach supply or 

operational decisions,156 where there is 

a sufficient nexus between the conduct 

at issue and the purchase or sale of 

crude oil, gasoline, or petroleum 

distillates. The Commission emphasizes 

that this interpretation of the phrase ‘‘in 

connection with’’ would not require the 

Commission to regulate or otherwise 

second-guess market participants’ 

legitimate supply and operational 

decision-making. The scienter standard 

clarifies in particular that the revised 

proposed Rule would not apply to 

conduct that appears in hindsight to 

have been simply an error or 

miscalculation, either because the actor 

did not knowingly engage in fraudulent 

or deceptive conduct, or because he or 

she did not intentionally mislead by 

omitting material facts from covered 

statements. Rather, the Commission 

would determine on a case-by-case basis 

whether to reach supply and operational 

decisions or any other type of conduct 

that is ‘‘in connection with’’ the markets 

for covered products. 

In addition, commenters raised 

concerns regarding the Commission’s 

interpretation of the phrase ‘‘in 

connection with’’ with respect to 

products that are not listed in Section 

811. Several commenters supported the 

Commission proposal to reach 

purchases and sales of non-covered 

products, such as renewable fuels and 

blending components, under the 

Rule.157 For example, one commenter 

argued that renewable fuels—such as 

ethanol and biodiesel—are growing in 

significance as a result of federal and 

state government mandates to reduce 

dependence on foreign oil.158 Another 

commenter, however, opposed 

extending the Rule to include ethanol, 

as well as sugar, corn, and other 

commodities that are inputs into 

ethanol.159 This commenter argued that 

the language of Section 811 does not 

specifically list non-petroleum based 

commodities, and that the Commission 

is not authorized to reach them.160

The Commission intends to reach 

products—such as renewable fuels (e.g., 

ethanol or biodiesel) or blending 

components (e.g., alkylate or 


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161 See NPRA (Drevna), Tr. at 225 (‘‘[I]f you’re 

going to let potentially 35 percent of the market out 

of the [regulation], what’s the point?’’). 

162 The Commission believes that, by treating 

omissions separately, market participants can more 

readily understand when alleged conduct violates 

revised proposed Rule Section 317.3(a). 

163 See, e.g., SEC v. Rana Research, Inc., 8 F.3d 

1358 (9th Cir. 1993) (seeking permanent injunctive 

relief alleging that defendant’s press release 

contained materially false and misleading 

statements); SEC v. Softpoint, Inc., 958 F. Supp. 846 

(S.D.N.Y. 1997) (finding defendant liable under SEC 

Rule 10b-5 when defendant disseminated false 

information to the market through press releases 

and SEC filings);In the Matter of CMS Mktg. Serv. 

& Trading Co., Comm. Fut. L. Rep. (CCH) ¶ 29,634 

(C.F.T.C. Nov. 25, 2003) (finding liability for the 

submission of false information to private reporting 

services); see also CFTC v. Delay, 2006 WL 3359076 

(D. Neb. Nov. 17, 2006) (holding that the CFTC 

failed to prove that defendant knowingly delivered 

any false and misleading reports to the USDA on 

cattle sales under a charge of manipulation and 

attempted manipulation of the feeder cattle futures 

markets). 

164 See, e.g., SEC v. U.S. Envtl., Inc., 155 F.3d 107 

(2d Cir. 1998) (finding that the SEC’s complaint 

sufficiently alleged that the defendant manipulated 

the market for a stock in violation of SEC Rule 10b5 by engaging in wash sales and other deceptive 

conduct); In the Matter of Michael Batterman, 46 

S.E.C. 304 (1976) (finding by consent that the 

defendant engaged in wash sales in violation of the 

securities laws); Wilson v. CFTC, 322 F.3d 555 (8th 

Cir. 2003) (affirming the CFTC’s order finding that 

the defendant engaged in wash sales and imposing 

sanctions). 

165 This represents a change from the initially 

proposed Rule, which, like SEC Rule 10b-5, lacked 

any specific reference to scienter in the rule text. 

In the NPRM, the Commission proposed to require 

scienter as one of three required elements of proof. 

73 FR at 48328. The other proposed required 

elements were: (1) a showing of a manipulative or 

deceptive act; and (2) a showing that the conduct 

was undertaken ‘‘in connection with’’ the purchase 

or sale of a covered commodity at wholesale. 73 FR 

at 48327-29. 

166 See Section IV.C.3. for a definition of the term 

‘‘knowingly.’’ For purposes of the Rule, the 

Commission has chosen the term ‘‘knowingly’’ to 

denote extreme recklessness. 

167 Recognizing that ‘‘the Courts of Appeals have 

adopted a number of different formulations as to 

precisely what constitutes reckless,’’ the 

Commission proposed in the initial NPRM the 

recklessness standard articulated by the Seventh 

and District of Columbia Circuits. 73 FR at 48329 

& n.131. See Sundstrand Corp. v. Sun Chemical 

Corp., 553 F.2d 1033, 1045 (7th Cir. 1977) (defining 

reckless conduct as a ‘‘‘highly unreasonable 

omission, involving not merely simple, or even 

inexcusable negligence, but an extreme departure 

from the standards of ordinary care, and which 

presents a danger of misleading buyers or sellers 

that is either known to the defendant or is so 

obvious that the actor must have been aware of it’’’ 

(citing Franke v. Midwestern Oklahoma 

Development Authority, CCH Fed. Sec. L. Rep. 

¶ 95,786, at 90,850 (W.D. Okl. 1976)); SEC v. 

Steadman, 967 F.2d 636, 641-42 (D.C. Cir. 1992) 

(adopting Sundstrand’s recklessness standard). 

168 As the Commission noted in the NPRM, FERC 

adopted a similar approach in its interpretation of 

its rule, noting that ‘‘[t]he final rule is not intended 

to regulate negligent practices or corporate 

mismanagement, but rather to deter or punish fraud 

in wholesale energy markets.’’ 73 FR 48328 n. 123 

(quoting 71 FR at 4245-4246). 

169 See, e.g., NPRA at 19-20 (suggesting that a 

specific intent requirement be incorporated into the 

text of any rule); CAPP at 1 (supporting a scienter 

requirement); API at 3 (‘‘API supports the 

Commission’s proposal to make scienter a 

requirement of any rule adopted under Section 

811.’’); CA AG at 2-3 (supporting a scienter 

requirement); CFDR at 3 (‘‘Relevant legal authorities 

characterize market manipulation as a species of 

fraud that connotes fraudulent conduct specifically 

intended to corrupt the integrity of market pricing 

processes through rigged prices or fictitious trading 

. . . .’’); Muris at 2 (observing that the statutory 

reformate)—that are not specifically 

identified in Section 811 only if there is 

a sufficient nexus between conduct 

involving those products and wholesale 

petroleum markets for covered products. 

Renewable fuels and blending 

components are integral to the overall 

supply of finished motor fuels; thus, 

manipulating purchases or sales of these 

products may have the requisite nexus 

with wholesale petroleum markets.161

Under the revised proposed Rule, the 

Commission would determine on a caseby-case basis whether conduct in a 

market for a non-covered product is ‘‘in 

connection with’’ wholesale petroleum 

transactions. 

After reviewing the existing 

rulemaking record, the Commission 

clarifies that it does not plan to apply 

its revised proposed Rule to 

commodities whose predominant use is 

in non-petroleum products, or to 

commodities that are inputs for ethanol, 

such as corn and sugar. The connection 

between these commodities and 

wholesale petroleum markets would 

likely be too attenuated to satisfy the ‘‘in 

connection with’’ requirement of 

Section 811. 

b. Section 317.3(a): General Anti-Fraud 

Provision 

Revised proposed Section 317.3(a) is 

a general anti-fraud provision, 

prohibiting any person from knowingly 

engaging in conduct, including the 

making of false statements of material 

fact, that operates or would operate as 

a fraud or deceit on any person. While 

the Rule initially proposed enumerated 

prohibited conduct in three separate 

subsections, revised proposed Section 

317.3(a) now addresses prohibited 

conduct in a single provision that 

subsumes the remaining subsections, 

except for omissions of material facts, 

which are separately addressed by 

revised proposed Section 317.3(b).162

Revised proposed Section 317.3(a) is 

substantially similar to Section 

317.3(c)—and now also includes the 

prohibition on false statements 

previously contained in Section 

317.3(b)—of the initial proposed Rule. 

In short, Section 317.3(a) prohibits 

market participants from lying in 

connection with wholesale petroleum 

transactions. 

As revised, Section 317.3(a) would 

prohibit fraudulent or deceptive 

conduct that not only serves no 

legitimate purpose, but could also 

impair the efficient functioning of 

wholesale petroleum markets. Specific 

examples include (1) false public 

announcements of planned pricing or 

output decisions; (2) false statistical or 

data reporting; and (3) false statements 

in the context of bilateral or multilateral 

communications with any market 

participant or other person—who may 

serve as a conduit for the dissemination 

of the information, or who might act on 

the information—such as traders, 

suppliers, brokers, or agents; federal, 

state, or local governments; and 

government or private publishers.163

Section 317.3(a) would also prohibit 

individual transactions or courses of 

business that constitute fraudulent or 

deceptive conduct, such as wash sales, 

that are intended to disguise the actual 

liquidity or price of a particular asset or 

market for that asset.164

(1) A Person Must ‘‘Knowingly’’ Engage 

in Conduct That Operates or Would 

Operate as a Fraud or Deceit 

As noted above, the Commission has 

modified the text of the revised 

proposed Rule to articulate explicitly 

the scienter standards which 

respectively apply to revised proposed 

Rule Section 317.3(a) and Section 

317.3(b).165 In particular, the 

Commission has retained the scienter 

standard of extreme recklessness in the 

initially proposed Rule for revised 

proposed Rule Section 317.3(a). Section 

317.3(a) of the revised proposed Rule 

now expressly provides that a person 

must engage in the proscribed conduct 

‘‘knowingly’’ in order to violate subpart 

(a) of the Rule, and the term 

‘‘knowingly’’ has been defined in the 

Rule to be coextensive with the extreme 

recklessness standard.166 Thus, 

consistent with its position in the 

NPRM, the intent requirement in 

revised proposed Section 317.3(a) 

would be satisfied by showing that the 

defendant acted with extreme 

recklessness; that is, specifically, that 

the violator both acted with an extreme 

departure from standards of ordinary 

care in the petroleum industry and 

either knew or must have known that 

his or her conduct created a danger of 

misleading buyers or sellers.167 The 

revised proposed Rule, including 

Section 317.3(a) of the Rule, would not 

extend to inadvertent conduct or mere 

mistakes.168

As a threshold matter, nearly every 

commenter who addressed the issue 

supported requiring some level of 

intent.169 However, most commenters 


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Federal Register / Vol. 74, No. 76 / Wednesday, April 22, 2009 / Proposed Rules 18319 

language and legislative history of EISA point to the 

SEC, the FERC, and the CFTC as relevant regulatory 

models, ‘‘all of which require proof of scienter’’); 

PMAA at 3-4 (supporting a scienter requirement). 

But see Navajo Nation at 5 n.5 (asserting that a 

scienter requirement makes the proposed Rule 

burdensome). 170 See, e.g., ISDA (Velie), Tr. At 12-13 (‘‘[W]e 

would ask the Commission to reconsider its use of 

a recklessness standard.’’); Flint Hills (Hallock), Tr. 

at 83 (‘‘The recklessness standard is one that gives 

us great pause in terms of trying to create internal 

compliance policies.’’); Sutherland at 5 (‘‘Whatever 

the appropriateness of [the recklessness] standard 

in the SEC context . . . drawing inferences of 

misconduct based on imputed knowledge rather 

than actual intent is not a sound regulatory exercise 

when applied to the prevention of market 

manipulation in the commodity markets . . . .’’); see 

also Pirrong Tr. at 114-15 (asserting that a 

recklessness standard could capture certain conduct 

that should not be captured, and that would not be 

captured by a specific intent standard); BrownHruska at 8 (‘‘In order to encourage pro-competitive 

behavior, it is important that the standard for 

liability should be no less than specific intent 

. . . .’’). 

