The US Commodity Futures Trading Commission on Wednesday again offered its support for former Amaranth natural gas trader Brian Hunter's argument that the Federal Energy Regulatory Commission over-reached when fined him $30 million for manipulating the NYMEX gas close in spring of 2006.
In a brief filed with the US Court of Appeals for the District of Columbia, the CFTC said FERC exceeded its jurisdiction by prosecuting and fining Hunter because the CFTC has "exclusive" authority over futures trading.
FERC has argued it has jurisdiction because the futures contracts Hunter manipulated set the index price for physical natural gas trades that are under FERC's jurisdiction.
"In light of the clarity of the statutory language and legislative history, it should come as no surprise that federal courts have repeatedly recognized the CFTC's exclusive jurisdiction with respect to futures trading on CFTC-regulated futures exchanges vis-a-vis other federal agencies," the CFTC's 38-page brief said.
The CFTC said the plain language of the Commodities Exchange Act and the legislative history of both the CEA and the Energy Policy Act of 2005, which FERC claims gave the commission new anti-manipulation powers, affirm its position that futures trades are regulated only by the CFTC.
The CFTC noted that even as recently as the 2010 passage of the Dodd-Frank Act reforming financial markets, Congress reaffirmed the CFTC's exclusive jurisdiction.
Hunter is appealing FERC's $30 million fine on several fronts, chief among them is that FERC lacks jurisdiction over his trading on the NYMEX, a futures, not physical market.
A year ago, FERC levied the record fine after an administrative law judge found he had caused an artificially lower price for the March, April and May 2006 NYMEX gas futures contract by repeatedly selling hundreds of contracts within minutes of the monthly close. His motive, according to FERC, was to benefit an offsetting swaps position held on the then unmonitored IntercontinentalExchange.
The CFTC filed a similar intervenor brief in 2008 when it appeared the court might take Hunter's appeal before FERC acted.
Hunter hardly has an ally in the CFTC. That agency first accused him in the summer of 2007 of manipulating the futures market with FERC filing its complaint a day later. The CFTC's case in the US District Court of the Southern District of New York has been on hold until the appeals court rules on the jurisdictional squabble with FERC.
Hunter, who lives and works in Calgary, made more than $500 million trading gas futures for Greenwich, Connecticut-based hedge fund Amaranth Advisors before the fund blew up in the fall of 2006 when the winter-summer spread Hunter counted on to remain wide narrowed to pennies, causing an estimated $6.5 billion in losses.
