A federal judge in Washington, DC has denied a request of a former trader with Amaranth Advisors LLC to enjoin FERC from proceeding with an enforcement action against him for alleged manipulation of the natural gas market.
Brian Hunter, an ex-trader with the failed hedge fund, challenged FERC's 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 and had encroached on the jurisdictional territory of the Commodity Futures Trading Commission (CFTC) in the futures market.
U.S. District Judge Richard J. Leon rejected Hunter's argument that the court's failure to enjoin FERC would result in "irreparable harm" to him. Hunter contends that FERC's enforcement action is frustrating his ability to get his new business venture, Solengo Capital Advisors ULC, off the ground.
"Hunter's contention...that enjoining FERC's action, even while the CFTC's [enforcement] action remains pending, will alleviate the multiple harms threatening his fledgling enterprise (i.e., employee departures, withdrawal of prospective investors and inability to register due to a lack of directors) does not withstand scrutiny," said Leon. The CFTC filed a similar complaint against Amaranth and Hunter for attempted gas market manipulation in late July, one day before FERC brought its enforcement action (see Daily GPI, July 26).
Similarly, the judge noted that "it is not possible from the record before this court to determine whether enjoining FERC will halt in any way the damage to Hunter's [business] reputation since the CFTC complaint is based on similar allegations."
In addition, Leon dismissed the injunction request because he said it was "unlikely" that Hunter would succeed on the merits of his case. He further noted that an injunction was not found to be in the public interest.
Hunter sought the injunction last July. But he and FERC asked Leon to delay his decision until a federal court in New York ruled on Amaranth Advisors' request to bar FERC from proceeding with an enforcement action against it until the parallel complaint brought by the CFTC was resolved. The court denied Amaranth's plea in early November (see Daily GPI, Nov. 5).
In seeking the injunction, Hunter claimed that FERC exceeded its jurisdiction when it brought the enforcement action against him for alleged manipulative activities in the natural gas futures markets. He argued that only the CFTC, not FERC, has authority over the futures markets. Hunter said FERC's jurisdiction is limited solely to the physical gas markets. But FERC argued otherwise, saying it has jurisdiction when activities in the futures market affect prices in the physical gas market over which it has exclusive jurisdiction.
FERC in late July issued a show cause order that 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 (see Daily GPI, July 27). 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 Amaranth hedge fund was liquidated in late 2006 after losing $6 billion in natural gas trades. In addition to the FERC and CFTC actions, the Securities and Exchange Commission subpoenaed former Amaranth officials to testify about the hedge fund's activities in the futures market.
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