171 See, e.g., API at 4 (‘‘Although a recklessness 

standard may be appropriate in the highly regulated 

securities context, with its fiduciary duties and 

strict disclosure requirements, it is not suited to 

wholesale petroleum markets.’’); NPRA at 18-19 

(explaining that ‘‘[t]he application of a 

‘recklessness’ standard may make sense in a 

securities context where parties owe each other 

fiduciary duties or are in other relationships of trust 

or confidence,’’ but not in wholesale petroleum 

markets, in which clear standards of care do not 

exist between sophisticated market participants); 

Sutherland at 5 (stating that the recklessness 

standard may be appropriate for securities markets 

but not for commodity markets ‘‘where buyers and 

sellers do not owe one another fiduciary duties’’); 

Plains at 2-3 (explaining that the recklessness 

standard in the NPRM is inapplicable to wholesale 

petroleum markets where ‘‘there is no presumption 

that one market participant owes any duties to its 

counterparties’’); ISDA at 4 (‘‘Because the 

prohibitions of SEC Rule 10b-5 are derived from 

statutory duties that do not exist in the wholesale 

commodities markets, many market participants 

cannot determine what behavior (other than false or 

misleading statements) may be prohibited . . . .’’). 

172 See, e.g., API at 3 (asserting that recklessness 

is a ‘‘more malleable standard’’); CFDR (Mills), Tr. 

at 92-95 (asserting that recklessness would create 

uncertainty as to how the law would be applied). 

173 See, e.g., Plains at 3 (‘‘[G]iven the distinctions 

between the securities markets and the crude oil 

markets, a recklessness standard will be ineffective 

in preventing or prosecuting actual fraud and will 

lead only to uncertainty and confusion as to the 

type of conduct that is prohibited.’’); NPRA at 19 

(‘‘The application of a ‘recklessness’ standard in 

[the wholesale petroleum market] context would 

create confusion and concern about how to control 

and monitor the thousands of wholesale petroleum 

transactions that take place every day . . . .’’); API at 

16-17 (‘‘Incorporation of a recklessness standard 

into the proposed Rule therefore would require 

market participants to guard against the possibility 

that the Commission (or courts) would base liability 

on conduct that falls far short of intentional 

wrongdoing.’’); ISDA at 4 (stating that a 

recklessness standard would create uncertainty); 

see also Plains at 3 (explaining that the proposed 

Rule’s lack of manipulative effect requirement, 

‘‘when coupled with a ‘recklessness’ standard . . . 

could render unlawful an unintentional act with no 

consequences’’). But see SIGMA at 2 (‘‘[T]he 

Commission’s decision to base its rule on Section 

10b-5 of the [SEA] properly ensures consumer 

protection while affording business owners a 

wealth of certainty with respect to their market 

practices.’’). 

174 See, e.g., API (Long), Tr. at 111 (asserting that 

a recklessness standard would discourage voluntary 

price reporting thus leading to ‘‘information 

starved’’ markets); Brown-Hruska at 8 (‘‘A standard 

that allows liability for mere recklessness further 

discourages disclosure of information . . . .’’); Flint 

Hills (Hallock), Tr. at 83-84 (asserting that a 

recklessness standard would result in entities 

limiting exchanges of information and reporting to 

governmental agencies); CFDR (Mills), Tr. at 93-95 

(asserting that a recklessness standard would 

increase the likelihood for companies to withhold 

information needed for price discovery); see also 

Argus at 2 (‘‘Absent a specific intent requirement, 

less transactional data will reach the index 

publisher, less data will enter the price formation 

process, and an increased chance of distortion in 

the indices produced may result.’’). See generally 

Platts (urging the Commission not to discourage 

market activities that aid in price discovery). 

175 See, e.g., API (Long), Tr. at 20 (supporting a 

specific intent standard); Argus at 2 (supporting a 

specific intent requirement); Brown-Hruska at 8 

(‘‘[I]t is important that the standard for liability 

should be no less than specific intent to manipulate 

market prices.’’); CFDR at 6-7 (asserting that a 

specific intent standard would help to harmonize 

the legal standards employed by the FTC and CFTC, 

promoting ‘‘fairness and reduc[ing] regulatory and 

legal uncertainty’’); Flint Hills (Hallock), Tr. at 174 

(advocating for specific intent as an element of the 

Rule); ISDA at 3-4 (encouraging the Commission to 

require proof of specific intent); Muris at 13 (urging 

the Commission to require ‘‘evidence of specific 

intent to manipulate the price’’); Sutherland at 4- 

5 (urging the Commission ‘‘to require proof of 

specific intent’’); NPRA at 17-18 (‘‘[Specific intent] 

would give specific guidance to industry and 

provide FTC staff with objective evidence to which 

it can look to prove market manipulation. . . .’’). 

176 CA AG at 2-3; see also CFA (Cooper), Tr. at 

24-25 (arguing that the recklessness standard 

protects consumer); MS AG at 3 (supporting a 

recklessness standard); CAPP at 1 (asserting that by 

tying the scienter standard to SEC precedent, the 

Commission would afford market participants a 

measure of certainty); SIGMA at 2 (supporting the 

proposed Rule’s scienter requirement); PMAA at 3 

(supporting the proposed Rule’s scienter 

requirement). 

177 Addressing the language of SEC Rule 10b-5, 

the Supreme Court held that an intent requirement 

is ‘‘strongly suggest[ed]’’ where statutory language 

prohibits a ‘‘manipulative or deceptive’’ ‘‘device or 

contrivance.’’ Ernst & Ernst v. Hochfelder, 425 U.S. 

185, 197 (1976). The prohibitions language in 

Section 10(b) of the SEA is nearly identical to that 

in Section 811 of EISA. See 42 U.S.C. 17301; 17 

C.F.R. 240.10b-5. As the Commission noted in the 

initial NPRM, most appellate courts that have 

considered the issue have concluded that extreme 

recklessness can satisfy Ernst’s requirement of 

‘‘intentional or wilful’’ conduct for the purposes of 

SEA 10(b) and Rule 10b-5. See 73 FR at 48328 & 

n.130 and the cases cited therein. 

178 The Court of Appeals for the Seventh Circuit 

has defined reckless conduct as a ‘‘highly 

unreasonable [act or] omission, involving not 

merely simple, or even inexcusable negligence, but 

an extreme departure from the standards of 

ordinary care, and which presents a danger of 

misleading buyers or sellers that is either known to 

the defendant or is so obvious that the actor must 

have been aware of it.’’ Sundstrand Corp. v. Sun 

Chemical Corp., 553 F. 2d 1033, 1045 (7th Cir. 

1977), cert. denied, 434 U.S. 875 (1977) (quoting 

Franke v. Midwestern Oklahoma Development 

Authority, CCH Fed. Sec. L. Rep. ¶ 95,786 at 90,850 

(W.D. Okl. 1976)). The Court of Appeals for the 

District of Columbia Circuit relied upon Sundstrand 

Corp. to establish the ‘‘extreme recklessness’’ 

scienter standard applicable to SEC Rule 10b-5. See 

Continued 

opposed permitting a showing of 

recklessness to satisfy the scienter 

requirement.170 They first contended 

that while recklessness may be an 

appropriate standard to employ in 

regulated securities markets—where 

many of the covered parties are in a 

fiduciary relationship with their 

clients—it is inappropriate in petroleum 

markets, where business relationships 

are generally unregulated and where 

parties generally owe no fiduciary 

duties to each other.171 Second, 

commenters worried that courts 

grappling with cases brought under the 

proposed Rule might apply the lowest 

standard of recklessness because of the 

variety of meanings associated with the 

term in different legal contexts.172 These 

commenters argued that requiring only 

a showing of recklessness—coupled 

with what they characterized as a vague 

NPRM prohibition of ‘‘manipulation’’— 

would permit the prohibition of some 

neutral or procompetitive conduct, and 

introduce uncertainty as to the conduct 

covered by a final rule.173 Third, 

commenters argued that, if market 

participants were subject to liability 

under the proposed Rule for reckless 

conduct, they might choose to remain 

silent—in order to avoid liability for 

misstating or omitting a material fact— 

and thus reduce the volume of 

information available for price 

discovery in petroleum markets.174

Many of these commenters urged the 

Commission to adopt the higher scienter 

standard of specific intent, and to 

include this requirement in the language 

of any final rule.175 In their view, a 

specific intent standard is necessary to 

protect petroleum market participants 

who act reasonably and in good faith. 

By contrast, CA AG supported the 

proposed recklessness standard, 

maintaining that requiring a showing of 

specific intent would preclude 

challenges to ‘‘reckless conduct even if 

it had extremely detrimental effects.’’176

The Commission continues to believe 

that an extreme recklessness standard is 

appropriate for the general anti-fraud 

provision in revised proposed Section 

317.3(a). The scienter standard included 

in revised proposed Section 317.3(a) is 

consistent with analogous judicial 

interpretations of the statutory scienter 

requirement for SEC Rule 10b-5.177

Recognizing that the Courts of Appeals 

have adopted several formulations as to 

precisely what constitutes recklessness, 

the Commission has defined the term 

‘‘knowingly’’ to conform to the 

recklessness standard articulated by the 

Seventh and District of Columbia 

Circuits.178 Thus, establishing 


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SEC v. Steadman, 967 F.2d 636, 641-42 (D.C. Cir. 

1992) (citing Sundstrand Corp., 553 F.2d at 1045); 

73 FR at 48329. 

179 Although the Commission never stated that 

the initially proposed Rule would reach such 

conduct, comments as well as discussion at the 

public workshop revealed significant confusion on 

this point. 

180 73 FR at 48326. 

181 NPRA at 28-29 (citing TSC Indus., Inc. v. 

Northway, Inc., 426 U.S. 438, 450 (1976)). NPRA 

also recommends that the rule ‘‘specify that the 

materially false or deceptive information must be 

about important aspects of supply or demand.’’ 

NPRA at 20-21. This change, NPRA argues, would 

provide useful compliance guidance to industry, 

without being ‘‘overly restrictive, because many 

types of information may involve important aspects 

of supply or demand.’’ NPRA at 21. 

182 See Basic, Inc. v. Levinson, 485 U.S. 224, 231- 

32 (1988) (‘‘‘[A]n omitted fact is material if there is 

a substantial likelihood that a reasonable 

shareholder would consider it important in 

deciding how to vote.’’’) (quoting TSC Indus., Inc. 

v. Northway, Inc., 426 U.S. 438, 449 (1976)). 

183 The NPRM noted that this provision of the 

proposed Rule would provide a clear ban on ‘‘the 

reporting of false or misleading information to 

government agencies, to third-party reporting 

services, and to the public through corporate 

announcements.’’ 73 FR at 48326. Congress gave the 

Commission authority under Section 812, a separate 

provision from Section 811, to prohibit any person 

from reporting information related to the wholesale 

price of petroleum products only if it is required by 

law to be reported to a federal department or 

agency. The prohibitions embodied in Section 812 

became effective with the enactment of EISA on 

December 19, 2007. See 42 U.S.C. 17302. 

184 See, e.g., In the Matter of CMS Mktg. Serv. & 

Trading Co., Comm. Fut. L. Rep. (CCH) ¶ 29,634 

(C.F.T.C. Nov. 25, 2003) (finding liability for the 

submission of false information to private reporting 

services); see also CFTC v. Delay, 2006 WL 3359076 

(D. Neb. Nov. 17, 2006) (holding that the CFTC 

failed to prove that defendant knowingly delivered 

any false and misleading reports to the USDA on 

cattle sales under a charge of manipulation and 

attempted manipulation of the feeder cattle futures 

markets); SEC v. Rana Research, Inc., 8 F.3d 1358 

(9th Cir. 1993) (seeking permanent injunctive relief 

alleging that defendant’s press release contained 

materially false and misleading statements); SEC v. 

Softpoint, Inc., 958 F. Supp. 846 (S.D.N.Y. 1997) 

(finding defendant liable under SEC Rule 10b-5 

when defendant disseminated false information to 

the market through press releases and SEC filings). 

185 In the NPRM, the Commission also sought to 

clarify that the language ‘‘operates as a fraud’’ did 

not negate the requirement, present in securities 

law precedent, that a showing of scienter was 

necessary to prove a violation of this subsection. 73 

FR at 48327. 

186 73 FR at 48327. 

187 See McMahan & Co. v. Wherehouse Ent., Inc., 

900 F.2d 576, 579 (2d Cir. 1990) (‘‘Some statements, 

although literally accurate, can become, through 

their context and manner of presentation, devices 

which mislead investors.’’). 

