A federal appeals court in Washington, DC, Friday granted the plea of a former natural gas trader for failed hedge fund Amaranth Advisors LLC to overturn an agency order imposing a $30 million penalty for allegedly manipulating natural gas futures.
FERC lacks authority to fine Brian Hunter because the “Commodity Futures Trading Commission [CFTC] has exclusive jurisdiction over all transactions involving commodity futures contracts. Because manipulation of natural gas contracts falls within CFTC’s exclusive jurisdiction and because nothing in the Energy Policy Act [of 2005] clearly and manifestly repeals the CFTC’s exclusive jurisdiction, we grant the petition for review,” the three-judge panel said.
The Federal Energy Regulatory Commission (FERC) countered that Hunter’s manipulation of the gas futures market between February and April 2006 subsequently took a toll on physical gas contracts over which the FERC has sole jurisdiction. Traditionally, FERC has jurisdiction over the physical natural gas market and the CFTC oversees futures.
“FERC cannot demonstrate that section 4A [of the Natural Gas Act, which prohibits manipulation] encroaches upon the CFTC’s exclusive jurisdiction. Having failed to meet the high bar of showing an implied repeal, FERC lacks jurisdiction to charge Hunter with manipulation of natural gas futures contracts,” the court said. The CFTC intervened in the Hunter case because of the jurisdictional dispute. The former gas trader still faces manipulation charges from the CFTC
“Beginning with Section 4A’s text, FERC contends that it is empowered to prohibit manipulation not only in FERC-regulated markets but also when the manipulation “coincides with — i.e., is ‘in connection with, directly or indirectly’ — FERC-jurisdictional gas transactions. But Section 4A’s text fails to answer the question [of] whether FERC may intrude upon the CFTC’s exclusive jurisdiction,” the judges said.
In his appeal seeking review of the November 2011 FERC order Hunter argued that 1.) “Section 4A of the NGA does not authorize the Commission to police manipulation occurring in the futures market; 2.) does not permit enforcement actions against natural persons; and 3.) vests the federal district courts with exclusive jurisdiction to adjudicate alleged violations.”
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