The U.S. Attorney's Office for the Southern District of New York recently launched a criminal prosecution in connection with “a scheme to commit fraud in the carbon markets,” specifically that a company and its executives “fraudulently obtain[ed] carbon credits worth tens of millions of dollars and fraudulently secur[ed] an investment of $100 million.” While a major prosecution for significant fraud by the SDNY constitutes a typical activity for that office, the fact that it concerns the carbon markets is significant and noteworthy, and suggests a degree of regulatory and enforcement attention to that particular market. Although the details of the scheme--that the defendants “manipulated data to make it appear as if certain of the [] Projects were far more successful in reducing carbon emissions than was actually the case”--describe a variation of garden variety fraud (e.g., lying about the success of a company in order to increase revenues and valuation), the subject matter--the carbon markets--is novel and unusual.

The fact that the prosecution focused on the carbon markets also suggests the degree to which the carbon markets have been relatively unregulated to date. A number of regulatory authorities around the world are now trying to impose discipline upon an unwieldy and unrestrained market, and this prosecution could be viewed as emblematic of and constituting part of those efforts.