188 In addition, any omission that is part of a 

fraudulent or deceptive act, practice, or course of 

business would violate revised proposed Section 

317.3(a). See, e.g., In the Matter of A.J. White & Co., 

File No. 8-11962, 1975 SEC LEXIS 2564, at *61-63 

(Jan. 21, 1975) (finding defendants liable under SEC 

Rule 10b-5 for, inter alia, engaging in a course of 

conduct that operated as a fraud on purchasers of 

a stock offering by means of untrue statements and 

material omissions). This is consistent with the 

more general principle that any otherwise lawful 

act, if part of an unlawful course of business, 

nevertheless may be actionable. See Illinois ex rel. 

Madigan v. Telemarketing Assocs., Inc., 538 U.S. 

recklessness requires evidence from 

which it can reasonably be inferred that 

the violator both acted with an extreme 

departure from standards of ordinary 

care (using a reasonable market 

participant standard) and either knew or 

must have known that its conduct 

created a danger of misleading buyers or 

sellers. Although the Commission 

recognizes that wholesale petroleum 

markets are not characterized by the 

same degree of regulation as the 

securities markets, the Commission 

believes that the obligation on market 

participants not to engage in any 

fraudulent or deceptive act, practice, or 

course of business in an extremely 

reckless manner— regardless of other 

defined duties that may exist in other, 

more extensive regulated markets—is 

clear. 

Articulating the required intent 

standard in the text of revised proposed 

Rule Section 317.3(a) should provide 

greater certainty to the business 

community as to the application of any 

final rule, making it less likely to 

inadvertently chill beneficial conduct. 

Moreover, the revised proposed Rule 

would not reach inadvertent conduct or 

mere mistakes. Thus, the Commission 

does not believe that prohibiting 

fraudulent or deceptive conduct is 

likely to reduce voluntary reporting and 

disclosures.179 As there is no legitimate 

basis for engaging in conduct that would 

operate as a fraud or deceit upon any 

person, the Commission tentatively 

concludes that requiring a showing of 

‘‘knowing’’ conduct is the appropriate 

scienter standard for revised proposed 

Rule Section 317.3(a). 

(2) Materiality Standard 

Section 317.3(a) of the revised 

proposed Rule prohibits conduct that 

operates or would operate as a fraud or 

deceit, specifically ‘‘including the 

making of any untrue statement of 

material fact.’’ The NPRM set forth a 

standard for materiality under the 

proposed Rule, providing that, 

‘‘[c]onsistent with securities law, a fact 

is material if there is a substantial 

likelihood that a reasonable market 

participant would consider it in making 

its decision to transact because the 

material fact significantly alters the total 

mix of information available.’’180 NPRA 

was the only commenter to address the 

concept of materiality specifically, and 

it recommended defining the term 

‘‘material fact’’ to clarify that only facts 

that a reasonable market participant 

would consider important in making a 

decision to transact are material.181 The 

Commission agrees and anticipates 

using a materiality standard that focuses 

on a fact that a reasonable market 

participant would consider important in 

making a decision to transact because 

such information significantly alters the 

total mix of information available.182

(3) Other Language in Section 317.3(a) 

As discussed above, revised proposed 

Rule Section 317.3(a), like the proposed 

Rule, prohibits misrepresentations of 

fact because such misrepresentations are 

a clear example of fraudulent or 

deceptive conduct. The Commission has 

therefore added the phrase ‘‘the making 

of any untrue statement of material fact’’ 

in revised proposed Section 317.3(a) to 

make this prohibition clear.183 Many 

commenters and workshop participants 

agreed that such conduct harms the 

marketplace and should be prohibited. 

Prohibiting misrepresentations of 

material fact is further supported by the 

enforcement approach of other agencies; 

thus, for example, the CFTC challenges 

and seeks to prohibit such 

misrepresentations in commodities 

markets.184

The Commission received comments 

on the meaning of the phrase ‘‘would 

operate as a fraud or deceit.’’185 The 

Commission clarifies that the phrase 

‘‘would operate as a fraud’’ means only 

that the revised proposed Rule prohibits 

conduct that would defraud or deceive 

another person, whether or not the 

impact of the prohibited conduct had 

yet been manifested.186

c. Section 317.3(b): Omission of 

Material Information Provision 

Revised proposed Rule Section 

317.3(b) addresses fraudulent or 

deceptive statements that are misleading 

as a result of the intentional omission of 

material facts, where that omission 

distorts or tends to distort market 

conditions for a covered product. 

Specifically, revised proposed Section 

317.3(b) would make it unlawful for any 

person to ‘‘intentionally fail to state a 

material fact that under the 

circumstances renders a statement made 

by such person misleading, provided 

that such omission distorts or tends to 

distort market conditions for any such 

product.’’ Material omissions from a 

statement that is otherwise literally true 

may, under the circumstances present at 

the time the statement is made, render 

that statement misleading.187 Thus, the 

Commission believes that prohibiting 

intentional omissions of material facts 

that distort or tend to distort market 

conditions is consistent with the intent 

of EISA and with the Commission’s 

larger mandate to protect consumers 

and to preserve competition.188


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600, 606 (2003) (upholding a fraud claim when the 

facts presented a lawful ‘‘nondisclosure [of 

information] accompanied by intentionally 

misleading statements designed to deceive the 

listener’’). 

189 Section 317.3(b) of the initially proposed Rule 

would have made it unlawful for any person to 

‘‘omit to state a material fact necessary in order to 

make the statements made, in the light of the 

circumstances under which they were made, not 

misleading.’’ 

190 See, e.g., API at 25 (stating that unlike 

wholesale petroleum markets, securities markets are 

‘‘are governed by detailed disclosure obligations 

designed to protect unsophisticated investors’’); 

Muris at 2 (urging the FTC to ‘‘avoid importing 

broad disclosure requirements from highly 

regulated markets that simply have no place in 

wholesale petroleum markets’’); NPRA at 4 (arguing 

that the full disclosure rationale underlying SEC 

Rule 10b-5 does not fit wholesale petroleum 

markets); Plains at 3 (stating that in the crude oil 

markets, unlike securities markets, ‘‘there is no 

presumption that one market participant owes any 

duties to its counterparties that would require 

disclosure of any information’’). 

191 73 FR at 48327. 

192 See City of Monroe Employees Retirement 

System v. Bridgestone Corp., 399 F.3d 651, 670 (6th 

Cir. 2005) (stating that companies are generally 

under no obligations to disclose their expectations 

for the future to the public; however if a company 

chooses to volunteer such information, ‘‘‘courts 

may conclude that the company was obliged to 

disclose additional material facts . . . to the extent 

that the volunteered disclosure was misleading’’’) 

(quoting Helwig v. Vencor, Inc., 251 F.3d 540, 564 

(6th Cir. 2001) (en banc)); see also Plotkin v. IP 

AXESS Inc., 407 F.3d 690 (5th Cir. 2005) (finding 

that material omissions from a company’s press 

release rendered that press release misleading 

regardless of the existence of a fiduciary or other 

legal relationship). 

193 See, e.g., API (Long), Tr. at 180; NPRA at 11- 

12. 

194 Muris at 12 (quoting In re Int’l Harvester, 104 

F.T.C. 949, 1059 (1984)). 

195 Although the Commission never stated that 

the initially proposed Rule would reach such 

conduct, comments as well as discussion at the 

public workshop revealed significant confusion on 

this point. 

196 However, Section 317.3(b) separately requires 

that an intentional, material omission be of the kind 

that distorts or tends to distort market conditions 

for any such product. See Section IV.D.2.c.2. below. 

The Commission has modified this 

component of Section 317.3(b) of the 

initially proposed Rule to address 

concerns raised by commenters about 

that section’s breadth of coverage, and 

its potential to chill pro-competitive or 

pro-consumer behavior.189 Many 

commenters argued that while the 

omissions prohibition language of SEC 

Rule 10b-5 may be appropriate in 

securities markets, it is not appropriate 

in wholesale petroleum markets, owing 

to fundamental differences between the 

markets.190 Cognizant of these concerns, 

revised proposed Rule Section 317.3(b) 

now includes an express scienter 

requirement that limits its reach to 

intentional conduct. The provision also 

now requires a showing that the 

omission at issue ‘‘distorts or tends to 

distort market conditions for any 

[covered] product.’’ Thus, Section 

317.3(b) would prohibit intentionally 

omitted information that would mislead 

other market participants, public 

officials, or the market at large, such as 

material omissions made in statements 

to officials during a national emergency. 

Revised proposed Rule Section 

317.3(b) would not, however, impose an 

affirmative duty to disclose information. 

Rather, the provision would apply if ‘‘a 

covered entity voluntarily provides 

information—or is compelled to provide 

information by statute, order, or 

regulation—but then fails to disclose a 

material fact, thereby making the 

information provided misleading.’’191

This is consistent with legal precedent 

establishing that once an entity has 

decided to speak, it must do so 

truthfully and accurately, and it may 

have to provide additional information 

to ensure that previously provided 

information is truthful.192 Some 

commenters argued that the 

Commission should clarify that a rule 

will not require them to release 

commercially sensitive information, 

such as information regarding supply 

availability.193 For example, Muris 

urged the Commission not to reach 

‘‘pure omissions’’ under the Rule, which 

‘‘arise when a seller is silent ‘in 

circumstances that do not give any 

particular meaning to his silence.’’’194

The Commission does not intend, under 

the revised proposed Rule, either to 

prohibit dealings undertaken in the 

ordinary course of business that are not 

intended to defraud or to deceive, or to 

impose disclosure obligations on market 

participants unless the omission of 

material fact is made with the intent to 

deceive and those omissions are of the 

type that distort or tend to distort 

market conditions. 

The Commission seeks additional 

comment and information on this issue, 

including responses to specific 

questions set forth in Section IV.I. of 

this Notice, to enable it to determine 

whether the alterations to the omissions 

provision are sufficiently tailored to 

prohibit conduct that threatens the 

integrity of wholesale petroleum 

markets without imposing unnecessarily 

high compliance costs on industry 

participants. 

(1) Scienter Standard: A Person Must 

‘‘Intentionally’’ Mislead By Omitting 

Material Information 

Sections 317.3(b) of the revised 

proposed Rule expressly provides that a 

person must engage in the proscribed 

conduct ‘‘intentionally’’ in order to 

violate the Rule. The Commission 

tentatively has modified the scienter 

standard for the omissions provision in 

this manner to address commenter 

concerns that, in the absence of industry 

regulatory obligations, an FTC rule 

might reduce voluntary reporting and 

disclosures, and to clarify that this 

provision would not reach inadvertent 

conduct or mere mistakes.195 To that 

end, establishing a violation of revised 

proposed Rule Section 317.3(b) would 

require establishing that the actor in 

question intended to mislead by making 

a statement that omitted material facts. 

This approach represents a different 

scienter standard than the showing of 

extreme recklessness required to 

establish a violation of revised proposed 

Rule Section 317.3(a). This standard is 

also different than the specific intent 

standard proposed by some 

commenters. In particular, this 

approach should not be read to require 

a showing that the person intended to 

influence market conditions. Rather, 

proving a violation of revised proposed 

Rule Section 317.3(b) would require 

proof that the alleged violator intended 

to mislead—regardless of whether he or 

she specifically intended to affect 

market prices (e.g., specific intent)—and 

regardless of whether the conduct was 

likely to succeed in defrauding or 

deceiving the target.196 Conversely, 

conduct that is the product of reckless 

or negligent behavior would not violate 

revised proposed Rule Section 317.3(b). 

This formulation of the scienter 

requirement should eliminate concern 

about which of the various judicial 

interpretations of the ‘‘recklessness’’ 

standard under securities law would 

have applied to the omissions provision 

in the proposed Rule. The Commission 

recognizes commenter concerns that the 

initially proposed omissions provision 

would have imposed on wholesale 

market participants the obligation to 

know whether a person would likely be 

defrauded or deceived by the conduct at 

issue, which could be difficult. At the 

same time, using the word 

‘‘intentionally’’ in combination with the 

specific conduct prohibition language in 

revised proposed Rule Section 317.3(b) 

simplifies the evidentiary burden 

required to prove a violation, thereby 

reducing the potential for judicial 

confusion and clarifying the compliance 

standard for market participants. The 

Commission may consider and rely 

upon both direct and circumstantial 

evidence of the intent to mislead by a 

material omission to establish that an 

alleged violator possessed the requisite 

level of intent. 


