New case on front-running

The criminal complaint brought by the U.S. DOJ against currency traders marks another example of a “front running” case.  In the complaint, prosecutors allege defendants used “information provided in confidence” by the victim company to purchase Sterling in advance of the transaction — “a scheme that is commonly referred to as ‘front running’” in breach of the duty of trust and confidence owed to the victim company.


FERC affirms initial decision against BP

On July 11, FERC issued an order affirming an administrative law judge’s decision in the natural gas market manipulation case against BP.  In the order, FERC assessed a civil penalty in the amount of $20,160,000 (payable to the U.S. Treasury), plus disgorgement of unjust profits in the amount of $207,169 (to the Texas Low Income Home Energy Assistance Program).  FERC found that BP executed a scheme to profit from the market conditions in the aftermath of Hurricane Ike during the period from September 18, 2008 through November 30, 2008 by manipulating the price of natural gas in the Houston region.  FERC’s order affirms the ALJ’s findings across the board, but imposes slightly less in terms of the civil penalty and disgorgement than FERC initial sought in the order to show cause ($28 million civil penalty and $800,000 in disgorgement).


Judge dismisses TOTAL declaratory judgment action against FERC

On July 15, U.S. District Judge Nancy F. Atlas issued an order dismissing TOTAL’s declaratory judgment action FERC.  This case was TOTAL’s effort “to bring the fight to FERC” by filing a declaratory judgment action in federal court in Texas claiming FERC lacked jurisdiction to adjudicate the manipulation claims against TOTAL.  Judge Atlas rejected TOTAL’s arguments and granted FERC’s motion to dismiss the action.


TOTAL and individual respondents file answer to FERC order to show cause

On July 12, TOTAL and the two individual respondents filed an answer to FERC’s order to show cause.  According to the filing, neither the show cause order nor the Enforcement Staff report present a single piece of documentary evidence showing that the respondents intended to manipulate any market.  The respondents also argue that Enforcement Staff errs by accepting unfounded, contradictory, and unreliable allegations from two ex-employees of TOTAL, at least one of whom allegedly stole from the company, and both of whom are biased and highly motivated to manufacture their testimony in search of a financial reward of up to $65 million for whistleblowers.  In addition, TOTAL argues that Enforcement Staff performed a superficial analysis of incomplete and unrepresentative trading data.  Finally, TOTAL argues that FERC lacks the authority to make a determination of a violation under the Natural Gas Act, and instead must pursue the action in federal district court.


Plaintiffs file opposition to TOTAL motion to dismiss class action lawsuit

On July 1, the plaintiffs filed an opposition to TOTAL’s motion dismiss the class action complaint in the Southern District of New York. The plaintiffs argue that TOTAL does not contest the plausibility of plaintiffs’ allegations that TOTAL made manipulative and uneconomic trades at the certain regional hubs and that natural gas prices at those hubs were part of an integrated nationwide natural gas market, which could impact natural gas futures prices. In addition, under Second Circuit authority, plaintiffs claim that they have sufficiently alleged that TOTAL caused artificial prices throughout the natural gas market, injuring plaintiffs.

Coscia gets three-year prison sentence for spoofing

On July 13, convicted commodities trader Michael Coscia was sentenced to three years in prison and two years of supervised release for spoofing and commodities fraud.  In November 2015, a jury convicted Coscia on six counts of commodities fraud and six counts of spoofing, and Coscia faced a maximum sentence of 25 years in prison and a $250,000 fine for each count of commodities fraud, and a maximum sentence of 10 years in prison and a $1 million fine for each count of spoofing.

CFTC files opposition to industry group amicus brief in CFTC action against DRW

On July 13, the CFTC filed an opposition to an amicus brief filed by a group of prominent industry associations (CME Group Inc.; Commodity Markets Council; Futures Industry Association, Inc.; Intercontinental Exchange, Inc.; and the Managed Funds Association) in the CFTC’s enforcement action against defendants Donald R. Wilson and DRW Investments, LLC for alleged manipulation and attempted manipulation of the price of certain futures contracts on interest rate swaps.  In their amicus brief, the industry groups argue that the CFTC is wrongly trying to change the settled legal standard for attempted price manipulation.  The argument is over whether, under the “traditional” standard for attempted manipulation (as opposed to the new, broader alternative manipulation provision added by the Dodd-Frank Act), the CFTC has to show only an intent to “affect” price (the CFTC’s position), or whether the CFTC has to show an intent “to create an artificial price” (the defendants’ position, supported by the amicus brief).  The CFTC argues that, to establish attempted manipulation, the CFTC must prove (1) an intent to affect market prices and (2) an overt act in furtherance of that intent.  According to the CFTC, the amicus brief directly contradicts the law of the case, ignores all undisputed facts about defendants’ specific intent to define and affect prices, and jettisons without reference all adverse case law.

Energy Enforcement Update

This week’s enforcement update covers the City Power district court proceeding, letters from Congress on the CFTC’s proposed amendment to the RTO/ISO exemption order, a CFTC request for comment on swap clearing requirement submissions and a Senator’s letter to FERC on Aliso Canyon.


CFTC Proposal re Energy Swaps

The CFTC recently issued a release that may be of interest to you.  Derivatives clearing organizations (DCOs) are required under the Commodity Exchange Act to file certain information with the CFTC when they list new categories of swaps for clearing.  That information is intended to provide a basis on which the CFTC may determine whether to propose to mandate clearing for those swaps.  Over the past few years, a number of these swaps submissions have been made by the DCOs.  The DCOs have made 34 submissions so far, which include certain interest rate swaps, credit default swaps, FX NDFs, energy swaps, agricultural swaps and inflation swaps.  To date, the CFTC has simply been sitting on those submissions.  However, on June 23 the CFTC issued a blanket request for public comment on all of these DCO swaps submissions.  The CFTC is not currently proposing to mandate clearing for any of the swaps that are the subject of the DCO submissions, however, the CFTC will take public comments into consideration in determining whether to propose one or more clearing mandates in the future.  Comments must be submitted by July 25, 2016.  For reference, here is a link to the CFTC’s press release on this topic:

Senator Maria Cantwell Urges FERC to Prevent Price Gouging Due to California Natural Gas Shortage

The Federal Energy Regulatory Commission Should Enforce Existing Anti-Market Manipulation Provisions

Washington, D.C. – Today, Ranking Member of the U.S. Senate Committee on Energy and Natural Resources U.S. Senator Maria Cantwell (D-Wash.) urged the Federal Regulatory Commission (FERC) to prevent energy marketers and electric generators from taking advantage of consumers due to a natural gas shortage in Southern California associated with a major leak at the Aliso Canyon storage facility.