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D.C. Circuit Finds FERC is Not Proper Federal Agency to Regulate Commodities Futures Trading
On March 15, 2013, the United States Court of Appeals for the District of Columbia Circuit (“D.C. Circuit”) resolved a long-running dispute between two federal agencies, finding that the Federal Energy Regulatory Commission (“FERC”) lacked the statutory authority to fine energy trader Brian Hunter $30 million for violations of FERC’s regulations.
FERC Proceeding and $30 Million Fine
In 2007, FERC issued an order directing Amaranth Advisors, L.L.C. and two of its traders, Brian Hunter and Matthew Donohoe, to show cause why they had not violated FERC’s Anti-Manipulation Rule and why they should not be required to pay civil penalties and disgorge unjust profits. FERC alleged that the respondents had traded natural gas futures contracts on the New York Mercantile Exchange (“NYMEX”) in a manner designed to manipulate the prices of the contracts in order to reap a profit on related financial instruments, such as swaps and call options. Throughout the lengthy administrative proceeding, the respondents alleged that FERC lacked the jurisdiction to pursue an enforcement action against them. Amaranth and Donohoe settled with FERC in August 2009. A hearing as to the claims against Hunter was held at FERC in August and September 2009. The Administrative Law Judge issued an Initial Decision in January 2010 which FERC affirmed in April 2011. FERC ordered Hunter to pay a civil penalty in the amount of $30 million.
D.C. Circuit Appeal
After Hunter’s Request for Rehearing was rejected by FERC, he appealed to the D.C. Circuit arguing that FERC lacked the jurisdiction to fine him. The Commodities Futures Trading Commission (“CFTC”) intervened in the case on the side of Hunter, arguing that FERC lacked jurisdiction over the matter. FERC asserted that Section 4A of the Natural Gas Act, as amended by the Energy Policy Act of 2005, conferred jurisdiction over manipulation in connection with the purchase or sale of natural gas. FERC argued that its jurisdiction over energy market manipulation is much broader than jurisdiction over the buying and selling of futures contracts. The CFTC, on the other hand, argued that the Commodity Exchange Act vests exclusive jurisdiction with the CFTC with respect to transactions conducted on futures markets such as NYMEX.
D.C. Circuit Finds FERC Lacked Authority To Fine Hunter
The D.C. Circuit agreed with the CFTC finding that FERC failed to show an implied repeal of the CFTC’s exclusive jurisdiction under the Commodity Exchange Act. The D.C. Circuit concluded that FERC is without statutory jurisdiction to charge Hunter with manipulation of natural gas futures contracts.
1 Amaranth Advisors, L.L.C., 120 FERC ¶ 61,085 (2007).
2 Brian Hunter, 135 FERC ¶ 61,054 (2011).
3 Brian Hunter v. FERC, Case No. 11-1477 (D.C. Cir. Mar. 15, 2013).
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