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197 This proviso is similar to the antimanipulation provision of the CEA, which prohibits 

the communication of ‘‘false or misleading or 

knowingly inaccurate reports concerning . . . market 

information or conditions that affect or tend to 

affect the price of any commodity in interstate 

commerce . . . .’’ 7 U.S.C. 13(a)(2) (emphasis added). 

The Commission does not intend, however, to 

adopt the elements of proof that are required for a 

finding of liability under the CEA under the revised 

proposed Rule. 

198 Markets continually absorb new information 

and adjust price signals to that new information. 

Intentionally injecting false information into that 

process leads to distorted signals. 

199 Sutherland at 6; see also API at 34 

(recommending that the Commission require ‘‘proof 

that a party’s deceptive or fraudulent conduct 

caused market conditions to deviate materially from 

the conditions that would have existed but for that 

conduct’’); Plains at 3. 

200 Many commenters disagreed with the 

Commission’s proposal in the initial NPRM not to 

require a showing of price effects to establish a rule 

violation. See, e.g., Van Susteren at 2 (‘‘The lack of 

a requirement of a showing of price effects to 

establish culpability leaves the rule overbroad and 

risks inconsistent or unwarranted enforcement 

efforts by the Commission.’’); ISDA at 3-4 (asking 

that the Commission require proof of price effects); 

Pirrong Tr. at 205 (‘‘I think it would be beneficial 

to market participants to have [a price effects] 

standard in [a rule].’’); see also Plains at 3 (urging 

the Commission to make clear that only conduct 

that has a ‘‘manipulative effect on the relevant 

market’’ will be actionable). Other commenters 

were concerned that if the Rule failed to focus on 

conduct harmful to the market, it would have a 

chilling effect on businesses. See, e.g., API at 33 

(‘‘Applying Section 811 to conduct that does not 

cause a material deviation in market prices . . . 

would likely harm consumer welfare . . . by chilling 

competitive market behavior . . . .’’); ISDA at 3-4 

(arguing for a price effects requirement by 

explaining that ‘‘a Rule that is overbroad, imprecise, 

or both likely will chill legitimate commercial 

behavior’’). 

201 See, e.g., API at 33 (‘‘Unless the FTC requires 

an appropriate connection between challenged 

conduct and a material deviation in market prices, 

it runs the risk of having to police every routine 

commercial dispute as a potential violation of 

Section 811.’’); ISDA at 13 (‘‘[A]s a sound policy 

matter, conduct that actually harms markets is the 

only conduct with which the Commission should 

be concerned and to which it should devote its 

limited public resources.’’); see also API (Long), Tr. 

at 220 (suggesting the Commission consider a safe 

harbor for statements or omissions not made in 

connection with corporate announcements, or 

reports to government agencies or private reporting 

services); cf. NPRA at 22 (stating that the 

Commission’s Rule ‘‘should concentrate on whether 

the defendant intended to ‘defraud’ the market, not 

just one other individual’’). 

202 For example, CFDR explained that, in 

instances where the Commission is investigating 

multiple players, a movement in market prices as 

a result of conduct by one of the alleged wrongdoers 

can be probative in determining whether that player 

possessed the requisite intent or ‘‘whether other 

market participants were in fact deceived by the 

alleged misconduct.’’ CFDR at 7. Accordingly, 

CFDR asked that the Commission determine the 

‘‘relevance and importance’’ of a price effect 

requirement on a case-by-case basis. Id. 

203 IPMA at 4; ATAA at 12; MS AG at 3; CA AG 

at 3; see also USDOJ, ANPR, at 1 (‘‘Certainly, there 

should be no requirement that one succeed in 

moving prices . . . the only requirement should be 

an attempt to do so . . . whether successful or not.’’). 

204 CA AG at 3; see 73 FR at 48329-30. 

205 CA AG at 3; MS AG at 3 (arguing that price 

effects could be ‘‘extremely difficult to prove’’ 

therefore chilling enforcement of ‘‘obvious 

violations’’). Specifically, CA AG noted that prior 

California gas pricing investigations demonstrated 

that it is nearly impossible to link a particular act 

to a corresponding direct effect on price because too 

many variables affect price. CA AG at 3. 

206 This approach is also consistent with that 

taken by the FERC in their market manipulation 

rulemaking proceedings. See 71 FR at 4244. 

Manipulative conduct can harm the marketplace 

even without a prolonged price effect by impeding 

the efficiency of the market equilibration process 

and potentially introducing distrust as to the 

integrity of the process. See 73 FR at 48329 (noting 

that ‘‘[f]raudulent behavior interferes with market 

signals, reduces transparency in the market, and 

casts into doubt the very information that allows 

markets to function properly’’). 

207 The Commission believes that reading a price 

effect requirement into EISA is not only 

unsupported by the text of the Act, but also 

inconsistent with its aim to curb fraudulent or 

deceptive conduct in wholesale petroleum markets. 

See 42 U.S.C 17301; see also 73 FR at 48329 n.138 

(noting that ‘‘[t]he enabling statute is clear: ‘It is 

unlawful . . . to use or employ . . . any manipulative 

or deceptive device or contrivance’’’). 

208 Overcoming the practical problems associated 

with identifying and proving a specific price effect 

from fraudulent or deceptive conduct in wholesale 

petroleum markets may not be possible in many, if 

not most, cases. See 73 FR at 48329-30 (‘‘The 

Commission’s experience in investigating 

petroleum pricing anomalies demonstrates the 

difficulty of identifying price changes that result 

directly from any specific act or conduct.’’). 

209 In response to CFDR’s argument that the 

presence or absence of market effects can inform the 

question of whether a violation occurred, the 

Commission notes that nothing in the RNPRM or 

the revised proposed Rule prevents it from 

(2) The Omission of Material 

Information Must Distort or Tend to 

Distort Market Conditions For a Covered 

Product 

The Commission has added limiting 

language to the omissions provision in 

revised proposed Rule Section 317.3(b), 

so that a statement made misleading by 

reason of the intentional omission of a 

material fact violates the provision only 

if it ‘‘distorts or tends to distort market 

conditions’’ for any covered product.197

The Commission recognizes that 

identifying statements that are 

unambiguously misleading by dint of a 

material omission may be difficult in 

wholesale petroleum markets and create 

uncertainty within the business 

community about the Rule’s 

application. Thus, an unbounded 

omissions provision could have an 

unintended chilling effect on normal 

business activity, and it could 

unnecessarily raise the costs of carrying 

out normal business activity in order to 

avoid potential litigation risks. Thus, in 

addition to modifying the scienter 

standard to require a showing of 

intentional conduct, the Commission 

believes that Section 317.3(b) should 

focus on misleading statements that are 

of sufficient import or scope to distort 

or tend to distort the market conditions 

that guide market participants’ decisionmaking.198 This will enable the 

Commission to direct its enforcement 

efforts against those instances of 

misconduct that are most likely to injure 

the integrity of market prices. 

This approach comports with the 

weight of commenter responses to the 

initially proposed omissions provision. 

In this regard, many commenters 

recommended that the Commission 

‘‘require that market manipulation 

actually impact the market.’’199 These 

commenters argued that if the rule did 

not focus on conduct harmful to the 

market—as manifested by a price or 

other market effect—it would 

potentially chill legitimate business 

conduct.200 In particular, they claimed 

that the rule would reach conduct 

arising from routine commercial 

transactions such as bilateral contract 

negotiations unlikely to harm the 

market.201 One commenter suggested 

that an effect on market prices would be 

relevant in determining whether a rule 

violation occurred.202

In the initial NPRM, the Commission 

rejected requiring a demonstration of 

market or price effects in order to prove 

a rule violation, and some commenters 

supported that approach.203 CA AG, for 

example, agreed with the Commission’s 

conclusion that there is no economic 

justification for fraudulent or deceptive 

conduct, and that harm to wholesale 

petroleum markets can properly be 

inferred from such conduct without 

more.204 Furthermore, MS AG and CA 

AG agreed that a price effects 

requirement would make it difficult to 

prove a rule violation even where effects 

had occurred, potentially encumbering 

law enforcement efforts.205 These 

commenters therefore supported the 

Commission’s initial decision not to 

include a price effects requirement. 

The Commission continues to believe 

that a showing of price effects should 

not be required to establish a rule 

violation206 because there is no 

economic justification for fraudulent or 

deceptive conduct in any market.207

Requiring a showing of price effects— 

and imposing the concomitant 

additional evidentiary burden upon the 

Commission—would introduce an 

unnecessary risk that conduct 

detrimental to the integrity of the 

market would escape successful 

challenge.208

Requiring a showing that a particular 

omission ‘‘distorts or tends to distort 

market conditions’’ to establish a 

violation of Section 317.3(b) should not 

be read as requiring that the FTC show 

that the market has actually been 

distorted.209 This language is rather 


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considering market effects if the evidence on this 

issue is clear enough to be useful. See CFDR at 7. 

210 Conduct that distorts or tends to distort 

market conditions would be any conduct that arises 

from the intentional distortion of the market 

information upon which the price discovery 

process in wholesale petroleum markets depend. 

211 In this regard, the revised proposed Rule 

would be consistent with CEA precedent that, in 

determining whether a false report would affect or 

tend to affect the price of a commodity, courts and 

the CFTC have generally assumed that a false report 

of price or volume information to a source widely 

used by market participants would affect or tend to 

affect market conditions. See CFTC v. Bradley, 408 

F. Supp. 2d 1214 (N.D. Okla. 2005) (denying 

defendant’s motion to dismiss when complaint 

alleged defendants reported fictitious trades to 

private reporting services); In the Matter of Dynegy 

Mktg. & Trade, Comm. Fut. L. Rep. (CCH) ¶ 29,262 

(C.F.T.C. Dec. 18, 2002) (finding liability for false 

reporting of trading price and volume information 

to private reporting services); In the Matter of CMS 

Mktg. Serv. & Trading Co., Comm. Fut. L. Rep. 

(CCH) ¶ 29,634 (C.F.T.C. Nov. 25, 2003) (finding 

liability for false information submitted to private 

reporting services). Further, the Commission 

believes that proof that an actor falsely reported the 

operational status of a refinery, terminal, or 

pipeline, and did so through the intentional 

omission of material information, such conduct 

would also allow an inference that the conduct 

tended to distort market conditions. 

212 As an example of this approach, if an actor 

intentionally omits information material to the 

marketplace, establishing a Rule violation would 

require showing only that the stated information 

(i.e., the misleading statement) pertains to any 

process by which prices are discovered and 

adjusted. Markets continually absorb new 

information and adjust price signals to reflect that 

new information. A variety of information can affect 

the process including, e.g., information about 

operational activity of refineries, transportation 

disruptions, product inventory levels, and product 

prices. 213 See, e.g., Van Susteren at 2; ISDA at 13; 

Sutherland at 6; API at 32. 214 This standard conforms to the approach the 

Commission followed in the NPRM with respect to 

materiality; that is, ‘‘[c]onsistent with securities 

law, a fact is material if there is a substantial 

likelihood that a reasonable market participant 

would consider it in making its decision to transact 

because the material fact significantly alters the 

total mix of information available.’’ 73 FR at 48326. 

215 42 U.S.C. 17305. 

216 See, e.g., Disclosure Requirements and 

Prohibitions Concerning Franchising, 16 CFR 

436.10(b). 

217 73 FR at 48330. 

218 MS AG at 3 (‘‘[MS AG] agrees that the EISA 

does not preempt state law and the proposed Rule 

should not.’’). 

219 Sutherland at 7 (‘‘The proposed Rule includes 

language indicating the Commission’s view that the 

new regulatory regime does not preempt state 

law.’’); SIGMA at 3 (‘‘The Commission has chosen 

not to include any language in the NPRM that 

would preempt applicable state law in the area of 

market manipulation.’’); see also SIGMA at 3 

(‘‘SIGMA recommends that the Commission adopt 

hortatory language in its preamble to the NPRM that 

urges state attorneys general and other law 

enforcement officials to use its final rule as a guide 

to ‘market manipulation’ cases.’’); SIGMA 

(Columbus), Tr. at 186 (asserting that state attorneys 

general may chose to enforce Section 811 of EISA). 

