Updates on Cases to Watch:
- ETRACOM files answer to FERC complaint and response on FERC lodging of administrative record.
- DRW and Wilson file motion for reconsideration of order denying summary judgment.
- City Power files motion for discovery in district court proceeding.
- Fifth Circuit denies TOTAL motion to expedite its appeal.
On October 18, the CFTC approved a final order in response to a petition from Southwest Power Pool, Inc. (SPP) for exemption of certain transactions in the SPP market. The CFTC’s final order exempts certain specified transactions within SPP from the Commodity Exchange Act (CEA) and CFTC regulations, with the exception of the CFTC’s general anti-fraud and anti-manipulation authority, and scienter-based prohibitions. In addition, the final order expressly exempts such transactions from private actions under CEA section 22. Other than the express addition of the exemption from private actions, the final order for SPP is similar to the CFTC’s March 28, 2013 final order that exempted specified transactions of six other RTOs/ISOs from certain provisions of the CEA and CFTC regulations. In addition, the CFTC issued an amendment to the 2013 final order related to the other RTOs/ISOs. The amendment explicitly provides that the transactions covered under the 2013 order are exempt from private actions under CEA section 22.
On October 19, Igor Oystacher and his firm, 3Red Trading, announced in court that they had reached an agreement in principle with the CFTC that settles a spoofing lawsuit ahead of trial scheduled for January in the U.S. District Court for the Northern District of Illinois. Oystacher and 3Red Trading faced allegations that they placed fake orders on several futures markets in order to make money based on resulting price fluctuations. The CFTC sued Oystacher in October 2015, alleging that he placed false buy and sell orders on six contract markets (including copper, crude oil and natural gas) between 2011 and 2014. According to the CFTC, Oystacher never intended to fill those orders, but instead used these “spoof” orders to take advantage of the resulting misperceptions about market demand. Lawyers for the parties told the court that minor details of the agreement still needed to be finalized, but those details likely would not hold up the settlement.
Notably, Judge St. Eve recently rejected Oystacher’s viewpoint that the statute didn’t give traders fair notice of potential misconduct. In denying his motion to dismiss, Judge St. Eve said that economic laws and regulations have a much less stringent vagueness standard than other laws because those participating in the markets are much more likely to consult the law.
On August 12, TOTAL filed a motion to alter judgment and motion to file a second amended complaint in federal district court. This case involves TOTAL’s declaratory judgment action in federal court in Texas claiming FERC lacked jurisdiction to adjudicate the manipulation claims against TOTAL. As we previously reported, U.S. District Judge Nancy F. Atlas issued an order on July 15 dismissing TOTAL’s declaratory judgment action against FERC. TOTAL argues that it is entitled to a declaratory judgment stating that FERC must litigate alleged market manipulation violations in federal district court because such a process is mandated by Section 24 of the Natural Gas Act, as well as the Constitution and the Administrative Procedure Act. FERC’s response to TOTAL’s motion is due by August 29.
On August 24, City Power filed its answer to FERC’s complaint in the U.S. District Court for the District of Columbia. As we previously reported, Judge Bates issued an order denying City Power’s motion to dismiss in FERC’s case on August 10. City Power’s answer denies many of the allegations in FERC’s complaint. City Power also asserts a number of defenses, including that FERC’s complaint fails to state a claim for which relief can be granted, due process violations, FERC’s lack of jurisdiction over the UTC trades at issue, and lack of fair notice.
On August 16, FERC filed a response to the Barclays filing of supplemental authorities (the recent decisions in the Maxim Power and City Power cases on de novo review). FERC states that it “respectfully disagrees” with those courts’ holdings that Section 31(d)(3) of the Federal Power Act requires application of the Federal Rules of Civil Procedure and a regular civil trial. In addition, FERC points to some of the language from the City Power decision supporting its position on liability, including that: (a) FERC is not required to show harm; (b) traders are presumed to be trading based on their best estimates of the security’s economic value, and trading for other purposes can be deceptive; and (c) de novo review does not eliminate Chevron deference.
On August 17, FERC filed its complaint against ETRACOM and Michael Rosenberg in the U.S. District Court for the Eastern District of California. As we previously reported in June, FERC issued an Order Assessing Civil Penalties finding that ETRACOM and Rosenberg violated FERC’s anti-manipulation rule through a scheme to submit virtual supply transactions at the New Melones intertie at the CAISO border in order to affect power prices and economically benefit ETRACOM’s Congestion Revenue Rights sourced at that location. FERC assessed $2,400,000 against ETRACOM and $100,000 against Rosenberg in civil penalties, plus $315,072 in disgorgement. Since ETRACOM elected the de novo review procedures under Section 31(d)(3) of the Federal Power Act and then did not pay the penalty within 60 days, FERC instituted the instant proceeding in district court seeking an order affirming the assessment of a civil penalty. The case has been assigned to Judge Troy L. Nunley, the same judge presiding over the Barclays case.
On August 22, FERC issued an order approving a settlement between FERC’s Office of Enforcement and Saracen Energy Midwest, LP (Saracen) that resolves Enforcement’s investigation into whether Saracen violated the Southwest Power Pool, Inc. (SPP) tariff by submitting bids for Transmission Congestion Rights (TCRs) at Electronically Equivalent Settlement Locations (EESLs) for auctions in September and October 2014, and March and April 2015. Enforcement determined that in five separate auction rounds across these four different auction months, Saracen submitted TCR bids at EESLs, which is prohibited under the SPP tariff. Saracen neither admitted nor denied the violations and agreed to pay a civil penalty of $25,000. Saracen also agreed to implement measures designed to ensure compliance in the future, including submitting an annual compliance report.
On August 3, FERC issued similar Staff Notices of Alleged Violations (NAV) stating that FERC Enforcement Staff has preliminarily determined that National Energy and David Silva violated FERC’s anti-manipulation rule. According to the NAVs, Staff alleges that National Energy and Silva fraudulently traded physical basis at Texas Eastern M3 during the January 2012 bid-week to increase the value of their financial basis positions. In particular, Staff alleges that National Energy and Silva sold physical basis at arbitrarily low prices early in the morning to benefit a large short financial basis position acquired before bid-week, a large part of which they repurchased after making their physical basis sales. Staff also alleges that National Energy fraudulently traded physical basis at Henry Hub during the April 2014 bid-week to increase the value of its financial exposure, which included trading physical basis after the close of the NYMEX solely to benefit National Energy’s exposure to the Henry Hub Inside FERC index.
On July 29, FERC filed an opposition to the brief on discovery filed by Richard Silkman and CES in the U.S. District Court for the District of Maine. In early July, Silkman and CES submitted a brief outlining the discovery they seek in the case, as directed by the judge during a scheduling conference. In opposing the discovery, FERC argues that the respondents have been provided with “all of the hallmarks of administrative procedure and due process,” including an adjudication before an unbiased decision-maker, notice and an opportunity to be heard. In addition, FERC claims that the respondents could have sought particular documents or testimony before FERC, but they did not, so these requests have been waived. Finally, FERC claims that the respondents’ discovery requests are premature, as the administrative record should be reviewed before determining whether any of the exceptions to the general rule against supplementation of the record may be present.