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Amaranth Seeks to Settle Natural Gas Manipulation Charges

Collapsed hedge fund Amaranth Advisors LLC, seven affiliates and former trader Matthew Donohoe last Thursday submitted a joint offer of settlement to FERC to resolve all claims that they manipulated the market to influence natural gas futures prices.

Terms of the settlement in the long-standing enforcement case were redacted. Amaranth asked that the settlement terms remain closed to the public until the Federal Energy Regulatory Commission (FERC) acts on it [IN07-26].

Amaranth also requested a waiver so that the settlement could be submitted directly to the Commission rather than going through an administrative law judge (ALJ), and that the settlement "be given all possible expedition" by FERC.

Former Amaranth trader Brian Hunter is not a party to the settlement, which was negotiated with FERC's enforcement staff. FERC granted a request for Amaranth settling parties to be severed from the proceeding, leaving Hunter as the sole respondent, and for the procedural schedule of their case to be stayed, pending consideration of the settlement.

This is not the first settlement proposed by Amaranth. In mid-February FERC rejected an uncontested joint settlement entered into by its own Office of Enforcement staff with Amaranth, its affiliates and former natural gas traders (see NGI, Feb. 16).

"Having considered the gravity of the alleged violations, the potential remedies for those violations if proven to have occurred and the remedies offered in the settlement, the Commission concludes that the settlement is not in the public interest," the Commission said at the time.

Commission ALJ Carmen Cintron had certified the settlement offer to FERC in early December, saying approval was in the public interest (see NGI, Dec. 8, 2008). Details of the settlement were not disclosed at the request of the participants.

The news of a possible Amaranth settlement comes less than two weeks after Dallas-based Energy Transfer Partners LP, in a parallel case, informed the Commission that it and enforcement staff were involved in settlement negotiations to resolve charges that it manipulated physical natural gas prices at the Houston Ship Channel and Waha trading hub on various dates from December 2003 through December 2005 (see NGI, July 13).

Amaranth and others are accused of manipulating the New York Mercantile Exchange natural gas futures contract, which settles at the Henry Hub and has a direct bearing on 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 is seeking civil penalties and disgorgement of profits totaling $291 million for Amaranth's activities that occurred in February, March and April 2006.

An appeal of FERC enforcement orders involving Amaranth and affiliates still is pending with the U.S. Court of Appeals for the District of Columbia Circuit. "This appeal would be resolved by this settlement, if approved by the Commission," Amaranth told FERC.

Also pending in that court is Hunter's petition for review of a district court's rejection of his request for a temporary restraining order and preliminary injunction to enjoin the Commission from exercising its enforcement action over him.

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