Recent developments:

  • Coaltrain and individuals file motions to dismiss FERC’s complaint.
  • CFTC orders Angus to pay civil penalty for acting as an unregistered Commodity Trading Advisor and disclosure violations.
  • CFTC orders Barclays to pay $500,000 for EFRP recordkeeping violations.
  • Maxim Power settles market manipulation case with FERC.
  • TOTAL files appeal to Fifth Circuit in declaratory judgment proceeding.
  • FERC Enforcement files reply to TOTAL in show cause proceeding.
  • TOTAL files motion to dismiss amended class action complaint.
  • FERC files motion for summary judgment against City Power.

Coaltrain and individuals file motions to dismiss FERC’s complaint.

For Coaltrain, on September 26, we filed the company’s motion to dismiss FERC’s complaint in the U.S. District Court for the Southern District of Ohio. Motions to dismiss for the individuals were also filed.

CFTC orders Angus to pay civil penalty for acting as an unregistered Commodity Trading Advisor and disclosure violations.

On September 29, the CFTC ordered Angus Partners LLC, D/B/A Angus Energy (Angus) to pay a $250,000 civil penalty for acting as an unregistered Commodity Trading Advisor (CTA) and for violating certain disclosure rules applicable to CTAs. The order finds that, since at least October 2012, Angus engaged in the business of advising more than 15 clients, for compensation or profit, as to the value of or the advisability of trading in over-the-counter commodity option and swap contracts, and held itself out generally to the public as a CTA without being registered as such with the CFTC. According to the order, Angus advised its clients on the development and implementation of fuel hedging programs to mitigate the clients’ exposure to price movements in the fuel oil markets and then entered into commodity option and swap transactions with the clients for those hedges. For each commodity option or swap with a client, Angus then entered into an identical offsetting trade with a third party, except for the rate or premium, which was structured so that Angus was compensated for its services as the result of a spread between the rate or premium. In addition, the order finds that Angus failed to adequately disclose conflicts of interest to its clients. According to the CFTC, Angus did not adequately disclose the conflict between advising clients on the merits of entering into certain transactions and Angus’ financial interest in those same transactions as the counterparty to its clients’ option and swap contracts – a fact of which certain clients allegedly were not aware.

Our colleague Ellen Pesch, a Sidley partner, commented: “This is another example of the CFTC pursuing its new swap enforcement authority and is a case that should be carefully considered by any unregistered principals that execute swaps with customers on a matched-book basis.”

CFTC orders Barclays to pay $500,000 for EFRP recordkeeping violations.

On September 22, the CFTC issued an order filing and simultaneously settling charges against Barclays Bank PLC (Barclays) for failing to create, maintain, and promptly produce required confirmations for a number of Exchange for Related Position (EFRP) trades in violation of CFTC regulations. The CFTC’s order requires Barclays to pay a $500,000 civil monetary penalty. According to the CFTC’s order, from September 1, 2009 to October 16, 2012, Barclays entered into at least 3,717 metals and energy EFRP trades, but Barclays did not maintain and could not produce confirmations for at least 1,358 of these trades. In addition, Barclays took almost 14 months to locate and produce confirmations for the remaining metals and energy EFRP trades at issue.

Our colleague Geoffrey Aronow, a Sidley partner and former Director of the CFTC’s Division of Enforcement, commented: “This case highlights that the CFTC is focused on EFRP trading as well as the exchanges, which have brought many EFRP cases in the past year. It is also an important reminder that unregistered customers still may have regulatory obligations – here, Barclays, as a customer of a Futures Commission Merchant (FCM), was required to create, retain, and produce upon request documentation relating to its EFRP transactions.”

Maxim Power settles market manipulation case with FERC.

On September 26, FERC issued an order approving a Stipulation and Consent Agreement between FERC Enforcement and Maxim Power Corp., Maxim Power (USA), Inc., Maxim Power (USA) Holding Company Inc., Pawtucket Power Holding Company, LLC, Pittsfield Generating Company, LP, (collectively, “Maxim Power”), which resolves Enforcement’s investigation into whether Maxim Power violated FERC’s Anti-Manipulation Rule and the rule concerning communications by entities with market-based rate authority. Maxim Power agreed to make a disgorgement payment of $4 million to ISO New England, Inc. (ISO-NE) and a civil penalty payment of $4 million to the United States Treasury. As part of the settlement, Maxim Power neither admitted nor denied the alleged violations.

