The U.S. Commodity Futures Trading Commission said on Wednesday that it charged failed hedge fund Amaranth Advisors LLC and its former head trader, Brian Hunter, with trying to manipulate natural gas futures prices.
The CFTC also alleged that Amaranth tried to cover up its wrongdoing by making false statements to the New York Mercantile Exchange.
Amaranth racked up $6.4 billion in losses from bad natural gas contracts before it folded last year, after moving most of its contract positions from the regulated NYMEX to Atlanta-based IntercontinentalExchange where the CFTC has policing powers but no authority to regulate.
The CFTC's action comes after Hunter sued this week to block the Federal Energy Regulatory Commission from taking enforcement action against him.
Hunter said the CFTC, not FERC, has jurisdiction over the NYMEX where Amaranth's questionable trading took place. He left Amaranth last year to start a Calgary-based hedge fund called Solengo Capital.
The CFTC said Amaranth and Hunter tried to manipulate gas futures contracts on the NYMEX on Feb. 24 and April 26, 2006, which were the last days of trading for the exchange's March 2006 and the May 2006 gas futures contracts, respectively.
The CFTC alleges that for each of the expiring days, Amaranth acquired more than 3,000 NYMEX gas futures contracts in advance of the 2:00 to 2:30 p.m. closing price range and then sold most of those contracts during the closing.
The agency's complaint also alleges that Amaranth held large short natural gas financially settled swaps positions, primarily held on the IntercontinentalExchange (ICE). The settlement price of the ICE swaps is based on the NYMEX gas futures settlement price determined by trading done during the closing on the contract's expiring day.
The CFTC said Amaranth intended to lower the prices of the NYMEX gas futures contracts to benefit the hedge fund's swaps positions on ICE and elsewhere.
When the NYMEX inquired about Amaranth's April 26 trading, the hedge fund and Hunter made false statements to the exchange "to cover up defendants' attempted manipulation," the CFTC said.
"This case demonstrates the Commission's ongoing vigilance to punish those who attempt to compromise the integrity of the futures markets," said CFTC Acting Chairman Walter Lukken.