With the parties headed for an early October trial, Judge Ronnie Abrams of the Southern District of New York District signed a consent order on Monday resolving the Commodity Futures Trading Commission’s case against former Amaranth Advisors’ senior energy trader Brian Hunter. The Federal Energy Regulatory Commission had also pursued Hunter. But the CFTC and Hunter argued before the U.S. Court of Appeals for the District of Columbia that the CFTC, not FERC, was the only agency with jurisdiction over the commodity futures markets. Luckily for Hunter, the D.C. Circuit agreed with him and the CFTC and Hunter was able to escape FERC’s attempt to extract a $30 million penalty. The D.C. Circuit’s ruling left Hunter to fight the CFTC’s action alleging he attempted to manipulate the price of natural gas futures contracts on the New York Mercantile Exchange on two days in 2006.
Under NYMEX Rules, the settlement price of the contracts “is determined by the volume weighted average of trades executed between 2:00-2:30 p.m. (“closing range”) on the last day of trading of such contracts (“expiration day”).” According to the CFTC, Hunter and Amaranth, which already settled the case against it, tried to create artificial natural gas futures prices by going on a “selling spree” during the closing range on the expiration date for certain March 2006 futures contracts. This selling spree allegedly benefited Amaranth’s significant short natural gas swap positions on other exchanges. In the second instance of alleged misconduct two months later, the CFTC contended Hunter purposefully held sell orders until the final minutes of the closing range on the expiration date of Amaranth’s May 2006 futures contracts without any legitimate commercial justification to affect the sale price.
Earlier this summer, Reuters noted the case against Hunter was expected to test the CFTC’s trial might. But that test will have to wait in light of Hunter’s agreement to pay a $750,000 penalty to settle the charges. He is also prohibited from trading in any CFTC-regulated products during the settlement period of the last trading day for the product and from trading any natural gas product regulated by the CFTC in the closing period for the product. In addition, the Consent Order permanently bars Hunter from registering with the CFTC or from claiming an exemption from registration.