Federal regulators said Thursday the failed hedge fund Amaranth Advisors and two traders accused of manipulation of natural gas markets face $291 million in penalties.
The Federal Energy Regulatory Commission’s action represents the first prosecution of illegal market manipulation under authority Congress gave it two years ago.
Amaranth and its former head energy trader, Brian Hunter, denied wrongdoing, and they will have 30 days to respond and persuade the commission not to levy fines and make them disgorge profits.
The agency’s announcement came a day after the Commodity Futures Trading Commission filed a civil complaint in federal court against Amaranth and Mr. Hunter. The complaint focuses on the rapid sale of March and May futures contracts just as they were about to expire and a possible attempt to cover up the transactions.
The commission’s chairman, Joseph T. Kelliher, said the agency found that Amaranth, Mr. Hunter and another trader, Matthew Donohoe, profited when natural gas prices fell on the New York Mercantile Exchange over three months last year. The company sold “an extraordinary” amount of natural gas contracts in the last 30 minutes of trading before expiration, the commission said. Meanwhile, Amaranth had made bigger bets that natural gas prices would fall.
In contrast, the commodities commission accuses the hedge fund of attempting to affect prices.
The proposed fines include $200 million for Amaranth, $30 million for Mr. Hunter, and $2 million for Mr. Donohoe, who could not be reached for comment. The commission also recommended that Amaranth pay back more than $59 million in what the agency says is ill-gotten profit, plus interest.
Amaranth, based in Greenwich, Conn., folded last year after losing about $6 billion. It has been selling off assets and gradually returning cash to investors.
Earlier this week, Mr. Hunter sought a restraining order against the FERC, arguing that the agency exceeded its power by trying to bring an enforcement action against him.
In an unrelated case, the commission proposed $167 million in fines and returned profits for Energy Transfer Partners, a natural gas pipeline and trading company based in Dallas.
The commission accused that company of manipulating natural gas prices at trading hubs in Texas over two years, ending in late 2005.
source:nytimes.com
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