In the latest in a long series of gas market manipulation cases, former Williams trader Brion Scott McKenna, 36, of Houston, TX, pleaded guilty on May 20 to one count of manipulating the price of natural gas in interstate commerce in violation of the Commodity Exchange Act, according to the U.S. Attorney's Office for the Northern District of California.
McKenna's sentencing is scheduled for Nov. 18. He could get up to five years in prison and a fine of $500,000. McKenna also reached a settlement with the Commodity Futures Trading Commission (CFTC) without admitting or denying the allegations against him. He agreed to cooperate fully with the CFTC and other federal authorities in any future investigation, and as part of the settlement order the CFTC revoked McKenna's registration for three years.
In the settlement with the U.S. attorney, the former basis trader for Williams' East Desk admitted that between mid-September 2000 and June 30, 2002, he conspired with others at Williams Energy Marketing & Trading to report fictitious trades to two industry newsletters, Inside FERC's Gas Market Report and NGI's Bidweek Survey, which publish price indexes, in order to increase Williams' profits.
"This is the second plea by a Williams trader to the manipulation of natural gas index prices," said U.S. Attorney Kevin V. Ryan. "This plea confirms that Williams traders conspired to manipulate natural gas prices in the West Coast, East Coast, Gulf Coast and Rocky Mountain regions of the country." McKenna's guilty plea follows a similar plea bargain in December by Thomas J. Pool, 31, of Tulsa.
McKenna's agreement describes the method by which Williams traders crafted and submitted the false data. At the end of each bidweek, McKenna would review the daily position reports from the East Desk to determine which positions would benefit from a high or a low index price. He would then enter fabricated trades in an Excel spreadsheet, which was routinely circulated among the Williams traders.
"My predecessor taught me how to complete and submit the spreadsheet with fictitious trades designed to benefit Williams' positions," McKenna said in his plea agreement. "Finally I would fax or email the completed spreadsheet to Inside FERC and other publications. For the false trades I included in the spreadsheet, the reported prices and volumes did not represent any actual trades...
"On at least one occasion, when either my reported trades or those of others were questioned by Inside FERC, I conceded the fact that these reported trades were fictitious."
McKenna also said that he's certain that his attempts at market manipulation were successful. "I have reviewed Inside FERC's calculations for its February 2001 index prices and I have concluded that I successfully manipulated the index prices of natural gas on Feb. 1, 2001 at the following locations: Columbia Gas Transmission Corp. pipeline at Appalachia; Florida Gas Transmission Co. pipelines at Zones 2 and 3; Natural Gas Pipeline Co. of America pipeline at Louisiana; Transcontinental Gas Pipe Line Corp. at Zone 2; and Transco Zone 6 Market Center."
The U.S. attorney said McKenna's guilty plea is the result of a two-year investigation by agents of the Federal Bureau of Investigation with assistance from CFTC staff.
In July 2003, Williams paid a $20 million fine to the CFTC to settle charges of false price reporting and market manipulation. Over the last two years, the gas industry has completely restructured the way in which data and market information are provided to publishers in order to guard against further manipulation. Data and information now are submitted by company officials under agreements that give publishers the right to provide the information in the case of legal investigations.
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