Quite incredible -- as reported in The New York Times last week which quotes Reuters -- that Chesapeake Energy's chief executive Aubrey K. McClendon, while acting as Chesapeake's Chairman and CEO had run a "hedge fund that traded commodities, including natural gas futures, for at least four years while he led Chesapeake's vast expansion of gas drilling" and oversaw his companies' hedging activities in oil and gas futures. The $200 million fund, Heritage Management Company, used Chesapeake's Oklahoma City headquarters as its mailing address.
Certainly nice work if you can get it. And that's the rub, according to our heavily lobbied Commodity Exchanges and Wall Street-influenced law -- commodity trading is more loosely regulated than equity markets. Referring to McClendon's catbird seat at the gaming table Morningstar analyst Mark Hanson was quoted in the article picked up from Reuters, "If he knows Chesapeake is to ramp up or curtail production, he could enter into positions in his hedge funds that could benefit from that." Had it been the stocks and bonds of his company trading on insider information, the SEC would have made an appearance bearing handcuffs.
Here we have this enormous dichotomy between insider trading in stocks and bonds, and commodities. The difference being, with commodity trading most everyone is impacted. Insider trading in oil and gas, as Chevron showed us wherein Chevron traders held oil and product contracts for 27 million barrels of oil and trading profits (remember, not producing and selling, but trading alone) for the first seven months of 2011 alone of over $260 million -- profits that came from trades, that one can well assume were not meant to push prices of their core products down, and thus those trading profits were underwritten by the rest of us in higher gasoline, heating oil, diesel prices.
As I said, it's good work if you can get it. And it is long overdue that commodities trading oversight and regulation be put on the same playing field as trading in stocks and bonds, with the same level of enforcement -- both civil and criminal -- as those that apply to insider trading under our securities laws.