Williams, EnCana, Enserco Pay Millions to Settle Market Manipulation Charges
The U.S. Commodity Futures Trading Commission (CFTC) last week handed U.S. taxpayers a total of $43 million from civil monetary penalties from Williams, EnCana and Enserco for settling charges of attempted gas market manipulation and false price reporting to gas index publications. In the settlements, the companies neither admitted nor denied the findings in the CFTC's orders.
Williams and EnCana each paid $20 million fines and Enserco paid $3 million for "knowingly delivering false trade information to reporting firms" -- conduct that violated the Commodity Exchange Act (CEA) -- in an effort to benefit their own trading positions.
The CFTC found that from at least May 2000 through at least June 2002, Golden, CO-based Enserco Energy Inc., the unregulated marketing subsidiary of northern Rockies utility company Black Hills Corp., reported false trade information to certain reporting firms. According to the order, three former Enserco traders from its Colorado and Canadian offices routinely delivered separate, coordinated reports to a reporting firm, for the same delivery points, to increase significantly the likelihood that they could affect the published index prices.
"The traders attempted to capitalize on the fact that at least one reporting firm accepted reports from both offices for the same delivery points, unaware that the traders were employees of the same company," the CFTC said in its order.
"They coordinated their reports in view of their existing positions as exemplified by the following taped telephone conversation:
- Trader A: Okay. Let's fire away at Sumas.
- Trader B: So we want -- you didn't buy enough [index-based transaction], so you want it high, right?
- Trader A: That's correct. That's correct. So I'm going to go to 19-
- Trader B: Nineteen and a half is my mid. I'm going a high of 20 bucks too.
- Trader A: Okay.
- Trader B: And SoCal we want low.
- Trader A: Yeah.
Black Hills CEO Daniel P. Landguth said in a statement that his company has since changed its risk management policies in order to prevent similar employee abuses. The company said it does not believe inaccurate reporting to trade publications affected the financial accounting treatment of any transaction recorded in its books and records.
The settlement "culminates a regrettable episode in our company's longstanding history of ethical business conduct. We have a corporate culture that practices the highest degree of business ethics and integrity. We do not tolerate any violation of our code of conduct, in any of our businesses -- period," Landguth said.
"Once our executive team became aware of the issues, we moved swiftly and thoroughly with our own investigation and cooperated fully with federal authorities," he added. "Our conscientious effort was noted in the CFTC order."
The CFTC said the much lower settlement fee paid by Enserco -- $3 million compared to the $20 million each paid by Williams, EnCana and earlier this summer by El Paso -- was the result of the level of cooperation it received and the actions taken by Enserco and Black Hills to correct the abuses and make sure they do not recur.
"The Commission would have sought a significantly higher civil penalty but for its recognition that the company stepped forward and provided exceptional cooperation," said Enforcement Deputy Director Richard Wagner.
The CFTC said in less than three months Enserco "swiftly and aggressively investigated its trade reporting activities and provided DOE with detailed reports of its analyses and findings as well as transcriptions of over one hundred relevant telephone recordings and all other details related to its internal investigation without asserting claims of attorney-client privilege or attorney-work product or requiring a limited waiver agreement." The CFTC said it also took consideration of the small size of Enserco's trading operation.
Gregory Mocek, director of enforcement at the CFTC, lauded the performance of the enforcement staff in collecting millions in fees for taxpayers last week. Enserco was the fifth gas trading company, behind Williams, EnCana, El Paso Corp. and Dynegy Inc., to settle charges of attempted gas price manipulation. Enron Corp. settled charges of actual manipulation of gas prices. The CFTC has subpoenaed data on a total of 19 gas trading companies from McGraw-Hill's Platts unit, which has challenged the subpoena in court and is awaiting a ruling.
The settlements "are the result of diligent and professional investigations by the government's best derivatives litigation experts," said Mocek.
The CFTC said employees from EnCana Corp.'s former U.S.-based energy trading division, WD Energy Services Inc., formerly known as PanCanadian Energy Services, attempted to manipulate the price of natural gas contracts, and one employee also discussed false reporting at two other energy companies. An EnCana spokesman said WD Energy was dissolved as a company in April 2002, and EnCana no longer engages in energy trading. However, it is a major gas production company that sells its natural gas in the competitive marketplace.
Traders from Williams Energy Marketing and Trading also faced charges for similar illegal acts. "As a company, we have to take ownership for our successes and our failures," said Williams CEO Steve Malcolm. "Our expectation for all employees is to always do the right thing, to always preserve their own honesty and integrity as well as the company's. Settlements allow companies to move forward, but we expect more from ourselves."
Williams on Oct. 25, 2002, disclosed that its independent, internal review of its trading activities revealed that a few non-managerial employees had engaged in inaccurate reporting of natural gas trades. The company voluntarily reported the findings to the CFTC and other relevant federal agencies and placed the employees identified on administrative leave and subsequently terminated their employment as a result of reductions in force.
On July 23, the Federal Energy Regulatory Commission ruled that Williams was among companies that had sufficiently corrected procedures for reporting natural gas trading information.
According to all three orders last week, the companies conduct constituted an attempted manipulation under the CEA, which, if successful, could have affected prices of Nymex natural gas futures contracts, the CFTC said. All three companies were required to do the following: cease and desist from further violations of the CEA; pay the specified civil monetary penalties; and comply with various CFTC undertakings, including an undertaking to cooperate with the CFTC in this and related matters.