220 See 73 FR 48330, 48334. 

221 Examples of FTC rules containing similar 

severability provisions: Telemarketing Sales Rule, 

16 CFR 310.9; Used Motor Vehicle Trade Regulation 

Rule, 16 CFR 455.7. 

222 73 FR at 48330, 48334. 

223 5 U.S.C. 601-612. 

224 5 U.S.C. 603. 

225 5 U.S.C. 604. 

intended only to help strike an 

appropriate balance between achieving 

enforcement goals and avoiding 

unintended chilling effects on normal 

business activity. The provision 

therefore focuses only on those 

statements made misleading by reason 

of the omission of a material fact that 

threaten the integrity of wholesale 

petroleum markets—and thus carry the 

greatest risk of injury to those markets— 

without unduly encumbering 

enforcement.210 The tendency to distort 

market conditions for wholesale 

petroleum products may be properly 

inferred from the conduct itself, without 

separate and additional proof of a 

tendency to distort market conditions. 

For example, proof that an actor 

intentionally reported price information 

to a private data reporting company that 

is in the business of providing price 

reports to the marketplace—and that the 

actor intentionally omitted material 

facts which the reporting company 

required to be reported—would satisfy 

the market conditions proviso.211 The 

Commission believes that the limiting 

proviso will also help avoid 

unwarranted regulatory burdens on 

industry by clarifying the scope of 

Section 317.3(b).212

This proviso also should not be read 

as requiring the Commission to 

demonstrate a direct relationship 

between the conduct and an effect on 

price, as suggested by many 

commenters,213 or a quantifiable effect 

on prices or market conditions. 

Moreover, it is not the Commission’s 

intent that the proviso require a 

demonstration of the presence of market 

power or a reduction in competition— 

within a relevant antitrust product and 

geographic market—as these concepts 

are defined by antitrust legal precedent. 

The Commission specifically seeks 

additional comment and information on 

this issue, including responses to 

specific questions set forth in Section 

IV.I. of this Notice. If, after reviewing 

additional comments on the RNPRM, 

the Commission should find that its 

tentative decision to include a market 

conditions proviso—or its tentative 

decision not to include a required 

showing of price effects—impedes 

optimal enforcement efforts, the 

Commission will revisit the issue. 

(3) Materiality 

Revised proposed Rule Section 

317.3(b) prohibits the omission of a 

‘‘material fact.’’ The standard for 

materiality is addressed above in 

Section IV.D.2.b.2., and that standard 

also applies to subpart (b). Thus, for 

purposes of the omissions provision, a 

fact is material if there is a substantial 

likelihood that a reasonable market 

participant would consider it important 

in making a decision to transact, 

because the material fact significantly 

alters the total mix of information 

available.214

E. Section 317.4: Preemption 

Section 815(c) of EISA states that 

‘‘[n]othing in this subtitle preempts any 

State law.’’215 Consequently, Section 

317.4 of the revised proposed Rule 

contains a standard preemption 

provision used in other FTC rules, 

making clear that the Commission does 

not intend to preempt the laws of any 

state or local government, except to the 

extent of any conflict.216 This is 

consistent with the position stated in 

the NPRM, where the Commission 

explained that there is no conflict, and 

therefore no preemption, if ‘‘state or 

local law affords equal or greater 

protection from the manipulative 

conduct prohibited by the proposed 

Rule.’’217

Few commenters addressed 

preemption of state law. One 

commenter, MS AG, agreed that EISA 

does not preempt state law and urged 

the Commission not to do so.218 Two 

commenters agreed that the language of 

the proposed Rule does not appear to 

preempt state law.219 Accordingly, the 

revised proposed Rule includes the 

preemption provision proposed in the 

NPRM.220

F. Section 317.5: Severability 

Section 317.5 of the revised proposed 

Rule contains a standard severability 

provision. This provision makes clear 

that if any part of the Rule is held 

invalid by a court, the rest of the Rule 

will remain in effect.221 The 

Commission received no comments on 

this issue. Accordingly, the Commission 

retains without change the severability 

provision proposed in the NPRM.222

G. Regulatory Flexibility Act 

The Regulatory Flexibility Act of 1980 

(‘‘RFA’’)223 requires a description and 

analysis of proposed and final rules that 

will have significant economic impact 

on a substantial number of small 

entities. The RFA requires an agency to 

provide an Initial Regulatory Flexibility 

Analysis (‘‘IRFA’’)224 with the proposed 

Rule and a Final Regulatory Flexibility 

Analysis (‘‘FRFA’’)225 with the final 

Rule, if any. The Commission is not 

required to make such analyses if a rule 


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226 5 U.S.C. 605. 

227 The RFA definition of ‘‘small entity’’ refers to 

the definition provided in the Small Business Act, 

which defines a ‘‘small-business concern’’ as a 

business that is ‘‘independently owned and 

operated and which is not dominant in its field of 

operation.’’ 15 U.S.C. 632(a)(1). As noted above, 

Section 317.2(d) of the revised proposed Rule 

defines a ‘‘person’’ as ‘‘any individual, group, 

unincorporated association, limited or general 

partnership, corporation, or other business entity.’’ 

228 See 73 FR at 48332. 

229 42 U.S.C. 17301. 

230 Directly covered entities under this revised 

proposed Rule are classified as small businesses 

under the Small Business Size Standards 

component of the North American Industry 

Classification System (‘‘NAICS’’) as follows: 

petroleum refineries (NAICS code 324110) with no 

more than 1,500 employees nor greater than 

125,000 barrels per calendar day Operable 

Atmospheric Crude Oil Distillation capacity; 

petroleum bulk stations and terminals (NAICS code 

424710) with no more than 100 employees; and 

petroleum and petroleum products merchant 

wholesalers (except bulk stations and terminals) 

(NAICS code 424720) with no more than 100 

employees. See SBA, Table of Small Business Size 

Standards Matched to North American Industry 

Classification System Codes (Aug. 22, 2008), 

available at (http://www.sba.gov/idc/groups/public/ 

documents/sba_homepage/serv_sstd_tablepdf.pdf). 

231 The SBA publication providing data on the 

number of firms and number of employees by firm 

does not provide sufficient precision to gauge the 

number of small businesses that may be impacted 

by the revised proposed Rule accurately. The data 

is provided in increments of 0-4 employees, fewer 

than 20 employees and fewer than 500 employees. 

Small Business Administration, Employer Firms, & 

Employment by Employment Size of Firm by 

NAICS Codes, 2006, available at (http:// 

www.sba.gov/advo/research/us06_n6.pdf). Thus for 

the 228 petroleum refiners listed, 185 show that 

they have less than 500 employees. Although the 

Commission is unaware of more than five refiners 

with less than 125,000 barrels of crude distillation 

capacity, the data may be kept by refinery, rather 

than refiner. Similar problems exist for the bulk 

terminal and bulk wholesale categories listed above, 

in which the relevant small business cut off is 

greater than 100 employees. Although the 

Commission sought additional comment on the 

number of small entities covered by the initial 

proposed Rule, it received none. Accordingly, the 

small business data set forth in this IRFA are the 

best estimates available to the Commission at this 

time. Nonetheless, the Commission continues to 

seek comment or information providing better data. 232 See 73 FR at 48332. 

would not have such an economic 

effect.226

Although the scope of the Rule may 

reach a substantial number of small 

entities as defined in the RFA, the 

Commission believes that the revised 

proposed Rule would not have a 

significant economic impact on those 

businesses.227 In the initial NPRM, the 

Commission specifically requested 

comments on the economic impact of 

the initial proposed Rule and received 

none.228 Given that the revised 

proposed Rule does not impose any 

reporting or disclosure requirements, 

document or data retention 

requirements, or any other specific 

conduct requirements, it is unlikely that 

the revised proposed Rule will impose 

costs to comply beyond the standard 

costs associated with ensuring that acts, 

practices, and courses of conduct are 

not fraudulent or deceptive. Therefore, 

the Commission believes that the 

revised proposed Rule, if finalized, 

would not have a significant economic 

impact on a substantial number of small 

entities. Notwithstanding this belief, the 

Commission provides a full IRFA 

analysis to aid in its solicitation for 

additional comments on this topic. 

1. Description of the reasons that action 

by the agency is being considered 

Section 811 grants the Commission 

the authority to publish a rule that is 

‘‘necessary or appropriate in the public 

interest or for the protection of United 

States citizens.’’229 As discussed above, 

the Commission believes that 

promulgating the revised proposed Rule 

is appropriate to prevent fraudulent or 

deceptive conduct in connection with 

wholesale petroleum markets for 

commodities listed in Section 811, and 

the Commission has tailored the revised 

proposed Rule specifically to reach such 

conduct. 

2. Succinct statement of the objectives 

of, and the legal basis for, the revised 

proposed Rule 

The legal basis of the revised 

proposed Rule is Section 811 of EISA, 

which prohibits fraudulent or deceptive 

conduct in the wholesale purchase or 

sale of petroleum products in 

contravention of rules, if any, that the 

Commission may publish. The revised 

proposed Rule is intended to define the 

conduct that the law proscribes. 

3. Description of and, where feasible, an 

estimate of the number of small entities 

to which the revised proposed Rule will 

apply 

The revised proposed Rule applies to 

persons, including business entities, 

engaging in the wholesale purchase or 

sale of crude oil, gasoline, and 

petroleum distillates. These potentially 

include petroleum refiners, blenders, 

wholesalers, and dealers (including 

terminal operators that sell covered 

commodities). Although many of these 

entities are large international and 

domestic corporations, the Commission 

believes that a number of these covered 

entities may fall into the category of 

small entities.230 According to the Small 

Business Administration (‘‘SBA’’) size 

standards, and utilizing SBA source 

data, the Commission estimates that 

between approximately 1,700 and 5,200 

covered entities would be classified as 

‘‘small entities.’’231

4. Description of projected reporting, 

recordkeeping, and other compliance 

requirements, including an estimate of 

the classes of small entities that will be 

subject to the requirement and the type 

of professional skills necessary for 

preparation of the report or record 

The Commission does not propose, 

and the revised proposed Rule does not 

contain, any requirement that covered 

entities create, retain, submit, or 

disclose any information. Accordingly, 

the revised proposed Rule would 

impose no recordkeeping or related data 

retention and maintenance or disclosure 

requirements on any covered entity, 

including small entities. Given that the 

revised proposed Rule does not impose 

any reporting requirements,232 it is 

unlikely that the revised proposed Rule 

would impose costs to comply beyond 

standard costs (or skills) associated with 

ensuring that conduct is not fraudulent 

or deceptive. 

5. Identification of other duplicative, 

overlapping, or conflicting federal rules 

As discussed previously, other federal 

agencies have regulatory authority to 

prohibit in whole or in part fraudulent 

or deceptive conduct involving 

petroleum products. The SEC has 

authority to stop fraudulent and 

deceptive conduct involving the 

securities and securities offerings of 

companies involved in the petroleum 

industry. Additionally, the CFTC has 

authority to bring an action against any 

person who is manipulating or 

attempting to manipulate energy 

commodities. 

As explained in Section IV.B. above, 

the Commission does not intend for the 

revised proposed Rule to impose 

contradictory requirements on regulated 

entities in the futures markets or 

otherwise. To the extent, if any, that the 

revised proposed Rule’s requirements 

could duplicate requirements already 

established by other agencies for such 

markets, the revised proposed Rule 

should not impose any additional 

compliance costs. The Commission is 

requesting comment on the extent to 

which other federal standards 

concerning fraud and deception may 

duplicate, satisfy, or inform the revised 

proposed Rule’s requirements. In 

addition, the Commission seeks 

comment and information about any 

statutes or rules that may conflict with 

the revised proposed Rule’s 

requirements, as well as any state, local, 

or industry rules or policies that require 

covered entities to implement practices 


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233 44 U.S.C. 3501-3521. Under the PRA, federal 

agencies must obtain approval from the Office of 

Management and Budget (‘‘OMB’’) for each 

collection of information they conduct or sponsor. 

‘‘Collection of information’’ means agency requests 

or requirements that members of the public submit 

reports, keep records, or provide information to a 

third party. 44 U.S.C. 3502(3). 

