Trader Arcadia unbowed by CFTC oil-rigging deal

Arcadia's crude strategy will not be disrupted by the terms of a deal which brings to an end an oil price rigging case, billionaire owner says

PUBLISHED : Wednesday, 06 August, 2014, 3:28pm
UPDATED : Thursday, 07 August, 2014, 5:30am

Well before settling a long-running oil price manipulation case this week, global oil trader Arcadia had shrunk itself to a leaner operation with an almost singular focus: trading the very contracts US regulators accused them of rigging.

Arcadia, a London-based trading firm founded in 1988 and bought eight years ago by Norwegian shipping billionaire John Fredriksen, does not expect restrictions agreed with the US Commodities Futures Trading Commission (CFTC) to disrupt its new strategy focused mainly on trading US-based crude, said Paul Adams, chief executive of the US-based Parnon arm.

The two traders allegedly at the centre of the trading scheme, who like Adams were former star traders at oil major BP, continue working for the company, he said. And Parnon still has years to run on oil storage tank leases in Oklahoma, the focal point for the commission's inquiry.

"The case has obviously been a concern hanging over us, and we're glad to get it resolved," Adams said in his first interview after Monday's US$13 million settlement with the CFTC ended a high-profile case launched in 2011.

Arcadia, Parnon and the two traders did not admit or deny wrongdoing in the settlement. They agreed to a number of limits, including a cap on how much physical crude they can hold in the tanks, as well as tougher record-keeping and reporting.

"The terms of the settlement don't constrain the business as we are currently operating," he said.

Once known as a leading trader of West African crude and a major exporter from Yemen and South Sudan, Arcadia has shrunk to a group of just 30 to 35 traders based almost wholly in London's exclusive Knightsbridge area, down from a peak of more than 100 spread across over half a dozen offices worldwide.

The business was scaled back after a strategic review at the start of last year, at a time when global commodity trading profits from New York to Geneva were under mounting pressure from diminished volatility and tougher regulations.

"The returns from Arcadia's traditional business in Africa and Asia no longer justified the risks involved and capital it demanded," Adams said. "The changes we have made to our business during the past 18 months are not related to the CFTC's investigation. I must separate the two."

Arcadia and the commission began talks to settle the lawsuit in March, nearly three years after the US derivatives regulator alleged that oil traders James Dyer and Nick Wildgoose at Parnon had made about US$50 million over just a few short months, devising a scheme to make the US oil market appear artificially tight in early 2008.

The traders would later dump their physical crude holdings to benefit opposing positions they had taken in oil future markets.

The size of the settlement is unlikely to trouble Fredriksen, a former oil trader nicknamed "Big Wolf", whose near US$15 billion fortune ranks him 72nd in Forbes' annual global rich list. Arcadia's profits are closely guarded.

The majority of Arcadia's Asia-based trading team moved to London-listed mining and trading giant Glencore Xstrata in September last year. More traders left last month to join Azeri state oil firm Socar's planned London office.

Arcadia's remaining traders will only trade physical oil in North America and a small amount of crude in Britain's North Sea, the two most closely linked markets to international oil futures.

Most of the traders are now based in the firm's London offices. Over the past year, the firm had closed its other offices in Switzerland, Dubai, China and Singapore.

Illustrating the importance of the two former BP traders to their plans, the firms' only offices outside London are now in San Diego, California and Brisbane, Australia, where Wildgoose and Dyer have made their respective homes.

The CFTC's case centred on Arcadia and Parnon's 2008 activities in Oklahoma, the delivery and settlement point for US oil futures contracts.


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