This week’s Enforcement Update covers:
- Judge in Barclays case denies FERC motion to affirm civil penalties;
- CFTC orders civil penalties and trading bans for former Citigroup Global Markets Inc. traders in spoofing case;
- CFTC Acting Chairman Giancarlo appoints James McDonald as Enforcement Director;
- FERC Enforcement and City Power reach settlement agreement; and
- Judge dismisses plaintiffs’ class action complaint against TOTAL.
Judge in Barclays case denies FERC motion to affirm civil penalties. On March 30, Judge Nunley of the U.S. District Court for the Eastern District of California issued an order denying FERC’s motion to affirm civil penalties against Barclays and four traders. Judge Nunley concluded, in agreement with every other federal court that has expressly addressed this issue, that the defendants are entitled to conduct discovery under the Federal Rules of Civil Procedure. Examining the language and structure of Section 31(d) of the Federal Power Act, Judge Nunley determined that the discovery is required under the “de novo review” option. According to Judge Nunley, “In the normal civil action in this Court, the plaintiff (or whoever bears the burden of proof) must actually ‘prove’ its case, and this is no less true when nearly $500 million is at stake. Such proof involves subjecting the evidence presented by both sides to the give and take of the adversarial system. This has not happened thus far. There is nothing in the record that shows that Enforcement ‘proved’ that these Defendants broke the law, or that Defendants had a true opportunity to defend themselves.”
Judge Nunley denied FERC’s motion to affirm without prejudice to its renewal as a dispositive motion at an appropriate time. In addition, Judge Nunley ordered the parties to prepare and submit to the court a joint status report that includes the Rule 26(f) discovery plan within sixty days.
CFTC orders civil penalties and trading bans for former Citigroup Global Markets Inc. traders in spoofing case. On March 30, the CFTC issued two separate orders filing and settling charges against Stephen Gola and Jonathan Brims for 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 Global Markets Inc. (Citigroup). As we reported, the CFTC previously issued an order against Citigroup for its related violations. The CFTC found that, between July 16, 2011 and December 31, 2012, Gola and Brims each engaged in the disruptive practice of spoofing more than 1,000 times in various Chicago Mercantile Exchange U.S. Treasury futures products. According to the orders, Gola’s and Brims’s spoofing strategy involved placing bids or offers of 1,000 lots or more with the intent to cancel those orders before execution. The CFTC ordered Gola to pay a $350,000 civil penalty, and Brims to pay a $200,000 civil penalty. Both traders are banned from trading in the futures markets until 6 months after each trader has made full payment of his respective penalty.
CFTC Acting Chairman Giancarlo appoints James McDonald as Enforcement Director. On March 30, CFTC Acting Chairman J. Christopher Giancarlo announced the appointment of James McDonald to be the Director of the agency’s Enforcement Division. Mr. McDonald joins the CFTC from the U.S. Attorney’s Office for the Southern District of New York, where he served as an Assistant U.S. Attorney, most recently in the Public Corruption Unit. Geoffrey Aronow, Sidley partner and former Director of the CFTC’s Enforcement Division, commented, “Chairman Giancarlo continues the recent practice – previously under Democratic Chairs of both the CFTC and the SEC – of appointing prosecutors to run the Enforcement Division, and for the second time in as many weeks he warned not to expect any decrease is the vigor with which the agency pursues ‘those who seek to cheat or manipulate US markets.’ I fully expect continued enforcement focus on manipulation and other forms of market disruption, including spoofing, and expansive use of the agency’s fraud authority, including its recent focus on the ‘misuse’ of confidential information. The real question is how constrained the enforcement program will be by what will undoubtedly be tight budgets and therefore limited resources.”
FERC Enforcement and City Power reach settlement agreement. On March 29, FERC’s Office of Enforcement and City Power filed a report with the U.S. District Court for the District of Columbia about the status of their efforts to reach a settlement through mediation. According to the status report, FERC Enforcement and City Power have reached agreement on the language of a settlement agreement. However, because FERC currently lacks a quorum, final action on the settlement agreement must await the confirmation of at least one new Commissioner.
Judge dismisses class action complaint against TOTAL. On March 27, Judge Koeltl of the U.S. District Court for the Southern District of New York issued an order dismissing the class action plaintiffs’ case against TOTAL for alleged natural gas market manipulation. Judge Koeltl ruled that the class action complaint did not plead facts that would allow the court to draw a reasonable inference that the plaintiffs suffered any economic injury as a result of TOTAL’s alleged manipulation of monthly index prices of physical natural gas at the regional hubs. In addition, Judge Koeltl determined that the class action plaintiffs failed to allege plausibly that TOTAL specifically intended to cause the artificial price of physical or financial instruments purchased by the plaintiffs. Judge Koeltl also dismissed the plaintiffs’ antitrust claims under the Sherman Act, ruling that the plaintiffs lack antitrust standing and are not the appropriate parties to bring such a claim.