234 In the ANPR, the Commission solicited 

comment on whether covered entities should report 

market data, such as cost and volume data for 

wholesale transactions. 73 FR at 25622. In response, 

one commenter noted that Section 812 already 

addresses the making of false reports and should 

not be construed as giving the Commission 

authority to impose new reporting requirements. 

ISDA, ANPR, at 16 (‘‘Neither Section 811 nor 

Section 812 of the EISA authorizes the Commission 

to impose new reporting requirements.’’); see also 

CFDR, ANPR, at 16 (‘‘The Commission should not 

promulgate a rule that purports to impose 

disclosure obligations on market participants where 

no disclosure obligations otherwise exist under 

current law.’’). But see, e.g., PMAA, ANPR, at 8-9 

(stating that the Commission has authority under 

Section 811 to impose new reporting requirements); 

NPGA, ANPR, at 3 (‘‘The authority to mandate the 

maintenance and submission of [information 

regarding wholesale petroleum transactions] is 

inherent in the EISA prohibitions against 

manipulative activities in Section 811 and the 

reporting of false information to Federal authorities 

in Section 812.’’). 

that comport with the requirements of 

the Rule. 

6. Description of any significant 

alternatives to the revised proposed 

Rule that would accomplish the stated 

objectives of applicable statutes and that 

minimize any significant economic 

impact of the revised proposed Rule on 

small entities, including alternatives 

considered, such as: (1) establishment of 

differing compliance or reporting 

requirements or timetables that take into 

account the resources available to small 

entities; (2) clarification, consolidation, 

or simplification of compliance and 

reporting requirements under the rule 

for such small entities; and (3) any 

exemption from coverage of the rule, or 

any part thereof, for such small entities 

The revised proposed Rule is 

narrowly tailored to reduce compliance 

burdens on covered entities, regardless 

of size. In formulating the revised 

proposed Rule, including the present 

revisions, the Commission has taken 

several significant steps to minimize 

potential burdens. Most significantly, 

the revised proposed Rule focuses on 

preventing fraud and deception in 

wholesale petroleum markets. At this 

time, the Commission has declined to 

include specific conduct or duty 

requirements, such as a duty to supply 

product or a duty to provide access to 

pipelines and terminals. In addition, the 

revised proposed Rule makes clear that 

covered entities need not disclose price, 

volume, and other data to the market. 

Finally, the revised proposed Rule 

contains no recordkeeping requirement. 

While the Commission believes that 

the revised proposed Rule imposes no 

unique compliance costs, it nonetheless 

requests comment on this issue, 

including in particular on whether the 

revised proposed Rule’s prohibitions 

would have a significant impact upon a 

substantial number of small entities, 

and what modifications, if any, to the 

revised proposed Rule the Commission 

should consider to minimize further the 

burden on small entities. 

H. Paperwork Reduction Act 

The Commission does not 

contemplate requiring any entity 

covered by the revised proposed Rule to 

create, retain, submit, or disclose any 

data. Accordingly, the revised proposed 

Rule does not include any new 

information collection requirements 

under the provisions of the Paperwork 

Reduction Act of 1995 (‘‘PRA’’).233

However, the Commission’s experience 

with any final rule that may be adopted 

under Section 811 or pursuant to its 

investigative and enforcement role 

under Section 812 may suggest a 

particular need to require firms to create 

or maintain particular information. If 

such a need arises, the Commission 

may, in the future, adopt such rules as 

necessary or appropriate in the public 

interest or for the protection of United 

States citizens, and will accordingly 

notify and submit appropriate 

information to OMB, where required 

under PRA.234

I. Request for Comments 

The Commission seeks comment on 

various aspects of the revised proposed 

Rule. The Commission is particularly 

interested in receiving comments on the 

questions that follow. In responding to 

these questions, include detailed, 

factual supporting information 

whenever possible. 

1. General Questions for Comment 

a. Does the revised proposed Rule 

strike an appropriate balance between 

protecting consumers from petroleum 

market manipulation and limiting 

attendant costs to industry such as the 

chilling of legitimate business conduct 

and compliance burdens? In considering 

whether an appropriate balance is stuck 

discuss: 

(1) the merits or flaws with having a 

different standard of scienter for Section 

317.3(a) from Section 317.3(b); 

(2) the merits or flaws of eliminating 

Section 317.3(b) and consolidating the 

Rule into a single anti-fraud prohibition 

as set out by Section 317.3(a); 

(3) the merits or flaws of eliminating 

Section 317.3(b) and consolidating the 

Rule to a single anti-fraud prohibition as 

set out by Section 317.3(a), but with a 

scienter requirement of ‘‘intentionally 

engage’’ rather than ‘‘knowingly 

engage;’’ 

(4) the merits or flaws of eliminating 

Section 317.3(b) and consolidating the 

Rule to a single anti-fraud prohibition as 

set out by Section 317.3(a), but adding 

a proviso that the challenged act, 

practice, or course of business distort or 

tend to distort market conditions; 

discuss the consequences of adding this 

proviso under both scienter alternatives 

of ‘‘intentionally’’ and ‘‘knowingly.’’ 

b. Do the conduct provisions in 

revised proposed Rule Section 317.3 

provide sufficient clarity and precision 

in articulating prohibited conduct? Why 

or why not? If not, how could the Rule 

be modified to achieve those goals? 

Would a rule limited to Section 317.3(a) 

improve clarity and precision without 

impairing the basis for issuing a rule or 

the goal of preventing market 

manipulation to the benefit of 

consumers? Explain. 

c. Does revised proposed Rule Section 

317.3 prohibit the injection of false 

information into market transactions? If 

not, how could the provision be revised 

to achieve that goal? Explain. 

d. Does a prohibition on the injection 

of false information into market 

transactions protect the integrity of such 

markets? Why or why not? 

e. Should a market manipulation rule 

reach fraudulent or deceptive conduct 

that does not distort or tend to distort 

market conditions? Why or why not? 

(Note: As explained in the discussion 

above respecting Section 317.3(b), the 

Commission does not intend that a 

requirement that the challenged conduct 

distort or tend to distort market 

conditions mean that a specific price or 

other market effect be an element to be 

demonstrated to prove a rule violation.) 

f. Discuss the benefits and costs of 

alternatives to promulgating the revised 

proposed Rule, including the following: 

(i) declining to issue a final rule; (ii) 

promulgating a final rule that mirrors 

the initially proposed Rule; or (iii) 

promulgating a final rule that solely 

prohibits false statements. 

2. Questions on Specific Provisions 

a. As drafted, does Section 317.3(a) 

provide sufficient clarity and precision 

as to the contours of prohibited 

conduct? Explain. 

b. Is it appropriate that the rule 

prohibit acts, practices, and courses of 

business that operate or would operate 

as a fraud or deceit on any person? 

Discuss the merit or lack of merit of 

prohibiting fraudulent or deceptive 

conduct. In so discussing, explain: 

(1) whether Section 811 of EISA 

authorizes the Commission to publish a 


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rule that prohibits all acts, practices, or 

courses of conduct that operate or 

would operate as a fraud or deceit on 

any person, including, e.g., common law 

fraud in which injury may not extend 

beyond the individual parties or 

otherwise impair the integrity of 

wholesale petroleum markets at large; 

(2) whether, as a policy matter, 

Section 317.3(a) should prohibit all acts, 

practices, or courses of conduct that 

operate or would operate as a fraud or 

deceit on any person, including, e.g., 

common law fraud in which injury may 

not extend beyond the individual 

parties or otherwise impair the integrity 

of wholesale petroleum markets at large; 

if not, discuss how the reach of the 

provision should be bounded, 

including, e.g., the merits of a proviso 

that the challenged conduct distort or 

tend to distort market conditions. 

c. Discuss the merits or flaws of the 

Section 317.3(a) scienter standard that 

the challenged person ‘‘knowingly’’ act. 

In the context of wholesale petroleum 

markets and in comparison to the 

tentative ‘‘knowingly engage’’ standard, 

how would an alternative ‘‘intentionally 

engage’’ standard affect the ability of the 

Commission to protect consumers from 

deleterious market manipulation? What 

differences, if any, are there between the 

two alternative standards respecting the 

ability of firms to comply with Section 

317.3(a), including the costs of 

compliance? 

d. As explained in the discussion of 

revised proposed Rule Section 317.3(b), 

the Commission proposes that the Rule 

prohibit omissions of material fact— 

specifically, omissions of material facts 

that are necessary to ensure that a 

previously made statement is not 

misleading, provided that the 

informative content of the misleading 

statement distorts or tends to distort 

market conditions for any such product. 

What are the costs and benefits of this 

provision? 

e. Describe acts, practices, or courses 

of conduct, if any, that would threaten 

the integrity of wholesale petroleum 

markets that could not be reached by 

Section 317.3(a) but could be reached by 

Section 317.3(b). If such conduct exists, 

what is its incidence? In comparison to 

conduct injurious to the integrity of 

wholesale petroleum markets reached 

by Section 317.3(a), does the potential 

injury from conduct reached by Section 

317.3(b) justify its likely enforcement 

and compliance costs? Explain. 

f. Does the inclusion of the explicit 

scienter requirement in revised 

proposed Rule Section 317.3(b) 

adequately reduce any danger of a 

chilling effect on the flow of 

information essential to the functioning 

of, and transparency in, wholesale 

petroleum markets? Why or why not? 

g. Does the inclusion of the explicit 

scienter requirement—intentionally 

fail—in revised proposed Rule Section 

317.3(b) sufficiently reduce the danger 

of a chilling effect on benign or 

desirable business activity within 

wholesale petroleum markets? Why or 

why not? 

h. What forms of information, if any, 

should market participants be required 

to disclose in order to promote the 

functioning and integrity of wholesale 

petroleum markets? Explain. Under 

what circumstances, if any, would the 

failure to provide such information 

render otherwise truthful statements 

misleading? 

i. To what extent would any danger of 

a chilling effect on benign or desirable 

business activity depend upon the 

existence (or lack thereof) of mandatory 

disclosure obligations in the petroleum 

industry? Explain. 

j. If the merits of Section 317.3(b) as 

currently proposed outweigh any flaws 

or dangers, should it be expanded to 

require that a person update or correct 

information if circumstances change? 

How, if at all, would such an expansion 

alter the cost/benefit calculus? Explain. 

k. What, if any, danger arises if the 

scienter standard in revised proposed 

Rule Section 317.3(b) were changed to 

‘‘knowingly fail’’? Explain. 

l. Is it clear that the ‘‘intentionally’’ 

scienter standard in revised proposed 

Rule Section 317.3(b) means that the 

Commission need only show that a 

violator intends to engage in fraudulent 

or deceptive conduct—without regard to 

the violator’s intent to affect market 

conditions or knowledge of the probable 

consequences of such conduct? Why or 

why not? If not, how could the scienter 

language be revised to limit the 

evidentiary burden to requiring only a 

showing that the fraudulent or 

deceptive conduct was intentional? 

m. What types of evidence might be 

sufficient to demonstrate the proposed 

scienter standard in revised proposed 

Rule Section 317.3(b)? Explain. What 

types of evidence might be sufficient to 

demonstrate the proposed scienter 

standard in revised proposed Rule 

Section 317.3(a)? Discuss with 

particular emphasis on how, if at all, the 

evidentiary requirements to prove 

scienter differ between Section 317.3(b) 

and Section 317.3(a). 

n. Is it clear that the ‘‘intentionally 

fail’’ scienter standard in revised 

proposed Rule Section 317.3(b) is 

neither a recklessness standard nor a 

specific intent standard? If not, how 

could the scienter language be revised to 

make that clear? Explain. 

o. As explained in the discussion of 

revised proposed Rule Section 317.3(b), 

the prohibitions language of Section 811 

of EISA is nearly identical to Section 

10(b) of the SEA from which Rule 10b5 derives. Notwithstanding this 

similarity, does the statutory language 

in Section 811—‘‘as necessary or 

appropriate’’—provide a sufficient basis 

for tailoring the scienter requirement of 

a FTC market manipulation rule to 

address wholesale petroleum markets? 

