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Amaranth, Enforcement File Settlement at FERC

A joint offer of settlement was filed last Monday at FERC resolving charges that collapsed hedge fund Amaranth Advisors LLC, affiliates and two former natural gas traders manipulated gas trading activity in the futures market.

"The participants state that...they filed a joint offer of settlement, which if approved by the Commission, will resolve all claims asserted against all respondents" in the "proceeding before the Commission and related appellate proceedings," wrote Chief Administrative Law Judge (ALJ) Curtis L. Wagner of the Federal Energy Regulatory Commission (FERC). Details of the settlement offer were not disclosed.

"Participants further state that...all participants have seen and agreed to the joint offer of settlement," he said.

As a result, Wagner said he agreed with "participants that suspension of all procedures in this case will enable presiding Judge [Carmen A.] Cintron to consider and certify the joint offer of settlement to the Commission and will allow the Commission time to consider the joint offer of settlement." If Cintron certifies the offer of settlement, FERC has the option of approving or rejecting it in full or in part.

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 (CFTC) against the hedge fund and Brian Hunter, who directed the fund's natural gas trading. The CFTC charges still are pending in court.

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.

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