The US Commodity Futures Trading Commission (CFTC) is pressing charges against the Amaranth hedge fund and its former head energy trader Brian Hunter for allegedly engaging in price manipulation in the natural gas futures market.
Specifically, the complaint, issued on July 25, alleges that the defendants intentionally and unlawfully attempted to manipulate the price of natural gas futures contracts on the NYMEX on February 24 and April 26, 2006. The CFTC is seeking permanent injunctive relief, an award of civil penalties, and other remedial and ancillary relief as necessary.
“This case demonstrates the Commission’s ongoing vigilance to punish those who attempt to compromise the integrity of the futures markets,” announced CFTC Acting Chairman, Walter Lukken. “The CFTC continues in its unwavering determination to ensure that the futures markets operate in an open and competitive manner free from price distortions.”
“The CFTC stands ready to enforce the provisions of the Commodity Exchange Act against those who attempt to manipulate US futures and commodity prices. The filing today sends an important message to market participants that such conduct will be met with appropriate sanctions,” CFTC Commissioner Michael Dunn added.
February 24, 2006 was the last day of trading for the March 2006 NYMEX natural gas futures contract, and April 26, 2006 was the expiry date of the May 2006 NYMEX natural gas futures contract. The settlement price of each NYMEX natural gas futures contract is determined by the volume weighted average of trades executed from 2:00-2:30 p.m. (the “closing range”) on the expiry day of such contracts.
The complaint alleges that, for each of the expiry days at issue, the defendants acquired more than 3,000 NYMEX natural gas futures contracts in advance of the closing range, which they planned to - and for the most part did - sell during the closing range. The CFTC alleges that defendants held large short natural gas financially-settled swaps positions, primarily held on the IntercontinentalExchange (ICE). The settlement price of the ICE swaps is based on the NYMEX natural gas futures settlement price, determined by trading done during the closing range on expiry day. The Commission believes that the defendants intended to lower the prices of the NYMEX natural gas futures contracts to benefit their larger swaps positions on ICE and elsewhere.
The complaint also alleges that, in violation of the Act, and in response to an inquiry from NYMEX about the April 26, 2006 trading, Amaranth Advisors LLC made false statements to NYMEX to cover up defendants’ attempted manipulation.
The Amaranth hedge fund collapsed in September 2006 after losing some $6 billion in a single week in the natural gas futures markets.
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