Explain. 

p. Intent need not be demonstrated to 

prove that an act or practice is deceptive 

or unfair in violation of Section 5 of the 

FTC Act. Does the presence of explicit 

scienter requirements in revised 

proposed Rule Section 317.3 create risk 

of judicial confusion regarding the 

differing elements of proof for an FTC 

market manipulation rule and for 

Section 5 of the FTC Act respecting 

unfair or deceptive practices? Explain. 

q. Does the Section 317.3(b) proviso 

that a misleading statement distort or 

tend to distort market conditions for any 

covered product sufficiently ensure that 

the Rule strikes an appropriate balance 

between protecting consumers from 

petroleum market manipulation and 

limiting the costs to industry attendant 

with achieving that protection? Would 

adding the proviso to Section 317.3(a) 

achieve a better balance between 

protecting consumers and attendant 

industry costs in the enforcement of that 

provision of the Rule? Explain. 

r. Does the Section 317.3(b) proviso 

that a misleading statement distort or 

tend to distort market conditions for any 

covered product unduly limit the 

Commission’s ability to prohibit 

misleading statements that threaten the 

integrity of wholesale petroleum 

markets? Why or why not? If not, how 

could the provision be revised to 

achieve that goal? Explain. Were the 

proviso added to Section 317.3(a), 

would the Commission’s ability to 

protect the integrity of wholesale 

petroleum markets be impaired? 

Explain. 

s. Is it clear that the Section 317.3(b) 

proviso that a misleading statement 

distort or tend to distort market 

conditions for any covered product is 

not intended to create a price or market 

effects element of proof? I.e., is it clear 

from the language of Section 317.3(b) 

that in order to establish a Rule 

violation, the Commission need not 

prove any specific price or market 

effect? If not, how can the Rule be 

revised to make that point clear? 

Discuss. 

t. What types of evidence might be 

sufficient to demonstrate that a 

misleading statement distorts or tends to 


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distort market conditions for any 

covered wholesale petroleum product? 

For example, should it be sufficient 

simply to show that the informative 

content of a misleading statement is of 

the type typically absorbed by the 

market and incorporated into market 

prices? Explain. 

u. Is it clear that a violation of revised 

proposed Rule Section 317.3 does not 

require that the violator possess market 

power—and need not have reduced 

competition—in a relevant antitrust 

market, as these concepts are defined by 

antitrust legal precedent? Why or why 

not? If not, how could the language be 

revised to make clear that neither a 

showing of market power nor a 

reduction in competition is an element 

of proof? 

v. Consider the following alternative 

rule language: 

It shall be unlawful for any person, 

directly or indirectly, in connection 

with the purchase or sale of crude oil, 

gasoline, or petroleum distillates at 

wholesale, to engage in any act 

(including the making of any untrue 

statement), practice, or course of 

conduct with the intent* to defraud or 

deceive, provided that such act, 

practice, or course of conduct distorts or 

tends to distort market conditions for 

any such product. 

* The phrase ‘‘with the intent’’ shall 

mean that the alleged violator intended 

to mislead—regardless of whether he or 

she specifically intended to affect 

market prices (e.g., specific intent), or 

knew or must have known of the 

probable consequences of such 

conduct—and regardless of whether the 

conduct was likely to succeed in 

defrauding or deceiving the target. 

Would this alternative language better 

achieve (or would it not better achieve) 

the goals of Section 811 of EISA than 

the revised proposed Rule discussed in 

this Notice. Explain. Discuss the merits 

or flaws, if any, of this alternative 

language? 

w. Hypothetical questions: 

(1) Company ABC reports a trade to 

the XYZ Price Service, a service that 

collects transactional data and uses the 

data to set a benchmark price that the 

industry uses to negotiate spot 

purchases of refined product. XYZ 

procedures, which are well known 

throughout the industry, require 

reporting companies to identify 

transactions below a specified volume 

to limit the impact of transactions with 

inconsequential volumes on the 

benchmark price. The volume of ABC’s 

trade is below the specified volume, but: 

(a) ABC inadvertently omits that 

information. 

(b) ABC establishes procedures to 

ensure that persons reporting 

transactions know to identify 

transactions below the specified amount 

but the individual reporting this 

transaction fails to follow those 

procedures. 

(c) ABC intentionally omits the 

information identifying the trade. 

(2) Trader A receives a request from 

RST Refinery for crude oil of a 

particular grade, specifying that it 

prefers not to buy crude from the 

country of Cepo for political reasons. 

Trader A is unable to find the kind of 

crude RST requires except in Cepo. 

Trader A: 

(a) Sells the crude from Cepo to RST 

without disclosing that it is from Cepo. 

(b) Sells the crude to RST and 

represents that it is from the country of 

West Friendly, knowing that it is from 

Cepo. 

(c) Does not know and does not ask 

where the crude is from and sells it to 

RST without representing its origin. 

Applying (1) the revised proposed 

rule language appearing in this Notice 

and (2) the alternative rule language 

appearing above in Question 2v. to the 

facts provided in these hypothetical 

examples, discuss differences, if any, in 

the outcome of an enforcement action. 

Which result would be more desirable 

and why? Also speak to the 

effectiveness and ability of each rule 

version to reach any harmful 

manipulative conduct contained in the 

fact pattern, the relative burdens on the 

Commission to enforce the rule 

successfully, and the relative risks of 

enforcement error. 

3. Regulatory Flexibility Act 

The Commission requests that 

commenters provide information about 

the potential scope and economic 

impact of the revised proposed Rule so 

that the Commission may better assess 

the economic impact of the language of 

any final rule if it determines to publish 

such rule. Specifically, the Commission 

requests comments on: 

a. the number and type of small 

entities affected by the revised proposed 

Rule; 

b. any or all of the provisions in the 

revised proposed Rule with regard to: (i) 

the impact of the provision(s) (including 

benefits and costs to implement and 

comply with the Rule or Rule 

provisions), if any; (ii) what alternatives, 

if any, the Commission should consider, 

as well as the costs and benefits of those 

alternatives, paying specific attention to 

the effect of the revised proposed Rule 

on small entities; 

c. ways in which the revised proposed 

Rule could be modified to reduce any 

costs or burdens on small entities, 

including whether and how 

technological developments could 

further reduce the costs of 

implementing and complying with the 

revised proposed Rule for small entities; 

d. any information quantifying the 

economic costs and benefits of the 

revised proposed Rule on the entities 

covered, including small entities; and 

e. the identity of any relevant federal, 

state, or local rules that may duplicate, 

overlap, or conflict with the revised 

proposed Rule. 

List of Subjects in 16 CFR Part 317 

Trade practices. 

■ Accordingly, for the reasons set forth 

in the preamble, the Commission 

proposes to amend Title 16, Chapter 1, 

Subchapter C of the Code of Federal 

Regulations to add a new part 317 as 

follows: 

PART 317—PROHIBITION OF ENERGY 

MARKET MANIPULATION RULE 

Sec. 

317.1 Scope. 

317.2 Definitions. 

317.3 Prohibited practices. 

317.4 Preemption. 

317.5 Severability. 

Authority: 42 U.S.C. 17301-17305; 15 

U.S.C. 41-58. 

§ 317.1 Scope. 

This part implements Subtitle B of 

Title VIII of The Energy Independence 

and Security Act of 2007 (‘‘EISA’’), Pub. 

L. 110-140, 121 Stat. 1723 (December 

19, 2007), codified at 42 U.S.C. 17301- 

17305. This rule applies to any person 

over which the Federal Trade 

Commission has jurisdiction under the 

Federal Trade Commission Act, 15 

U.S.C. 41 et seq. 

§ 317.2 Definitions. 

The following definitions shall apply 

throughout this rule: 

(a) Crude oil means any mixture of 

hydrocarbons that exists: 

(1) In liquid phase in natural 

underground reservoirs and that 

remains liquid at atmospheric pressure 

after passing through separating 

facilities, or 

(2) As shale oil or tar sands requiring 

further processing for sale as a refinery 

feedstock. 

(b) Gasoline means: 

(1) Finished gasoline, including, but 

not limited to, conventional, 

reformulated, and oxygenated blends, 

and 

(2) Conventional and reformulated 

gasoline blendstock for oxygenate 

blending. 

(c) Knowingly means with actual or 

constructive knowledge such that the 


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18328 Federal Register / Vol. 74, No. 76 / Wednesday, April 22, 2009 / Proposed Rules 

person knew or must have known that 

his or her conduct was fraudulent or 

deceptive. 

(d) Person means any individual, 

group, unincorporated association, 

limited or general partnership, 

corporation, or other business entity. 

(e) Petroleum distillates means: 

(1) Jet fuels, including, but not limited 

to, all commercial and military 

specification jet fuels, and 

(2) Diesel fuels and fuel oils, 

including, but not limited to, No. 1, No. 

2, and No. 4 diesel fuel, and No. 1, No. 

2, and No. 4 fuel oil. 

(f) Wholesale means: 

(1) All purchases or sales of crude oil 

or jet fuel; and 

(2) All purchases or sales of gasoline 

or petroleum distillates (other than jet 

fuel) at the terminal rack or upstream of 

the terminal rack level. 

§ 317.3 Prohibited practices. 

It shall be unlawful for any person, 

directly or indirectly, in connection 

with the purchase or sale of crude oil, 

gasoline, or petroleum distillates at 

wholesale, to: 

(a) Knowingly engage in any act, 

practice, or course of business— 

including the making of any untrue 

statement of material fact—that operates 

or would operate as a fraud or deceit 

upon any person; or 

(b) Intentionally fail to state a material 

fact that under the circumstances 

renders a statement made by such 

person misleading, provided that such 

omission distorts or tends to distort 

market conditions for any such product. 

§ 317.4 Preemption. 

The Federal Trade Commission does 

not intend, through the promulgation of 

this Rule, to preempt the laws of any 

state or local government, except to the 

extent that any such law conflicts with 

this Rule. A law is not in conflict with 

this Rule if it affords equal or greater 

protection from the prohibited practices 

set forth in § 317.3. 

§ 317.5 Severability. 

The provisions of this Rule are 

separate and severable from one 

another. If any provision is stayed or 

determined to be invalid, it is the 

Commission’s intention that the 

remaining provisions shall continue in 

effect. 

By direction of the Commission. 

Donald S. Clark, 

Secretary. 

Note: The following attachment will 

not appear in the Code of Federal 

Regulations. 

Federal Register 

Attachment A 

NPRM Commenters 

Association of Oil Pipe Lines 

(‘‘AOPL’’) 

American Petroleum Institute (‘‘API’’) 

Argus Media Inc. (‘‘Argus’’) 

American Trucking Associations, Inc. 

(‘‘ATA’’) 

Air Transport Association of America, 

Inc. (‘‘ATAA’’) 

Andrew Boxer, Ellis Boxer & Blake 

(‘‘Boxer’’) 

Sharon Brown-Hruska, National 

Economic Research Associates, Inc. 

(‘‘Brown-Hruska’’) 

California Attorney General, Edmund 

G. Brown Jr. (‘‘CA AG’’) 

Canadian Association of Petroleum 

Producers (‘‘CAPP’’) 

Consumer Federation of America, 

Mark Cooper, Director of Research 

(‘‘CFA1’’; ‘‘CFA2’’) 

New York City Bar Association, 

Committee on Futures & Derivatives 

Regulation (‘‘CFDR’’) 

U.S. Commodity Futures Trading 

Commission, Terry S. Arbit, General 

Counsel (‘‘CFTC (Arbit)’’) 

U.S. Commodity Futures Trading 

Commission, Bart Chilton, 

Commissioner (‘‘CFTC (Chilton)’’) 

John Q. Public (‘‘Consumer’’) 

Flint Hills Resources, LP (‘‘Flint 

Hills’’) 

Winfried Fruehauf, National Bank 

Financial (‘‘Fruehauf’’) 

James D. Hamilton, University of 

California, San Diego (‘‘Hamilton’’) 

Illinois Petroleum Marketers 

Association (‘‘IPMA’’) 

International Swaps and Derivatives 

Association, Inc. (‘‘ISDA’’) 

Futures Industry Association, CME 

Group, Managed Funds Association, 

Intercontinental Exchange, Inc., 

National Futures Association (‘‘MFA’’) 

Michigan Petroleum Association/ 

Michigan Association of Convenience 

Stores (‘‘MPA’’) 

Mississippi Attorney General, Jim 

Hood (‘‘MS AG’’) 

Lisa Murkowski, United State 

Senator, State of Alaska (‘‘Murkowski’’) 

Timothy J. Muris and J. Howard 

Beales, III (‘‘Muris’’) 

Navajo Nation, Resolute Natural 

Resources Company, and Navajo Nation 

Oil and Gas Company (‘‘Navajo Nation’’) 

Nebraska Petroleum Marketers & 

Convenience Store Association 

(‘‘NPCA’’) 

National Petrochemical and Refiners 

Association (‘‘NPRA’’) 

Craig Pirrong, The University of 

Houston: Bauer College of Business 

(‘‘Pirrong’’) 

Plains All American Pipeline, L.P. 

