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ALJ Hearing Ordered for Amaranth Manipulation Case

July 21, 2008
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FERC last Thursday ordered an administrative law judge (ALJ) hearing to determine whether certain natural gas futures trading activities by Amaranth Advisors LLC, seven affiliates and two former traders violated the agency's anti-manipulation regulations.

The order by the Federal Energy Regulatory Commission (FERC) requires an ALJ to convene a prehearing conference within 20 days. Amaranth Advisors, affiliates and the ex-traders are accused of manipulating the New York Mercantile Exchange (Nymex) natural gas futures contract, which settles at the Henry Hub and ultimately determines physical gas prices (see NGI, July 30, 2007).

FERC said it ordered a hearing because there are material facts in dispute that cannot be resolved on the basis of the written submissions received to date from the Commission's enforcement staff and the Amaranth businesses and traders. The presiding ALJ would make a recommendation to FERC, which then would issue a final decision [OM07-26].

The Commission said it has resolved certain threshold legal issues pertaining to the investigation -- that it has jurisdiction under the Natural Gas Act (NGA) to impose penalties for manipulative trading of Nymex gas futures contracts that have a clear and direct effect on physical natural gas sales, and that it can reasonably exercise personal jurisdiction over former Amaranth trader Brian Hunter and affiliate Amaranth International Ltd. for purposes of setting the matter for hearing to resolve the disputed facts related to that jurisdiction.

Both Hunter and former trader Matthew Donohoe sought to enjoin FERC from bringing enforcement actions against them, but lost in court last December (see NGI, Dec. 17, 2007).

FERC said it also has ruled that the term "any entity" in its anti-manipulation rule includes individual persons, that a false statement is not required to trigger potential liability under the rule, and that acting with reckless disregard to jurisdictional transactions is sufficient to trigger potential liability.

And similar to its previous rulings in the Energy Transfer Partners LP manipulation case [IN06-3], the Commission said that de novo review in a federal district court is not allowed before assessment of civil penalties under the NGA for violation of its anti-manipulation rule (see NGI, March 24). The order also addressed all pending motions to dismiss and motions for summary disposition.

In setting the matter for hearing, FERC denied all pending requests for rehearing of the July 2007 show cause order, which alleged that Amaranth and traders manipulated Commission-jurisdictional physical gas prices when they engaged in illegal activity in Nymex natural gas futures in February, March and April 2006. The show cause order proposed civil penalties totaling $458 million, and called for the disgorgement of $291 million in profits.

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