The enforcement action against fallen hedge fund Amaranth Advisors LLC, some sources say, has apparently spawned either a jurisdictional dispute or just a "concern" between the two federal agencies involved in energy regulation -- the Commodity Futures Trading Commission (CFTC) and the Federal Energy Regulatory Commission (FERC).
CFTC staffers met with Senate committee staff on Sept. 7 to discuss the Amaranth case. Some Capitol Hill staffers and reliable regulatory sources say the CFTC informed the committee staff that the agency plans to submit a legal brief in which it will support Amaranth's position that FERC lacks jurisdiction to penalize the Greenwich, CT-based hedge fund for alleged manipulation of natural gas prices.
The legal brief reportedly is due to be submitted on Sept. 21 in the U.S. District Court for the Southern District of New York, where the CFTC filed its complaint against Amaranth for attempted manipulation of the gas futures market. But other reliable sources told NGI that the CFTC, which routinely meets with committee staffers, was there to simply lay out the legal options in the Amaranth case.
"From what we understand, the CFTC is questioning whether FERC has jurisdiction in the Amaranth case," said one insider. This is "obviously a little disturbing," as well as "worrisome," he said.
"We heard these rumblings that CFTC staffers were in to see staff on the Hill," and said they "rethought" their position on whether FERC has jurisdiction to bring enforcement action against Amaranth, the source said.
Bill Wicker, a spokesman for the Senate Energy and Natural Resources Committee, confirmed that the CFTC staff met with the committee. He said published reports about the CFTC's stated intention not to back FERC in the Amaranth case were "pretty accurate." The CFTC also met with staff of the Senate Agriculture Committee, which has jurisdiction over the agency.
The CFTC was silent about the reports of a jurisdictional dispute. "I don't think we have any comment," said Doug Leslie, deputy director for external affairs.
Another source, who asked to remain anonymous, said the CFTC did not tell committee staffers that it planned to oppose FERC jurisdiction in the Amaranth case. The CFTC "never said that on Capitol Hill," she noted. "I think someone is getting hysterical on Capitol Hill."
The CFTC gave the Senate committees the "legal lay of the land" with respect to the Amaranth case, the source said. "The briefing explained the legal issues A through Z...It wasn't said definitively that this is happening," she noted.
If anything, the source said it was "very likely" that the CFTC would ask the court in the legal brief not to rule on the question of FERC's jurisdiction.
The only question remaining is why it takes two federal agencies, and double the taxpayer dollars, to prosecute essentially the same case. Couldn't one agency carry the ball and the other advise and consent?
In late July, the CFTC brought a civil enforcement action in federal court in New York against Amaranth Advisors LLC, Amaranth Advisors (Calgary) ULC and Brian Hunter, a former gas trader with the firm, alleging that they schemed to manipulate the gas futures market in 2006 in violation of the Commodity Exchange Act. The CFTC complaint alleged that Amaranth and Hunter "intentionally and unlawfully attempted to manipulate the price of natural gas futures contracts on the [New York Mercantile Exchange] on Feb. 24 and April 26, 2006." The agency is seeking permanent injunctive relief and civil penalties (see NGI, July 30).
One day after the CFTC action, FERC issued a show cause order against Amaranth Advisors, affiliates and two former traders, Hunter and Matthew Donohoe, accusing them of manipulating the Nymex natural gas futures contract, which settles at the Henry Hub and influences physical gas prices. The hedge fund and its former traders face penalties and disgorgement of profits totaling $291 million if they are unable to successfully dispute the charges by October.
FERC has conceded that the CFTC has exclusive jurisdiction over Nymex futures contracts. But FERC, in justifying its action against Amaranth, argued that it has authority to act when manipulation of futures prices affect the prices paid for natural gas in the physical markets, over which it has exclusive jurisdiction.
As a result of its enhanced enforcement powers under the Energy Policy Act of 2005, FERC has the authority to act in the Amaranth case, said Commissioner Marc Spitzer. "We at FERC are simply interested in fulfilling the congressional mandate. We're simply acting in that vein...We're not trying to take jurisdiction from another entity," he told NGI.
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