(‘‘Plains’’) 

Platts (‘‘Platts’’) 

Petroleum Marketers Association of 

America (‘‘PMAA’’) 

Society of Independent Gasoline 

Marketers of America (‘‘SIGMA’’) 

Sutherland Asbill & Brennan LLP 

(‘‘Sutherland’’) 

David J. Van Susteren, Fulbright & 

Jaworski LLP (‘‘Van Susteren’’) 

Federal Register 

Attachment B 

Workshop Participants 

American Bar Association Section of 

Antitrust Law’s Fuel & Energy Industry 

Committee (‘‘ABA Energy’’): Bruce 

McDonald, Jones Day LLP 

Association of Oil Pipe Lines 

(‘‘AOPL’’): Linda G. Stuntz, Stuntz, 

Davis & Staffier, PC 

American Petroleum Institute (‘‘API’’): 

Jonathan Gimblett, Covington & Burling 

LLP 

American Petroleum Institute (‘‘API’’): 

Robert A. Long, Jr., Covington & Burling 

LLP 

Argus Media Inc. (‘‘Argus’’): Dan 

Massey 

Consumer Federation of America 

(‘‘CFA’’): Mark Cooper 

New York City Bar Association, 

Committee on Futures & Derivatives 

Regulation (‘‘CFDR’’): Charles R. Mills, 

K&L Gates 

CME Group (‘‘CME’’): De’Ana Dow 

Flint Hills Resources, LP (‘‘Flint 

Hills’’): Alan Hallock 

International Swaps and Derivatives 

Association, Inc. (‘‘ISDA’’): 

Athena Y. Velie, McDermott, Will & 

Emery LLP 

Futures Industry Association, CME 

Group, Managed Funds Association, 

Intercontinental Exchange, Inc., 

National Futures Association (‘‘MFA’’): 

Mark D. Young, Kirkland & Ellis LLP 

Resolute Natural Resources Company 

(‘‘Navajo Nation’’): James Piccone 

Navajo Nation Oil and Gas 

Corporation (‘‘Navajo Nation’’): Perry 

Shirley 

National Petrochemical and Refiners 

Asssociation (‘‘NPRA’’): 

Susan S. DeSanti, Sonnenschein Nath 

& Rosenthal LLP 

National Petrochemical and Refiners 

Association (‘‘NPRA’’): Charles T. 

Drevna 

Craig Pirrong, The University of 

Houston: Bauer College of Business 

(‘‘Pirrong’’) 

Platts (‘‘Platts’’): John Kingston 

Petroleum Marketers Association of 

America (‘‘PMAA’’): 

Robert Bassman, Bassman, Mitchell & 

Alfano, Chtd. 

Society of Independent Gasoline 

Marketers of America (‘‘SIGMA’’): James 

D. Barnette, 


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Steptoe & Johnson LLP 

Society of Independent Gasoline 

Marketers of America (‘‘SIGMA’’): R. 

Timothy Columbus, Steptoe & Johnson 

LLP 

David J. Van Susteren, Fulbright & 

Jaworski LLP (‘‘Van Susteren’’) 

Federal Register 

Attachment C 

ANPR Commenters 

American Bar Association/Section of 

Antitrust Law (‘‘ABA’’) 

Association of Oil Pipe Lines 

(‘‘AOPL’’) 

American Petroleum Institute and the 

National Petrochemical and Refiners 

Association (‘‘API’’) 

Patrick Barrett (‘‘Barrett’’) 

Lawrence Barton (‘‘Barton’’) 

Dave Beedle (‘‘Beedle’’) 

Stanley Bergkamp (‘‘Bergkamp’’) 

Louis Berman (‘‘Berman’’) 

Bezdek Associates, Engineers PLLC 

(‘‘Bezdek’’) 

Katherine Bibish (‘‘Bibish’’) 

John Booke (‘‘Booke’’) 

Bradley (‘‘Bradley’’) 

Jeremy Bradley (‘‘J. Bradley’’) 

Charles Bradt (‘‘Bradt’’) 

Wendell Branham (‘‘Branham’’) 

Lorraine Bremer (‘‘Bremer’’) 

Gloria Briscolino (‘‘Briscolino’’) 

Rick Brownstein (‘‘Brownstein’’) 

Byrum (‘‘Byrum’’) 

Canadian Association of Petroleum 

Producers (‘‘CAPP’’) 

Jeff Carlson (‘‘Carlson’’) 

Jacquelynne Catania (‘‘Catania’’) 

Marie Cathey (‘‘Cathey’’) 

New York City Bar, Association 

Committee on Futures & Derivatives 

Regulation (‘‘CFDR’’) 

U.S. Commodities Futures Trading 

Commission (‘‘CFTC’’) 

Manuel Chavez (‘‘Chavez’’) 

Michael Chudzik (‘‘Chudzik’’) 

D. Church (‘‘Church’’) 

Earl Clemons (‘‘Clemons’’) 

Dan Clifton (‘‘Clifton’’) 

Kim Cruz (‘‘Cruz’’) 

Jerry Davidson (‘‘Davidson’’) 

Don Deresz (‘‘Deresz’’) 

Charlene Dermond (‘‘Dermond’’) 

Kimberly DiPenta (‘‘DiPenta’’) 

Penny Donaly (‘‘Donaly1’’) 

Penny Donaly (‘‘Donaly2’’) 

Penny Donaly (‘‘Donaly3’’) 

Penny Donaly (‘‘Donaly4’’) 

Deep River Group, Inc. (‘‘DRG’’) 

Harold Ducote (‘‘Ducote’’) 

Mary Dunaway (‘‘Dunaway’’) 

Econ One Research, Inc. (‘‘Econ One’’) 

Terri Edelson (‘‘Edelson’’) 

Kevin Egan (‘‘Egan’’) 

DJ Ericson (‘‘Ericson’’) 

Mark Fish (‘‘Fish’’) 

Flint Hills Resources, LP (‘‘Flint 

Hills’’) 

Bob Frain (‘‘Frain’’) 

Joseph Fusco ( ‘‘Fusco’’ ) 

Tricia Glidewell (‘‘Glidewell’’) 

Robert Gould (‘‘Gould’’) 

James Green (‘‘Green’’) 

Michael Greenberger (‘‘Greenberger’’) 

Christine Gregoire, Governor, State of 

Washington (‘‘Gregoire’’) 

Hagan (‘‘Hagan’’) 

Toni Hagan (‘‘Toni’’) 

Charles Hamel (‘‘Hamel’’) 

Chris Harris (‘‘Harris’’) 

Thomas Herndon (‘‘Herndon’’) 

Johnny Herring (‘‘Herring’’) 

Hess Corporation (‘‘Hess’’) 

David Hill (‘‘Hill’’) 

Hopper (‘‘Hopper’’) 

Sharon Hudecek (‘‘Hudecek’’) 

IntercontinentalExchange, Inc. 

(‘‘ICE’’) 

Institute for Energy Research (‘‘IER’’) 

Independent Lubricant Manufacturers 

Association (‘‘ILMA’’) 

Illinois Petroleum Marketers 

Association (‘‘IPMA’’) 

International Swaps and Derivatives 

Association, Inc. (‘‘ISDA’’) 

Micki Jay (‘‘Jay’’) 

Kenneth Jensen (‘‘Jensen’’) 

Paul Johnson (‘‘Johnson’’) 

Tacie Jones (‘‘Jones’’) 

Joy (‘‘Joy’’) 

John Kaercher (‘‘Kaercher’’) 

Kas Kas (‘‘Kas’’) 

Kipp (‘‘Kipp’’) 

Paola Kipp (‘‘P. Kipp’’) 

Jerry LeCompte (‘‘LeCompte’’) 

Kurt Lennert (‘‘Lennert’’) 

Loucks (‘‘Loucks’’) 

Robert Love (‘‘Love’’) 

R. Matthews (‘‘Matthews’’) 

Catherine May (‘‘May’’) 

Mike Mazur (‘‘Mazur’’) 

Sean McGill (‘‘McGill’’) 

Kathy Meadows (‘‘Meadows’’) 

Futures Industry Association, CME 

Group, Managed Funds Association, 

IntercontinentalExchange, National 

Futures Association (‘‘MFA’’) 

Bret Morris (‘‘Morris’’) 

Theresa Morris-Ramos (‘‘MorrisRamos’’) 

Scott Morosini (‘‘Morosini’’) 

Timothy J. Muris and J. Howard 

Beales, III (‘‘Muris’’) 

Navajo Nation Resolute Natural 

Resources Company and Navajo Nation 

Oil and Gas Company (‘‘Navajo Nation’’) 

Laurie Nenortas (‘‘Nenortas’’) 

James Nichols (‘‘Nichols’’) 

Virgil Noffsinger (‘‘Noffsinger’’) 

Noga (‘‘Noga’’) 

Richard Nordland (‘‘Nordland’’) 

National Propane Gas Association 

(‘‘NPGA’’) 

Kerry O’Shea, (‘‘O’Shea’’) 

Jeffery Parker (‘‘Parker’’) 

Pamela Parzynski (‘‘Parzynski’’) 

Brook Paschkes (‘‘Paschkes’’) 

Brijesh Patel (‘‘Patel’’) 

Stefanie Patsiavos (‘‘Patsiavos’’) 

P D (‘‘PD’’) 

Guillermo Pereira (‘‘Pereira’’) 

James Persinger (‘‘Persinger’’) 

Mary Phillips (‘‘Phillips’’) 

Plains All American Pipeline, LLP 

(‘‘Plains’’) 

Platts (‘‘Platts’’) 

Betty Pike (‘‘Pike’’) 

Petroleum Marketers Association of 

America (‘‘PMAA’’) 

Joel Poston (‘‘Poston’’) 

Radzicki (‘‘Radzicki’’) 

Gary Reinecke (‘‘Reinecke’’) 

Steve Roberson (‘‘Roberson’’) 

Shawn Roberts (‘‘Roberts’’) 

Linda Rooney (‘‘Rooney’’) 

Mel Rubinstein (‘‘Rubinstein’’) 

secret (‘‘secret’’) 

Joel Sharkey (‘‘Sharkey’’) 

Society of Independent Gasoline 

Marketers of America (‘‘SIGMA’’) 

Daryl Simon (‘‘Simon’’) 

David Smith (‘‘D. Smith’’) 

Donald Smith (‘‘Do. Smith’’) 

Mary Smith (‘‘M. Smith’’) 

Donna Spader (‘‘Spader’’) 

Stabila (‘‘Stabila’’) 

Alan Stark (‘‘A. Stark’’) 

Gary Stark (‘‘G. Stark’’) 

Robert Stevenson (‘‘Stevenson’’) 

Ryan Stine (‘‘Stine’’) 

Maurice Strickland (‘‘Strickland’’) 

Sutherland, Asbill, and Brennan, LLP 

(‘‘Sutherland’’) 

L.D. Tanner (‘‘Tanner’’) 

Dennis Tapalaga (‘‘Tapalaga’’) 

Tennessee Oil Marketers Association 

(‘‘TOMA’’) 

Theisen (‘‘Theisen’’) 

Greg Turner (‘‘Turner’’) 

U.S. citizen (‘‘U.S. citizen’’) 

U.S. Department of Justice, Criminal 

Fraud Section (‘‘USDOJ’’) 

Jeff Van Hecke (‘‘Van Hecke’’) 

Louis Vera (‘‘Vera’’) 

Thomas Walker (‘‘Walker’’) 

Victoria Warner (‘‘Warner’’) 

Lisa Wathen (‘‘Wathen’’) 

Watson (‘‘Watson’’) 

Gary Watson (‘‘G. Watson’’) 

Joseph Weaver (‘‘Weaver’’) 

Webb (‘‘Webb’’) 

Vaughn Weming (‘‘Weming’’) 

Douglas Willis (‘‘Willis’’) 

[FR Doc. E9–9224 Filed 4–21–09: 8:45 am] 

BILLING CODE 6750–01–S 


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