A Reliant Energy affiliate will pay an $18 million fine and two CMS affiliates will pay a total of $16 million in fines to settle charges of market manipulation and other violations, according to two orders released Tuesday by the Commodity Futures Trading Commission (CFTC). While they agreed to the settlements, the companies neither admitted nor denied any of the charges.
“The Division of Enforcement continues to methodically investigate and prosecute misconduct in the energy trading arena,” said CFTC Director of Enforcement Gregory Mocek. “Over the past 11 months the Commission has imposed more than $130 million in civil penalties.”
The first order released Tuesday charged Reliant Energy Services Inc. (RES) with false reporting and attempted manipulation of natural gas prices, as well as engaging in wash sales and reporting of non-bona fide electricity prices. It found that from at least February 1999 through May 2002, the Houston offices of RES reported false or misleading natural gas price or volume information to price index publishers in an attempt to manipulate the indexes and possibly affect gas futures trading on the New York Mercantile Exchange in violation of the Commodity Exchange Act (CEA).
The order also found that on seven occasions between April and November 2000, certain traders on RES’s West power trading desk executed non-competitive, prearranged wash sales during off-exchange trading of electricity contracts, in violation of the CEA. The trades were for the same contract, delivery point, quantity and price, and were executed with the same counterparty companies and counterparty traders, the CFTC said. The trades also were prearranged and designed to produce a “wash financial result,” with neither party making nor taking, nor intending to make or take, delivery or a bona fide position in the market or a market risk. The order found that illegal trading resulted in the reporting of non-bona fide prices, in violation of the CEA.
The order requires RES to pay a civil monetary penalty of $18 million as well as cease and desist from further violations of the CEA. The order also requires RES and Reliant Resources Inc. to continue to cooperate with the CFTC.
The second order charged that from at least November 2000 through September 2002, Houston-based CMS Marketing Services & Trading (CMS MS&T) and Tulsa-based CMS Field Services reported false natural gas transaction information, including prices and volumes, to gas price publishers. The order said that the companies also reported trades that did not occur in an attempt to manipulate price indexes and potentially affect the gas futures market.
The activity referred to in the order predates the sale of CMS Field Services to Cantera Natural Gas Inc. in July 2003. CMS Field Services is now named Cantera Gas Co.
The order requires the companies to pay the $16 million penalty, cease and desist from further violations of the CEA and CFTC regulations,and continue their cooperation with future CFTC investigations.
“Today’s announcement is further demonstration of the aggressive work that continues to effectively serve notice that this conduct will not be tolerated by the commission,” said CFTC Chairman James Newsome.
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