FERC out of bounds fining natural gas trader: CFTC

Brian Hunter allegedly manipulating the natural gas futures market in 2006

Natural gas burner Natural gas burner

April 26 (Bloomberg) -- A former natural gas trader at Amaranth Advisors LLC is being backed by the U.S. Commodity Futures Trading Commission in a court challenge to a $30 million fine imposed by the Federal Energy Regulatory Commission.

The CFTC said in a filing yesterday in the U.S. Court of Appeals in Washington that FERC lacks authority to punish Brian Hunter for allegedly manipulating the gas futures market in 2006.

“This court and others have repeatedly held that the CFTC’s exclusive jurisdiction precludes other federal agencies from asserting jurisdiction over futures trading on CFTC- regulated markets,” the commission said.

Hunter sued FERC in December after the agency ordered him to pay $30 million in penalties, ruling he manipulated the price of contracts on the New York Mercantile Exchange in 2006 while boosting the value of financial derivatives.

Hunter, according to court documents, dumped large numbers of contracts within the last 30 minutes of trading in an effort to drive down the closing price of the futures. The move benefitted Amaranth’s larger opposing positions in off-exchange derivatives, according to regulators.

Billions in Losses

Amaranth lost $6.6 billion betting on the price of natural gas. The Greenwich, Connecticut-based hedge fund that once controlled half of the gas market collapsed in 2006. In August 2009, the company agreed to pay $7.5 million to end U.S. cases brought by FERC and the CFTC over price manipulation.

On April 11, a federal judge in Manhattan approved a $77.1 million settlement by Amaranth to resolve a class-action brought by traders.

FERC filed an administrative case against Hunter the day after the CFTC brought a civil enforcement against him in federal court in Manhattan over the same trading. FERC alleged Hunter violated anti-manipulation provisions of the Natural Gas Act, which the agency said it has the authority to enforce.

“FERC is just wasting taxpayer dollars by trying to take over a case that belongs with the CFTC,” said Hunter’s lawyer Andrew Lourie of Kobre & Kim LLP in Washington.

The CFTC’s civil case against Hunter was put on hold in January due to the FERC court challenge in Washington, according to court records. Argument hasn’t been scheduled in the Washington case.

Tamara Young-Allen, a FERC spokeswoman, said the agency doesn’t comment on pending litigation.

The CFTC claims FERC’s assertion of jurisdiction clashes with its own authority to oversee futures trading.

Congress gave the CFTC “exclusive jurisdiction among federal regulatory agencies not only to set standards for on- exchange futures trading, but also to determine the lawfulness of such futures trading,” the commission said in court papers.

The case is Hunter v. Federal Energy Regulatory Commission, 11-1477, U.S. Court of Appeals for the District of Columbia (Washington).

Bloomberg News

--With assistance from Brian Wingfield in Washington. Editors: Fred Strasser, Peter Blumberg

Copyright 2014 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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