The settlement relates to Enforcement’s allegations that, on a number of days in July and August 2010, Maxim Power engaged in a manipulative scheme by submitting offers for its Pittsfield power plant at fuel oil prices when it actually burned less expensive natural gas. According to Staff, Maxim Power violated FERC’s market behavior rule, Section 35.41(b), through its communications about its offers with ISO-NE’s Internal Market Monitor. This proceeding was subject to a lawsuit in the U.S. District Court for the District Court of Massachusetts, which was resolved by the settlement.

In addition, the settlement resolves FERC’s claims related to Maxim Power’s 2012-2013 conduct involving certain make-whole payments in ISO-NE called Net Commitment Period Compensation (“NCPC”). Enforcement staff determined that Maxim violated FERC’s Anti-Manipulation Rule through its offers for Pittsfield between July 2012 and mid-August 2013, which were designed to frustrate and evade ISO-NE’s mitigation rules and to enable Maxim Power to exploit market power to obtain inflated NCPC payments when the Pittsfield plant was dispatched for reliability. Enforcement also determined that Maxim Power’s offer strategy interfered with a well-functioning market in ISO-NE that was designed to limit NCPC payments for reliability dispatches to 110% of a unit’s reference levels.

TOTAL files appeal to Fifth Circuit in declaratory judgment proceeding.

On September 26, TOTAL filed a notice that it is appealing to the Fifth Circuit for review of the district court orders denying TOTAL’s declaratory judgment action. As we previously reported, U.S. District Judge Nancy F. Atlas dismissed TOTAL’s declaratory judgment action against FERC in the U.S. District Court for the Southern District of Texas. This case was TOTAL’s effort “to bring the fight to FERC” by filing a declaratory judgment action in federal court in Texas arguing that FERC lacked jurisdiction to adjudicate the natural gas market manipulation claims against TOTAL.

FERC Enforcement files reply to TOTAL in show cause proceeding.

On September 23, FERC Enforcement filed a reply to TOTAL’s answer to the FERC order to show cause. According to Enforcement Staff, TOTAL’s answer largely mischaracterizes Staff’s allegations, makes inaccurate and unsubstantiated representations, and, at best, merely raises disputed issues of material fact. Staff also notes that TOTAL’s legal arguments and challenges to FERC’s authority do not preclude any of Enforcement Staff’s claims or prevent FERC from hearing the matter. Accordingly, Enforcement Staff opposes TOTAL’s request for summary disposition and requests that FERC set the matter for a hearing before a FERC administrative law judge.

TOTAL files motion to dismiss amended class action complaint.

On September 23, TOTAL S.A. and TOTAL Gas & Power Limited filed a motion to dismiss the fourth amended complaint in the class action in the U.S. District Court for the Southern District of New York related to the TOTAL alleged natural gas manipulation case. According to the motion, both entities are based in Europe, and the plaintiffs make no allegation that either has a presence in New York (where the complaint was filed), nor do the plaintiffs allege that either has formed a connection with New York through conduct related to the claims. Therefore, these entities argue that the court lacks personal jurisdiction over them.

FERC files motion for summary judgment against City Power.

On September 21, FERC filed a motion for summary judgment in its case against City Power in the U.S. District Court for the District of Columbia. FERC argues that in July 2010, City Power and K. Stephen Tsingas engaged in a fraudulent scheme to place Up To Congestion transactions in PJM to capture payments from PJM that were intended for legitimate transactions. According to FERC, some of the trades were self-cancelling “round trips,” some were trades between two points that City Power and Tsingas knew had $0 spreads, and some were trades between two points with tiny spread changes because they hoped the non-zero spreads would disguise their fraudulent intent. FERC alleges that this scheme violated the FERC’s Anti-Manipulation Rule and enabled City Power and Tsingas to divert more than $2 million from other market participants.

In addition, FERC alleges that Tsingas and his partner exchanged many inculpatory instant messages during the summer of 2010 about the allegedly fraudulent trades. When asked about messages by FERC’s Enforcement staff, FERC claims that Tsingas (on behalf of City Power) gave false and misleading responses and omitted material facts to try to prevent the messages from coming to light, which violated Section 35.41(b) of FERC’s regulations requiring entities with market-based rate authority (like City Power) to be honest in their communications with FERC.

In addition to the memorandum in support of the motion for summary judgment, FERC filed a statement of undisputed facts and about 30 exhibits, including a number filed under seal. The statement of undisputed facts shows how FERC sees itself meeting the burden proof in this proceeding.