This week’s enforcement update covers:
- CFTC enters into non-prosecution agreements with former Citigroup Global Markets Inc. traders in spoofing case;
- CFTC orders $5.2 million in civil penalties for wash sales designed to generate exchange rebate fees;
- FERC hosts technical conference on developments in natural gas index liquidity and transparency;
- Senate Energy & Natural Resources Committee releases new energy bill;
- President Trump announces intent to nominate Richard Glick as FERC Commissioner;
- FERC Enforcement and City Power file status report on settlement; and
- Judge grants Kraft Foods motion to compel discovery from the CFTC.
Most notably, we have been joined by a new colleague. We are pleased to announce that Emily Mallen has joined us in Washington, D.C. as a partner in our Energy practice. She comes to Sidley from Van Ness Feldman LLP. Emily counsels clients in the natural gas, oil and products pipeline industries. She focuses her practice on oil and natural gas pipeline rate, tariff and certificate issues before the Federal Energy Regulatory Commission. She advises clients on their obligations under energy and environmental laws, particularly the Natural Gas Act, the Interstate Commerce Act and the National Environmental Policy Act, and supports clients on emerging issues in energy and natural resources law. Emily received her B.A. from Washington University in St. Louis and J.D. from Duke University School of Law.
CFTC enters into its first non-prosecution agreements with former Citigroup Global Markets Inc. traders in spoofing case. On June 29, the CFTC announced that it entered into non-prosecution agreements with three former Citigroup Global Markets Inc. (Citigroup) traders. In the non-prosecution agreements, each trader admits to engaging in the unlawful disruptive trade practice of “spoofing” (bidding or offering with the intent to cancel the bid or offer before execution) in U.S. Treasury futures markets while trading for Citigroup in 2011 and 2012. The non-prosecution agreements emphasize the traders’ cooperation, willingness to accept responsibility for their misconduct, assistance provided to the CFTC’s investigation of Citigroup, and the absence of a history of prior misconduct. CFTC Director of Enforcement James McDonald commented: “I am pleased to announce the first non-prosecution agreements entered into by the Commission, which I expect will be an important part of the Division’s cooperation program going forward. Non-prosecution agreements like these give the Division a powerful tool to reward extraordinary cooperation in the right cases, while providing individuals and organizations strong incentives to promptly accept responsibility for their wrongdoing and cooperate with the Division’s investigation.”
CFTC orders $5.2 million in civil penalties for wash sales designed to generate exchange rebate fees. On June 29, the CFTC announced the filing and simultaneous settlement of charges against Rosenthal Collins Capital Markets, LLC, now known as DV Trading LLC (RCCM), for engaging in illegal wash sales in order to generate rebates of exchange fees based upon increased trading volumes. Under the settlement, RCCM agreed to pay a $5 million civil monetary penalty. The CFTC order finds that from early 2013 until July 2015, proprietary traders at RCCM engaged in three different wash trading strategies in order to generate rebates through the Eurodollar Pack and Bundle Market Maker Program offered by Chicago Mercantile Exchange, Inc., under which RCCM had certain quoting obligations and, in return, could earn rebates in the form of fee credits for its trading in the program. The CFTC also issued a separate order finding that former RCCM trader, Brandon Elsasser, entered illegal wash sales and requiring him to pay a $200,000 civil monetary penalty. According to the order, Elsasser discovered a strategy in which he could trade against himself in rebate-eligible products and avoid detection using the exchange’s implied matching engine to buy and sell contracts.
FERC hosts technical conference on developments in natural gas index liquidity and transparency. On June 29, FERC hosted a technical conference to explore the state of liquidity in the physical natural gas markets, current trends in physical natural gas trading and price reporting, and how the use of natural gas indices have evolved over time. During the technical conference, FERC Staff presented its analysis regarding developments in natural gas index liquidity and transparency. Panelists also provided the industry’s views on the current level of confidence in natural gas indices and price formation, and how to improve natural gas market liquidity and price reporting. Among other things, panelists discussed the possibility of FERC strengthening its price reporting safe harbor policy and whether to require natural gas marketers to price report. FERC will accept post-technical conference comments in Docket No. AD17-12, which are due by July 31, 2017.
Senate Energy Committee releases energy bill. On June 29, the Senate Committee on Energy & Natural Resources released the text of its new bipartisan energy bill, the Energy and Natural Resources Act of 2017. The bill is largely similar to a version that passed last year but failed in conference negotiations with the House. The bill was placed directly on the Senate Calendar for expedited floor consideration.
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President Trump announces intent to nominate Richard Glick as FERC Commissioner. On June 29, President Trump announced his intent to nominate Richard Glick as FERC Commissioner to succeed outgoing Democratic FERC Commissioner Colette Honorable for the remainder of a 5-year term expiring June 30, 2022. Mr. Glick is General Counsel for the Senate Energy and Natural Resources Committee, and during the time of the Western energy crisis worked for PacifiCorp.
FERC Enforcement and City Power file status report on settlement. On June 28, FERC’s Office of Enforcement and City Power filed a joint status report with the U.S. District Court for the District of Columbia. As previously reported, both parties have signed a settlement agreement, but the settlement agreement cannot take effect until FERC has approved it. The parties noted that FERC currently lacks a quorum, which will be restored if the Senate confirms the two pending FERC Commissioner nominations. In light of these facts, Judge Bates granted the parties’ request to file an updated status report by not later than August 31, 2017, or once FERC has obtained a quorum, whichever comes first.
Judge grants Kraft Foods motion to compel discovery from the CFTC. On June 15, Judge John Robert Blakey issued a minute entry granting Defendants Kraft Foods Group and Mondelez Global motion to compel the CFTC to provide responses to certain interrogatories about facts underlying specific allegations in the CFTC’s complaint. According to the Defendants’ motion, the CFTC argued that it is too burdensome to provide Defendants with responses at this time, and instead that the CFTC would provide the information sometime near the close of discovery. Judge Blakey ordered the CFTC to provide the discovery responses within 30 days.