Even though the case still is pending before FERC, former Amaranth natural gas trader Brian Hunter has asked a federal appeals court in Washington, DC, to reconsider the agency’s decision to levy a $30 million fine on him for allegedly manipulating the gas futures market.
The Federal Energy Regulatory Commission (FERC) has not yet said whether it will review its April penalty order (see Daily GPI, April 25), but Hunter contends that the case is ripe for appeal by the U.S. Court of Appeals for the District of Columbia Circuit. In the event the court declines to review the controversial jurisdictional dispute at this time based on the pending FERC rehearing request challenging the $30 million penalty, Hunter asked the court to clarify that his jurisdictional objections may be “properly raised and considered on appeal as part of [his] review of any subsequent Commission order denying his rehearing application.”
In his petition for review, Hunter challenges the FERC order as involving an unauthorized exercise of FERC’s jurisdiction over transactions in the futures market, over which the Commodity Futures Trading Commission (CFTC) has exclusive jurisdiction. FERC contends 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.
In August 2009 collapsed hedge fund Amaranth Advisors LLC, seven affiliates and former trader Matthew Donohoe entered into settlements with FERC enforcement staff to resolve all claims that they manipulated the market to influence gas futures prices [IN07-26]. Hunter remains the only holdout, dueling with FERC and the courts (see Daily GPI, Aug. 13, 2009).
“Hunter has been ‘aggrieved’ by the order now presented for consideration and is entitled to immediately challenge the order’s jurisdictional validity in a judicial review proceeding pursuant to the NGA [Natural Gas Act],” the court brief said. FERC derives its authority from the NGA to regulate the federal gas market.
It further argued that “de novo [new] review in federal district court [of his case] is required before any civil penalty may be assessed for a violation of the anti-manipulation rule…No purpose would be served by requiring Hunter to await the disposition of a [FERC] rehearing request re-raising the jurisdictional grounds on which he now seeks to challenge the order that is the subject of the instant petition for review” before the appellate court.
“Hunter was required by law to file such an application for rehearing before the FERC and only did so as a cautionary measure,” Hunter’s attorneys said. They said they do not expect FERC to revisit the issue that was at the center of the case: whether the transactions at issue were subject to FERC or CFTC jurisdiction. If the court should find that FERC overstepped its jurisdiction, then the $30 million penalty could potentially be nullified.
And “even if Hunter succeeded on [FERC] rehearing in obtaining a vacatur [setting aside] of the liability determination and/or the $30 million penalty assessment, it would not affect the reviewability of his objection that FERC engaged in an ultra vires [beyond powers] adjudication of his legal obligations under Section 4A of the NGA based on its improper assertion of jurisdiction here. The very finding of FERC jurisdiction over him personally for alleged manipulation of natural gas futures would remain,” Hunter said in his petition for review.
In his January 2010 decision Administrative Law Judge Carmen Cintron said evidence in the case demonstrated violations by Hunter that “were serious, willful and harmful” (see Daily GPI, Jan. 26, 2010). Hunter had been the head gas trader at Amaranth, which made a number of wrong-way trades that led to more than $6 billion in gas trading losses and the collapse of the hedge fund in September 2006 (see Daily GPI, Sept. 22, 2006).
Hunter and Donohoe were alleged to have engaged in a scheme that included the sale of large amounts of natural gas futures contracts that were then sold during the New York Mercantile Exchange settlement periods in February, March and April 2006, with the aim of driving down the settlement price to benefit derivatives whose values rose as the settlement prices fell.
The Commission, which had the option to either approve or reject Cintron’s ruling in full or in part, imposed the maximum penalty on Hunter. Hunter, who had no known previous violation of FERC rules, was reportedly uncooperative during the investigation, failing to appear at a deposition and refusing to give sworn testimony.
In its initial show cause order in mid-2007, FERC sought civil penalties and disgorgement of profits totaling $291 million for Amaranth’s activities (see Daily GPI, July 27, 2007).
The anti-manipulation rule, which FERC broadened in 2006, makes it illegal for any entity, directly or indirectly, in connection with the purchase or sale of natural gas or electric energy, or in providing transmission or transportation services subject to FERC regulation, to defraud using any device, scheme or artifice; make a false statement of material fact or omit a material fact; or engage in any act, practice or course of business that operates or would operate as a fraud or deceit (see Daily GPI, Jan. 20, 2006).
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