Enron will pay $35 million to the Commodity Futures Trading Commission (CFTC) to settle charges that it, along with one of its natural gas traders, Hunter Shively, engaged in a scheme to manipulate the Henry Hub natural gas spot and futures markets on July 19, 2001. Shively also agreed to pay $300,000 to settle charges against him.

The agreement with Enron Corp. also settles charges that the company operated Enron Online (EOL) as an illegal commodity futures exchange from September through December 2001. The settlement, which also was approved by the bankruptcy court overseeing the Enron case, resolves all charges brought by the CFTC against Enron in March 2003.

Gregory G. Mocek, director of enforcement for the CFTC, said the Enron case sends a clear message that the CFTC “will vigorously pursue predatory and unlawful conduct that harms American consumers.

“In the wake of Enron, we prosecuted Dynegy Marketing and Trade for illegal activity in the natural gas market in December 2002. Since that time, we have charged a total of 25 companies and individuals and assessed over $222 million in civil monetary penalties while we simultaneously assisted other members of the president’s Corporate Fraud Task Force in their respective prosecutions.” The $222 million covers settlements in multiple false gas price reporting cases as well as Enron’s direct market manipulation case.

In its original complaint against Enron in March 2003, the CFTC alleged that on July 19, 2001, Enron and Shively engaged in a manipulative scheme by using Enron’s former web-based electronic trading platform to buy a large amount of natural gas in a short period of time. The complaint further alleged that immediately following the pre-arranged buying spree, Shively took various actions, including agreeing to cover trading losses of other traders, and directing a payment from an account he controlled to other traders involved in the scheme.

As was further alleged, the manipulation of the Henry Hub spot market had a direct and adverse effect on the New York Mercantile Exchange August 2001 natural gas futures contract, including causing prices in Nymex Henry Hub Futures to become artificial.

The complaint also charged Enron with operating EOL as an illegal futures exchange. According to the complaint, in September 2001, Enron allegedly modified EOL to effectively allow outside users to post bids and offers. The complaint alleged that Enron listed at least three swap contracts on EOL that allegedly were commodity futures contracts.

The company never registered EOL with the CFTC or notified the CFTC that EOL was exempt from registration or designation. The complaint further charged Enron with offering an illegal agricultural futures contract on EOL, it called the US Financial Lumber Swap (see Daily GPI, March 13, 2003).

The consent orders by United States District Judge Melinda Harmon of the United States District Court for the Southern District of Texas permanently enjoin Enron and Shively from violating the Commodity Exchange Act, compels them to cooperate in any further CFTC investigations relating to these matters, imposes civil monetary penalties, and prohibits Shively from applying for or acting in a registered capacity with the CFTC for eighteen months.

“As witnessed by the large number of cases that we have prosecuted in this area, Mr. Shively was not a lone violator in this marketplace,” Mocek added. “He was just one of the crowd of highly paid traders at a number of other companies who incorrectly perceived the natural gas market as an open forum for mischief. He ultimately is doing the right thing by settling this matter and cooperating with the government.” Shively was the desk manager for Enron’s Central Desk from May 1999 through December 2001.

The Federal Energy Regulatory Commission last year separately stripped Enron of its electricity and natural gas trading privileges because of market manipulation.

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