FERC Friday asked a federal court in New York to deny Amaranth Advisors LLC’s request to enjoin and stay the agency’s enforcement action against the fallen hedge fund for alleged manipulation of natural gas markets.
In seeking an injunction, Amaranth claims that the Federal Energy Regulatory Commission (FERC) exceeded its jurisdiction when it brought an enforcement action in July against the company for alleged manipulative activities in the natural gas futures markets. The Greenwich, CT-based hedge fund contends that only the Commodity Futures Trading Commission (CFTC), not FERC, has the authority over the futures markets. It argued that FERC’s jurisdiction is limited solely to the physical gas markets (see related story).
But FERC, in asking the court to reject Amaranth’s plea, countered that the Energy Policy Act of 2005 (EPAct) gave the agency broad new authority to combat manipulation wherever it saw it. “EPAct 2005 did not limit FERC’s jurisdiction to manipulation by entities traditionally regulated by FERC, nor did it limit FERC’s jurisdiction to manipulative conduct solely concerning physical markets. Rather, Congress granted FERC broad authority to police market manipulation by ‘any entity’ who engages in conduct that is…’in connection with’ any jurisdictional transaction,” FERC said in its brief filed with the U.S. District Court for the Southern District of New York.
As “if this were not enough, Congress recognized that this new grant of authority would require extensive cooperation between the CFTC and FERC, precisely because of the close interplay between financial and physical markets for natural gas and electricity,” the Commission noted. “Far from a case of an agency veering off its congressionally-mandated course, which Amaranth would casually invite the court to stay, the Amaranth [action] is the first time that FERC is implementing an important regulatory program that should go forward. For all these reasons…the motion is without merit and should be denied.”
FERC assured the court that its separate enforcement action would not “interfere” with the court’s adjudication of related enforcement claims brought by the CFTC against Amaranth for attempted manipulation of natural gas futures prices. The CFTC filed a complaint in the district court in late July against Amaranth.
“The staying of a federal agency’s important enforcement proceeding by a federal court, merely because of the presence of related claims and parties before the court, would be an extraordinary act. And it would be unprecedented, for Amaranth has cited not a single case where a federal court has done so,” FERC argued.
FERC in late July issued a show cause order that alleges Amaranth and its former traders, by manipulating natural gas futures on the New York Mercantile Exchange (Nymex), influenced the price in the physical gas markets over which FERC has jurisdiction. The agency said that many participants in physical gas markets use the settlement price of the Nymex gas futures contract to determine the price of FERC-jurisdictional physical gas transactions. FERC is seeking penalties and disgorgement of unjust profits totaling $291 million from Amaranth, several affiliates and two ex-traders. The CFTC filed its complaint against Amaranth in court around the same time (see NGI, July 30).
While the two cases on the surface appear to be very similar, FERC said there were a lot of differences. The CFTC’s action is against three parties, while FERC named Amaranth, two former Amaranth traders and six affiliates. The CFTC alleged that Amaranth engaged in attempted manipulation, while FERC alleged “actual manipulation” under the Natural Gas Act (NGA). The CFTC alleges that Amaranth made misrepresentations to Nymex, but FERC said it made no such allegation. The CFTC seeks primarily injunctive relief; the FERC is seeking monetary relief from Amaranth. FERC also is seeking disgorgement of unjust profits, but the CFTC is not.
The biggest distinction is that allegations concern two different markets, according to the Commission. The CFTC’s enforcement action involves the financial markets that the agency regulates, FERC noted. “FERC’s [action] concerns the manipulation of financial markets only to the extent that such action directly harmed FERC-jurisdictional physical markets…Amaranth’s alleged manipulation of financial markets skewed the price of FERC-jurisdictional transactions, affecting millions of consumers across the United States.”
Three energy associations — the American Public Gas Association, American Public Power Association and the National Rural Electric Cooperative Association — submitted an amicus brief, citing their opposition to Amaranth’s request for an injunction.
The groups said the district court lacked jurisdiction over FERC actions. “The court has no jurisdiction to entertain Amaranth’s claim for injunctive relief because FERC is acting under the [NGA]…and Congress has vested jurisdiction to review FERC orders under the NGA exclusively in the United States courts of appeals.”
Further, they argued that FERC’s parallel proceeding does not defeat the court’s jurisdiction over the CFTC complaint against Amaranth. While Amaranth “raises a litany of objections concerning the alleged inequity of its predicament, it nowhere attempts to explain how FERC’s prosecution…will interfere with this court’s or the CFTC’s jurisdiction.”
Amaranth “should not be permitted to execute an end run around FERC’s enforcement action by seeking to enjoin the proceeding…An entity that is accused of manipulation of the markets ought not to be able to choose the authority which will be allowed to investigate it, based on which authority it deems less intrusive or dangerous to its interest,” the gas and power groups said.
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