The Commodity Futures Trading Commission (CFTC) Wednesday charged Enron Corp. and Hunter S. Shively, manager of Enron’s central futures trading desk, with using EnronOnline (EOL) to manipulate the natural gas market, causing a spike in prices at the Henry Hub and affecting the futures price on the New York Mercantile Exchange (Nymex). The CFTC also said Enron operated EnronOnline as an illegal futures exchange.

Other parts of the complaint filed by the CFTC in federal district court in Houston charge the now-bankrupt Enron with offering illegal lumber futures contracts through EnronOnline, its Internet trading platform. The CFTC complaint was filed on the same day the federal government’s Enron Task Force, led by the Justice Department, arrested two Enron executives accused of inflating earnings with another special purpose entities (SPE) scheme (see related story).

The complaint charges that on July 19, 2001, Shively, through EOL, caused Enron to purchase an extraordinarily large amount of Henry Hub spot natural gas within a short period of time, causing artificial prices at the Hub and impacting the correlated Nymex natural gas futures price.

The complaint also charges Enron with operating EOL as an illegal futures exchange from September through December 2001 by modifying EOL to effectively allow outside users to post bids and offers. Enron listed at least three swaps on EOL that were commodity futures contracts. The CFTC said that with this modification, Enron was required to register or designate EOL with the CFTC, or notify the CFTC that EOL was exempt from registration. Enron failed to do either of these things, and the complaint charges that, because of this failure, EOL became an illegal futures exchange.

Finally, the complaint charges Enron with offering an illegal agricultural futures contract on EOL. According to the complaint, between at least December 2000 and December 2001, Enron offered a product on EOL it called the US Financial Lumber Swap. The complaint alleges that the EOL lumber swap was an agricultural futures contract that was not traded on a designated exchange or otherwise exempt, and therefore was an illegal agricultural futures contract.

The CFTC is seeking against each defendant a permanent injunction, civil monetary penalties and other remedial and ancillary relief.

In announcing today’s filing, CFTC Chairman James E. Newsome said the charges “are part of a continuing effort by Commission staff to police the markets. The Commission’s investigation into Enron is ongoing, and the Commission continues to aggressively ensure the integrity of markets over which the Commission has jurisdiction.”

Until its bankruptcy filing on Sunday, Dec. 2, 2001 (see Daily GPI, Dec. 4, 2001), Enron was one of the largest energy companies in the United States. Its natural gas trading unit was based in Houston and managed several natural gas over-the-counter (OTC) products. Enron’s natural gas trading unit was divided into geographical regions and included a natural gas futures desk, the CFTC noted, identifying Shively as the desk manager for Enron’s Central Desk from May 1999 through December 2001.

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