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FERC, Amaranth Nearing Settlement of Charges

Chief Administrative Law Judge (ALJ) Curtis L. Wagner last Monday suspended proceedings in a major enforcement case involving Amaranth Advisors LLC, affiliates and two former natural gas traders so that FERC staff and the parties can further pursue settlement negotiations on charges of allegedly manipulating natural gas prices.

"The participants state that they have engaged in substantial negotiations to settle this proceeding and have reached an agreement in principle on key terms that would resolve all matters in dispute in this proceeding as to all respondents," Wagner wrote [IN07-26].

"The participants assert they will require at least two weeks to conclude negotiations, memorialize the agreement in writing and submit the settlement documents" to the Federal Energy Regulatory Commission (FERC). "The chief judge agrees with the participants that a temporary suspension of all procedures in this case will enable the participants to focus solely on settlement without the distraction of having to prepare pre-filed testimony and issuing and responding to discovery requests."

FERC in mid-July ordered an ALJ hearing to determine whether certain gas futures trading activities by Amaranth Advisors, affiliates and ex-traders violated the agency's anti-manipulation regulations (see NGI, July 21). Capping an investigation that began in May 2006, the Commission issued a show cause order in July 2007, accusing Amaranth and others of manipulating the New York Mercantile Exchange (Nymex) natural gas futures contract, which settles at the Henry Hub and ultimately determines physical gas prices over which FERC has jurisdiction (see NGI, July 30, 2007).

Amaranth and its one-time traders have challenged the charges at FERC and in the courts.

The Commission sought to assess civil penalties and require the disgorgement of profits totaling $291 million for Amaranth's activities in the Nymex gas futures market in February, March and April 2006.

Amaranth stands accused of committing 219 violations over the three-month period. The action against Amaranth marked the first prosecution of market manipulation by FERC using its expanded enforcement authority under the Energy Policy Act of 2005, and also was the first time the Commission proposed maximum civil penalties.

The FERC charges against Amaranth followed the filing of a civil complaint for attempted manipulation by the Commodity Futures Trading Commission against the hedge fund and Brian Hunter, who directed the fund's natural gas trading.

In July 2006 the Amaranth hedge fund was riding high -- it had assets of $9.2 billion, making it one of the largest hedge funds in the world. However, in August and September of that year the fund sustained losses of $6 billion or more and ultimately collapsed.

<>In another development, a New York State judge ruled that Amaranth Advisors and affiliate Amaranth LLC could pursue their lawsuit against JPMorgan Chase & Co. for allegedly derailing the failed hedge fund's efforts to mitigate losses from natural gas trades in 2006. Judge Richard B. Lowe III of the Supreme Court of the State of New York said the Amaranth affiliates could proceed with their claim of breach of contract against JPMorgan, but it dismissed several other claims against the investment banker.

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