Congress, in creating the Commodity Futures Trading Commission (CFTC), “wanted to ensure that one expert regulator’s oversight preempted not only other federal regulators, but also state regulators” in the futures market, CFTC Commissioner Bart Chilton said Tuesday.
“Congress knew that if others claimed jurisdiction, the CFTC would soon be rendered toothless and so the CEA [Commodity Exchange Act] states that we have this exclusive jurisdiction,” he told the Futures Industry Association’s law and compliance luncheon in Chicago. “That exclusive jurisdiction has been upheld over the years in seminal and hotly contested matters.”
The CFTC’s exclusive jurisdiction currently is being put to the test in an enforcement case involving failed hedge fund Amaranth Advisors LLC, where the Federal Energy Regulatory Commission claims it has oversight authority when activities in the natural gas futures market negatively impact the prices in physical gas markets over which it has exclusive jurisdiction (see Daily GPI, Oct. 1). The drama is being played out in the U.S. District Court for the Southern District of New York, where the CFTC filed a complaint in July against Amaranth for attempted manipulation of gas prices (see Daily GPI, July 26).
FERC, in a parallel case, accused Amaranth of actual manipulation of gas prices, claiming that its futures market activities affected the New York Mercantile Exchange settlement price, which determines the price of a substantial volume of FERC-jurisdictional natural gas sales, notably in the eastern, midwestern and Gulf Coast markets (see Daily GPI, July 27).
Because of the Amaranths and Enrons, “it is so vitally important that we are strong on the enforcement front,” Chilton said. “We are not some ‘Andy Griffith’ operation. We are more like ‘Elliot Ness’ or ‘James Bond,’ or in the case of crooked operations we are shutting down, we are more like the ‘Terminator.'”
Each day, “we are mining the Internet, e-mails and instant messages in an effort to gather critical evidence in very high-tech, complicated cases — both domestically and internationally. In fact, at any one time, we are investigating approximately 750 to 1,000 individuals and entities,” he said.
“We’ve seen the tragedies and scandals in Enron and…in Amaranth and British Petroleum, and the CFTC has vigorously pursued actions in these areas.” Chilton estimated that since the Enron scandal broke, the CFTC has charged a total off 63 companies and individuals for violations of the CEA in the energy sector, and obtained more than $300 million in civil penalties in settlements.
“If you manipulate these markets, we’re watching and we’re going to get you,” he said. “It’s like those commercials for drunk drivers: don’t even try it because the road blocks are set up, the sobriety checkpoints are in place, and we’ll make you walk the line. And if you stumble, we’ll make you pay the price.”
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