John Special, a self-described gas futures trader claiming to have been damaged by Amaranth Advisors LLC’s alleged manipulation of natural gas prices, has filed a class action lawsuit against the failed hedge fund and several others, including former Amaranth trader Brian Hunter.
The allegations detailed in Special’s lawsuit, which was filed in U.S. District Court for the Southern District of New York, are much the same as those previously filed by the Commodity Futures Trading Commission (CTFC) and FERC, and in another class action suit, also filed in New York’s Southern District.
In the latest lawsuit, Special claims Amaranth gas traders Hunter and Matthew Donohue, JP Morgan Chase & Co., New York Mercantile Exchange (Nymex) floor trader James DeLucia and others worked together on several illegal futures trades in 2006. According to the lawsuit, Hunter and the other defendants “intentionally drove up the price of Nymex natural gas futures contracts as part of a trading scheme to artificially increase the ‘spread’ between the prices of Nymex natural gas futures contracts for delivery of natural gas during the summer months and those for delivery during the winter months in order to benefit Amaranth’s Nymex and over-the-counter natural gas trading positions.” They manipulated the settlement price of prompt-month Nymex natural gas futures contracts by selling “an extraordinary amount of such contracts” on the final day of trading, Special alleged.
“Amaranth engaged in such conduct with the purpose and effect of driving down the settlement price of the prompt-month Nymex natural gas futures contract in order to benefit their natural gas positions, including natural gas swaps, held on electronic energy exchanges, such as the Intercontinental Exchange (ICE), whose value increased as a direct result of the decrease in the settlement price…for every dollar lost on its sales of its Nymex natural gas futures positions, Amaranth would gain multiple dollars on its natural gas positions on ICE and other electronic energy exchanges.”
Amaranth and JP Morgan Chase are already the targets of a class action suit, filed in the same District Court by Roberto E. Calle Gracey, to recover damages for allegedly perpetrating a fraud on the natural gas futures market prior to Amaranth’s collapse (see Daily GPI, July 17). That lawsuit was brought on behalf of all persons who purchased or held Nymex natural gas futures contracts between Feb. 23, 2006 and Sept. 20, 2006. The number of potentially affected persons is “in the thousands,” the lawsuit said.
On July 26, the Federal Energy Regulatory Commission (FERC) issued a show cause order calling for Amaranth to be assessed civil penalties and be required to disgorge profits totaling $291 million for allegedly manipulating the price of Commission-jurisdictional transactions by trading in the Nymex natural gas futures contract in February, March and April 2006 (see Daily GPI, July 27). FERC has given Amaranth until Sept. 28 to respond to those charges (see Daily GPI, Aug. 9). The CFTC has leveled a civil complaint against Amaranth for attempted manipulation of the natural gas futures market, naming Hunter, who directed the fund’s natural gas trading (see Daily GPI, July 26).
Amaranth’s past trading activities have also sparked a lawsuit from the San Diego County Employees Retirement Association and a probe by the Senate Permanent Subcommittee on Investigations, which found that Amaranth engaged in “excessive speculation” that ultimately affected the natural gas prices paid by consumers last winter (see Daily GPI, June 26).
Hunter has asked that the FERC case be dismissed, arguing that FERC lacks standing because its regulatory jurisdiction covers only physical natural gas trading, not futures trading. FERC has said it has jurisdiction because futures market activities affect the Nymex settlement price, which determines the price of a substantial volume of jurisdictional gas sales, notably in the eastern, midwestern and Gulf Coast markets. A decision is pending on Hunter’s motion for an injunction and declatory judgment that FERC lacks the statutory authority to pursue the pending enforcement action.
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