FERC Chairman Jon Wellinghoff last Wednesday upheld an administrative law judge's (ALJ) decision to dismiss a former Amaranth natural gas trader's request for a mistrial. The ALJ hearing into whether Brian Hunter manipulated natural gas futures prices ended earlier this month.
In a nearly 1,000-page interlocutory appeal filed on Sept. 3, the day after his ALJ hearing ended, Hunter appealed to the Federal Energy Regulatory Commission (FERC) to overturn ALJ Carmen A. Cintron's decision denying his motion for mistrial; overruling his objection to FERC staff's offer of evidence of unjust profits; and admitting into evidence over Hunter's objection a former party's prefiled expert testimony rather than allowing Hunter to hire his own expert.
In rejecting his appeal, Wellinghoff said "Brian Hunter has failed to demonstrate extraordinary circumstances...that would make prompt Commission review of the contested rulings necessary to prevent detriment to the public interest or irreparable harm to any person. Accordingly the chairman will not refer to the full Commission the Sept. 3 interlocutory appeal submitted by Brian Hunter" for consideration.
Hunter's attorneys argued that "extraordinary circumstances exist warranting prompt review and reversal of Judge Cintron's ruling because she allowed into record evidence of Amaranth's unjust profits, despite the fact that just a short time earlier, after the settling parties had been dismissed from the case, [FERC] staff declared in open court that unjust profits with respect to Hunter was 'gone from the case' and thereafter removed it from the statement of issues filed with the court."
The settling parties, which were dismissed from the case, included failed hedge fund Amaranth Advisors LLC, seven affiliates and former trader Matthew Donohoe. In mid-August, just before the start of Hunter's ALJ hearing, the parties reached separate settlements with FERC and the Commodity Futures Trading Commission (CFTC) .
Hunter was not a party to the settlements. He had been the head gas trader at Amaranth, which made a number of wrong-way trades that led to more than $6 billion in gas trading losses and the collapse of the hedge fund in September 2006 (see NGI, Sept. 25, 2006).
The FERC and CFTC settlements required all parties, other than Hunter, to pay a total of $7.5 million to resolve claims that they manipulated or attempted to manipulate the New York Mercantile Exchange natural gas futures contract, which settles at the Henry Hub and has a direct bearing on physical gas prices over which FERC has jurisdiction (see NGI, Aug. 17).
"Judge Cintron not only allowed [FERC] staff to sandbag Hunter and reinject unjust profits back into the case during trial, but refused to even allow Hunter an opportunity to hire his own expert to respond to staff's expert. Instead, Judge Cintron merely adopted the preposterous suggestion of staff that the court admit the prefiled testimony of a settling party's on behalf of Hunter, over Hunter's objection," his attorneys said.
"Hunter has been denied due process in connection with his ability to defend himself. As a result this entire proceeding has been tainted irrevocably and dismissal is warranted. In the alternative, all evidence of unjust profits by Amaranth or Hunter offer by staff should be stricken."
Prior to settling with FERC, Amaranth, its affiliates and former traders faced the prospect of disgorging unjust profits of $59 million. Hunter faces up to $30 million in penalties if the manipulation claims are upheld by the Commission.
Hunter's fate rests in the hands of Cintron and FERC. Cintron is to issue an initial decision, recommending to FERC that the charges be sustained or that some or all of them be dropped. FERC has the option to accept or reject the ALJ's decision in full or in part.
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