In the first-ever probe of a company’s online trading system or its derivatives trading practices, the Commodity Futures Trading Commission (CFTC) has launched a full investigation into Enron Corp.’s commodities activities, centering on whether the former trading giant committed fraud or manipulated markets through improper trading on commodity exchanges. An Enron spokesman said the company would cooperate with the inquiry.

The investigation now under way includes a probe of derivatives trading in the bankrupt company’s EnronOnline business, and is different from the federal investigations at the Securities and Exchange Commission (SEC) and the U.S. Justice Department. However, the CFTC is cooperating with their investigations, according to the agency.

While the CFTC does not have the authority to regulate over-the-counter derivatives — including those traded electronically — it has some leeway to probe incidents of possible fraud or manipulation. (The SEC’s jurisdiction covers accounting discrepancies.) Apparently, CFTC will thoroughly review what Enron traded, how it traded it, and what businesses it traded with. If violations are found by the CFTC, Enron may be fined or forced to surrender profits from the improper trades, CFTC said.

According to financial statements, Enron’s derivative portfolio was worth about $19 billion. In recent years, traders have been allowed to use new types of derivatives, including those for electricity prices, weather and bandwidth, and Enron’s portfolio included all of them. Enron also used credit derivatives, which are used as a type of insurance policy if there is corporate bankruptcy. The credit derivatives are a promise to return a lender’s money in exchange for a premium.

In a follow up to an earlier story, after the SEC filed an objection to the hiring of Stephen Cooper as Enron’s interim CEO, Enron said it would revise its employment agreement with the bankruptcy specialist and his team (see NGI, March 11). Instead of working as an independent contractor, Enron has asked the U.S. Bankruptcy Court for the Southern District of New York to allow Cooper to be hired as a full-time employee until the restructuring is completed.

Judge Arthur J. Gonzalez is scheduled to hear the case now on April 4. The SEC filed the objection March 8, calling the terms of his million dollar contract and bonus guarantee inappropriate. Enron had requested approval to hire Cooper at an annual salary of $1.32 million a year and a bonus of at least $5 million once the restructuring is completed.

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