The U.S. Commodity Futures Trading Commission (CFTC) has brought in a total of $43 million in civil monetary penalties this week to settle charges of attempted gas market manipulation and false price reporting by three natural gas trading companies, including Enserco Energy, which paid $3 million on Thursday. Enserco’s fine followed $20 million each from EnCana and Williams earlier in the week (see Daily GPI, July 30, July 29).

All three companies settled charges that they attempted to manipulate the natural gas market by submitting false prices and volumes to gas index publications, conduct that violated the Commodity Exchange Act (CEA). They neither admitted nor denied the charges in agreeing to the settlements.

The CFTC found that from at least May 2000 through at least June 2002, Golden, CO-based Enserco Energy Inc., the unregulated marketing subsidiary of northern Rockies utility company Black Hills Corp., reported false trade information to certain reporting firms. The CFTC determined that three former Enserco traders from its Colorado and Canadian offices routinely delivered separate, coordinated reports to a reporting firm, for the same delivery points, to increase significantly the likelihood that they could affect the published index prices.

“The traders attempted to capitalize on the fact that at least one reporting firm accepted reports from both offices for the same delivery points, unaware that the traders were employees of the same company,” the CFTC said in its order.

“They coordinated their reports in view of their existing positions as exemplified by the following taped telephone conversation:

Black Hills CEO Daniel P. Landguth said in a statement that his company has since changed its risk management policies in order to prevent similar employee abuses. The company does not believe inaccurate reporting to trade publications affected the financial accounting treatment of any transaction recorded in its books and records.

The settlement “culminates a regrettable episode in our company’s longstanding history of ethical business conduct. We have a corporate culture that practices the highest degree of business ethics and integrity. We do not tolerate any violation of our code of conduct, in any of our businesses — period,” Landguth said.

“Once our executive team became aware of the issues, we moved swiftly and thoroughly with our own investigation and cooperated fully with federal authorities,” he added. “Our conscientious effort was noted in the CFTC order.”

The CFTC said the much lower settlement fee paid by Enserco — $3 million compared to the $20 million each paid by Williams, EnCana and earlier this summer by El Paso — was the result of the level of cooperation it received and the actions taken by Enserco and Black Hills to correct the abuses and make sure they do not recur.

“The Commission would have sought a significantly higher civil penalty but for its recognition that the company stepped forward and provided exceptional cooperation,” said Enforcement Deputy Director Richard Wagner.

The CFTC said in less than three months Enserco “swiftly and aggressively investigated its trade reporting activities and providing DOE with detailed reports of its analyses and findings as well as transcriptions of over one hundred relevant telephone recordings and all other details related to its internal investigation without asserting claims of attorney-client privilege or attorney-work product or requiring a limited waiver agreement.” The CFTC said it also took consideration of the small size of Enserco’s trading operation.

Gregory Mocek, director of enforcement at the CFTC, lauded the performance of the enforcement staff in collecting millions in fees for taxpayers. Enserco is the fifth gas trading company, behind Williams, EnCana, El Paso Corp. and Dynegy Inc., to settle charges of attempted gas price manipulation (see Daily GPI, Dec. 20, 2002; March 27, 2003). Enron Corp. settled charges of actual manipulation of gas prices. The CFTC has subpoenaed data on a total of 19 gas trading companies from McGraw-Hill’s Platts unit, which has challenged the subpoena in court and is awaiting a ruling (see Daily GPI, July 15).

The settlements “are the result of diligent and professional investigations by the government’s best derivatives litigation experts,” said Mocek.

According to all three orders this week, the companies were charged with knowingly submitting false information to price index reporting firms in an attempt to skew those indexes for their own financial benefit in violation of the CEA. The orders also found that the companies specifically intended to report false or misleading or knowingly inaccurate market information in an attempt to manipulate the price of natural gas in interstate commerce. Their conduct constituted an attempted manipulation under the CEA, which, if successful, could have affected prices of Nymex natural gas futures contracts, the CFTC said.

All three companies were required to do the following: cease and desist from further violations of the CEA; pay the specified civil monetary penalties; and comply with various CFTC undertakings, including an undertaking to cooperate with the CFTC in this and related matters.

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