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Ex-Amaranth Trader Loses Another Round in Court

Citing lack of jurisdiction, a federal district court judge in Washington, DC, last Wednesday rejected a request of a former trader with Amaranth Advisors LLC for a declaratory ruling that FERC's assertion of authority in the natural gas futures markets violates a number of federal laws.

Brian Hunter, an ex-trader with the failed hedge fund, challenged the Federal Energy Regulatory Commission's (FERC) jurisdiction to sanction him for alleged manipulative activities in the gas futures market, claiming that the agency had overstepped the authority granted to it by Congress in the Energy Policy Act of 2005 (EPAct) and had encroached on the jurisdictional territory of the Commodity Futures Trading Commission (CFTC) in the futures market. FERC made the allegations of market manipulation in an order to show cause (OSC), which was issued in July 2007 (see NGI, July 30, 2007).

"Hunter seeks a declaration from this court that FERC's 'assertion of jurisdiction over trading of energy commodities for future delivery' conflicts with the EPAct, the NGA [Natural Gas Act] and the Commodity Exchange Act and that FERC is 'enjoined from proceeding with any enforcement action against plaintiff.' He argues that this claim is not a challenge to the OSC, but rather a challenge to FERC's determination of jurisdiction. FERC...argues that Hunter's declaratory judgment action essentially constitutes a challenge to FERC's assertion of jurisdiction via the OSC, and as such must be brought in the court of appeals. I agree," said U.S. District Judge Richard Leon in his ruling.

"Although he [Hunter] concedes, in essence, that judicial review of a FERC order must be brought in the circuit courts, he attempts to recast his declaratory judgment claim as a challenge to the scope of FERC's jurisdiction as opposed to a challenge to its OSC. It doesn't work. Hunter's declaratory judgment claim is so intertwined with the OSC and accompanying enforcement proceedings that it must be construed as an attack on the OSC itself," Leon wrote.

"And since the court of appeals has exclusive jurisdiction over challenges to orders issued by FERC...this court lacks jurisdiction over Hunter's claim," the judge said. "Even if this court had jurisdiction, FERC's actions are neither sufficiently final nor ripe to warrant review at this juncture...Accordingly, I will not review FERC's exercise of jurisdiction through a request for a declaratory judgment."

Last December Leon rejected Hunter's plea to enjoin FERC from proceeding with its enforcement action against him for allegedly manipulating the natural gas futures markets in 2006 (see NGI, Dec. 17, 2007).

FERC's July 2007 show cause order alleged Amaranth, several affiliates and former traders (including Hunter), by manipulating natural gas futures on the New York Mercantile Exchange (Nymex), influenced the price in the physical gas markets. The agency said many participants in physical gas markets use the settlement price of the Nymex gas futures contract to determine the price of FERC-jurisdictional physical gas transactions. The CFTC filed a similar complaint against Amaranth and Hunter for attempted gas market manipulation one day before FERC brought its enforcement action (see NGI, July 30, 2007).

The Amaranth hedge fund was liquidated in late 2006 after losing $6 billion on natural gas trades.

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