Mirant Americas Energy Marketing LP (Mirant Americas), a subsidiary of Atlanta-based Mirant Corp., paid $12.5 million to the Commodity Futures Trading Commission (CFTC) last week to settle charges of attempted gas market manipulation and false reporting to index publishers. Despite agreeing to the settlement, the company neither admitted nor denied the charges.
Its name, however, was added to a long list of other energy industry companies that have come under CFTC scrutiny and ended up settling similar charges. At least 40 companies have been investigated, and to date there have been about 25 actions by the CFTC that resulted in as much as $230 million in fines.
The order against Mirant found that from January 2000 through December 2001, the company “knowingly reported to price compilers Gas Daily, Inside FERC and Natural Gas Intelligence certain false, misleading and knowingly inaccurate information concerning natural gas transactions purportedly executed by Mirant Americas.” The order also found that, from January 2000 to October 2000, “certain Mirant Americas West region traders knowingly delivered false, misleading or knowingly inaccurate reports in an attempt to manipulate the price of natural gas by skewing the indexes to benefit its trading positions in the physical marketplace.”
According to the order, the false reports included false prices, volumes, and counterparty information concerning gas sales and purchase transactions in the cash market, as well as information concerning fictitious trades, or trades observed in the market. Prices and volumes are used by publishers to calculate published indexes of natural gas prices at various locations across North America. Gas futures traders and gas consumers refer to the published indexes for price discovery and for assessing price risks.
According to the order, the attempted manipulation of the indexes, “if successful, could have affected prices of New York Mercantile Exchange natural gas futures contracts.” The order requires Mirant to cease and desist from further violations of the Commodity Exchange Act and imposes the $12.5 million civil penalty. It also requires that Mirant cooperate in any related future investigations.
Mirant, which is in Chapter 11 bankruptcy, said the penalty would be filed as an allowed claim against Mirant Americas and the claim will be subordinate to those of unsecured creditors, but ahead of equity holders.
Mirant General Counsel Doug Miller also said the company, like most others, has significantly rebuilt the process by which it submits information to publishers.
“In 2002, Mirant reviewed and amended its external reporting process after industry wide natural gas reporting problems were identified. [Mirant Americas] requires that all data provided to indices be validated and conveyed by risk management staff reporting to the company’s chief risk officer, rather than by [Mirant Americas] personnel.”
In the four years since the alleged incidents occurred, the industry, the Federal Energy Regulatory Commission and the publishers have cooperated to improve the entire price reporting process. These efforts have led to wholesale changes in the way that transactional information is submitted by companies, and collected and compiled by publishers. Data for index surveys now comes from risk control groups within the reporting companies. The data is transaction-level and subject to audit. Publishers also are now reporting specific volumes and the number of trades at each trading point, and FERC continues to monitor the process.
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