The CFTC continues the offensive in its jurisdictional dispute with the FERC.
On November 3, 2008, the Commodity Futures Trading Commission (CFTC) intervened in Brian Hunter, et al v. FERC, thus, continuing its ongoing jurisdictional dispute with the Federal Energy Regulatory Commission (FERC). In its filing, the CFTC once again argued that it has exclusive authority to police manipulation in the futures markets. Hunter is the former Amaranth trader accused of manipulating the price of various NYMEX gas futures contracts in the spring of 2006 by selling a large number of futures contracts in the last 30 minutes of trading, allegedly attempting to drive down the settlement price in order to benefit a related and substantially larger over-the-counter derivatives position.
The CFTC initiated an enforcement proceeding against Amaranth and Hunter in the Southern District of New York on July 25, 2007. The CFTC alleged that the defendants attempted to manipulate the natural gas market on NYMEX by “hammering the close.” The next day, on July 26, 2007, the FERC issued an Order to Show Cause against Hunter and Amaranth alleging that Amaranth’s trading of natural gas futures contracts on the NYMEX in March, April and May 2006 violated the FERC’s anti-manipulation rule, which was enacted pursuant to the Energy Policy Act of 2005 (EPAct). In its Order to Show Cause, the FERC argued that it has the authority to impose sanctions on Amaranth and Hunter because the settlement price for the NYMEX gas futures contract is used as a benchmark to price physical natural gas transactions. On July 23, 2008, three days before the FERC filed its show cause order, Hunter asked the U.S. District Court for the District of Columbia to enjoin the FERC from proceeding with its administrative enforcement action arguing that the FERC has no jurisdiction over its futures market activities.
The district court dismissed Hunter’s complaint without reaching the jurisdictional question and Hunter appealed to the D.C. Circuit. In its November 3, 2008, brief supporting its motion to intervene on behalf of Hunter, the CFTC argued that the FERC lacks jurisdiction over Amaranth and Hunter because all of the allegedly manipulative trading occurred on the NYMEX, a futures market within the CFTC’s exclusive jurisdiction. Citing over three decades of judicial opinions along with the legislative histories of the Commodity Exchange Act and the EPAct, the CFTC described its jurisdiction over trading on futures markets as the product of an “unmistakable Congressional grant of exclusive authority.” The CFTC emphasized that the EPAct evinced no legislative intent to appeal or amend the CFTC’s exclusive jurisdiction. In fact, as the CFTC argued, in requiring the agencies to share relevant information, Congress included a savings clause in EPAct that expressly reserves the CFTC’s exclusive jurisdiction.
Meanwhile, late on November 7, 2008, the FERC indicated that it may be close to settling with Hunter and Amaranth, possibly within two weeks. If they reach a settlement the CFTC’s jurisdictional challenge will not be addressed on the merits.