Two former energy traders settled last week with the Commodity Futures Trading Commission (CFTC) over charges that they reported false trades to gas industry index publishers in an attempt to manipulate gas prices.
The CFTC Friday said it entered into separate consent orders with Christopher McDonald of Atlanta and Michael Whalen of Houston. McDonald was a vice president of west trading at Mirant Americas Energy Marketing LP. Whalen was a trader at Cinergy Corp.
The orders, which were entered Friday by U.S. District Judge J. Owen Forrester Honorable J. Owen Forrester, require McDonald to pay $350,000 and Whalen to pay $200,000 in civil penalties. The orders also permanently enjoin McDonald and Whalen from applying for registration, engaging in any activity requiring registration, or acting as a principal as defined by the National Futures Association.
The orders arise from a CFTC lawsuit filed on Feb. 1, 2005 (see NGI, Feb 7, 2005), charging that between January 2000 and late 2000 or early 2001, McDonald repeatedly submitted, and directed others to submit, false natural gas trading information, including fabricated price, volume and counterparty information, to certain firms that compile natural gas price indexes.
The CFTC complaint charged that during the summer and fall of 2000, Whalen, in concert with McDonald and another Mirant trader named in the complaint submitted false natural gas trading information to a natural gas price index. The complaint further charged that McDonald, Whalen and their co-defendant knowingly submitted, and worked actively in concert to submit, the false natural gas trade information to companies that calculated natural gas price indexes including Inside FERC Gas Market Report, Gas Daily, and Natural Gas Intelligence (NGI), in an attempt to skew that index at multiple natural gas delivery locations to benefit their trading positions.
“We continue to use our professional resources and expertise to uncover trading misconduct in the energy markets,” said Gregory G. Mocek, CFTC director of enforcement. “A strong enforcement presence is one of the best deterrents to manipulation. Furthermore, the defendants here have done the right thing by resolving these claims as opposed to forcing the government to spend additional taxpayer dollars in litigation.”
The orders resolve the CFTC’s lawsuit as to McDonald and Whalen. The CFTC’s lawsuit against the remaining defendant in that action continues.
Previously, on June 19, in the U.S. District Court for the Northern District of California, McDonald, Whalen and a co-defendant each entered a plea of guilty to felony charges of conspiracy to manipulate the price of a commodity in interstate commerce (see NGI, June 26). The criminal charges were based upon some of the same conduct alleged in the CFTC’s complaint. Whalen was sentenced on Oct. 30 to three year’s probation and a $5,000 fine. Last Monday, McDonald was sentenced to three years probation, nine months of home confinement, and a $5,000 fine. The co-defendant, also sentenced last Monday, received three year’s probation, six months of home confinement, and a $5,000 fine.
Meanwhile, former traders Michelle Valencia and Greg Singleton — convicted in August of wire fraud related to the reporting of false trade data to industry publications (see NGI, Aug. 7) — await a ruling on a motion for acquittal or a new trial (see NGI, Aug. 21). Former Dynegy Inc. trader Valencia was convicted of seven counts and former El Paso Energy trader Singleton was convicted of one count of wire fraud in a hard-fought split verdict that bewildered defense attorneys. The four-week trial involved prices and trade data submitted to Inside FERC’s Gas Market Report and NGI.
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