It was an active week for the Commodity Futures Trading Commission (CFTC), which agreed to a major settlement with El Paso Corp. over charges of gas price manipulation (see related story) and sued a former PG&E Energy Trading natural gas trader, Christopher Chapman of East Brunswick, NJ, for fraud. The CFTC ordered Chapman to pay a $240,000 fine last Tuesday.

In its order, the Commission said Chapman, who has filed a settlement agreement with the Commission, engaged in a fraudulent trading scheme between December 2001 and March 2002 involving identical buy and sell limit orders for natural gas futures contracts traded in the New York Mercantile Exchange’s after hours Access trading session.

According to the CFTC, Chapman directed losing trades to PG&E’s proprietary account and profitable trades to another account that he opened and controlled at a non-clearing futures commission energy merchant.

The CFTC said Chapman fraudulently entered more than 4,000 natural gas futures contracts for the 2003 calendar year on behalf of the account he controlled and PG&E on a dozen separate dates. Due to the illiquidity of the market for the 2003 calendar year contracts, Chapman was able to control both the buy and sell positions and the prices for both the initial and offsetting trades.

Through this scheme, he “evaded the competition of the open market and caused fictitious trades to be entered on behalf of both of these accounts. This scheme resulted in the account that Chapman controlled, wrongfully profiting over $700,000 and PG&E’s account losing a similar amount of money,” the CFTC said.

The CFTC order requires Chapman to cease violating the Commodity Exchange Act and to pay the civil monetary penalty. The order also imposes a lifetime trading ban on Chapman and requires him to comply with certain undertakings, including never to seek registration with the CFTC in any capacity.

In consenting to the entry and the findings of the order, Chapman neither admitted nor denied any wrongdoing. A PG&E spokeswoman said Chapman was fired shortly after the scheme was discovered in March 2002. However, she would not say whether the company had filed charges against him.

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