On October 25, TOTAL filed its opening brief in the Fifth Circuit in its declaratory judgment action against FERC. As it argued before the district court, TOTAL argues that FERC must go to federal court to prove its allegations of market manipulation under the Natural Gas Act (NGA). TOTAL claims that FERC cannot force respondents in such cases to defend themselves in an in-house agency proceeding before a FERC administrative law judge, subject only to deferential review in a federal appellate court. According to TOTAL, Section 24 of the NGA declares that federal district courts have “exclusive jurisdiction of violations” of the NGA and of “all” suits and actions to “enforce any liability or duty created by” the NGA.
On October 27, the CFTC filed an opposition to defendants DRW Investments, LLC and Donald R. Wilson’s motion for reconsideration of the September 30 decision denying summary judgment in the U.S. District Court for the Southern District of New York. In its opposition, the CFTC argues that the defendants’ motion does not meet the high standard for reconsideration. According to the CFTC, the defendants do not identify any new law or new evidence in support of their motion, nor do they identify any decisions or matters that the court actually overlooked. Therefore, the CFTC requests that the court reject the defendants’ attempt to repeat the same arguments they made in their summary judgment briefings (i.e., that the alleged bidding strategy based on the defendants own subjective estimate of fair value is per se legitimate and thus insulates them from liability for manipulation as a matter of law).
On October 26, FERC filed an opposition to City Power’s motion for discovery under Rule 56(d) of the Federal Rules of Civil Procedure in the U.S. District Court for the District of Columbia. According to FERC, City Power has failed to provide any persuasive reason for needing discovery. In particular, FERC claims that City Power does not need discovery about the legitimate purposes of virtual trading in PJM, evidence of intent, or City Power’s allegedly untruthful statements about instant messages. According to FERC, City Power already has much of the requested information. Thus, FERC requests that the court deny City Power’s motion for discovery and grant FERC’s motion for summary judgment.
At Platts Nodal Trader on Thursday, October 27, Director Collins gave a presentation about how FERC Enforcement’s Division of Analytics and Surveillance monitors markets. Collins described his staff and explained how they screen trade data. As the accompanying presentation shows, FERC uses masked and unmasked data, as well as the larger trader position reports now shared by CFTC to screen for concerns warranting further inquiry. Collins observed that persistence – the repeated occurrence of trader activities, especially seemingly uneconomic activity – is a key issue for his team of analysts. When their screens are tripped, Collins explained, they use a peer based evaluation decision process on whether to advance their surveillance through direct inquiry to the company or trader responsible for the suspicious trading. After that, DAS management decides whether to refer the matter to Enforcement Division of Investigation (i.e., the prosecutors). On compliance, Collins shared that if DAS can discern patterns or conduct in the data, then company compliance programs surely should as well. Despite a flurry of probing questions, Collins would not detail what they screen for beyond uneconomic and persistent activity. It was clear, however, that DAS is actively monitoring the markets and provides a strong prong for the triad defending against market manipulation (RTOs and their market monitors, whistleblowers, and FERC DAS).
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 September 29, the CFTC issued an order filing and settling charges against Jon P. Ruggles for engaging in fraudulent, fictitious, and noncompetitive trades in crude oil and heating oil futures and options and RBOB gasoline futures on the New York Mercantile Exchange (NYMEX) from March 2012 to December 2012. The CFTC found that Ruggles, who was responsible for developing his former employer’s fuel hedging strategies and executing the employer’s trades in those NYMEX products, owed a duty of trust and confidence to act in the employer’s best interest and to keep confidential the employer’s material, nonpublic information regarding its trading activity. According to the order, Ruggles breached those duties and misappropriated the employer’s confidential, material, nonpublic trading information for his own personal benefit by trading the same NYMEX products in personal accounts in his wife’s name, which he controlled. The CFTC’s order requires Ruggles to disgorge over $3.5 million and imposes a civil penalty of $1.75 million. Ruggles is also permanently banned from trading and registering with the CFTC.
On October 3, TOTAL filed a motion for expedited consideration of its appeal to the Fifth Circuit in its declaratory judgment action against FERC. TOTAL requested that the court enter an accelerated briefing schedule, that preparation of the record on appeal be expedited, and that the case be calendared for oral argument as soon as practicable after completion of briefing. According to TOTAL, this expedited treatment is necessary to spare TOTAL—and taxpayers—the costs of an unlawful agency adjudicatory proceeding before a FERC administrative law judge for FERC’s market manipulation case against TOTAL.
On September 30, Judge Analisa Torres of the U.S. District Court for the Southern District of New York issued an order denying motions for summary judgment, and partially granting motions to exclude certain testimony in the CFTC’s enforcement action against defendants DRW Investments, LLC and Donald R. Wilson for alleged manipulation and attempted manipulation of the price of certain futures contracts on interest rate swaps. With respect to the CFTC’s market manipulation claims, Judge Torres found that CFTC must prove the defendants had the specific intent to affect market prices that did not reflect the legitimate forces of supply and demand. In doing so, Judge Torres rejected the CFTC’s interpretation that the intent standard is merely the intent to affect market price. In addition, Judge Torres granted in part, and denied in part, each party’s motions to exclude certain expert testimony.
After this ruling, the case was reassigned to Judge Richard J. Sullivan. On October 7, Judge Sullivan issued an order setting the case for jury trial to begin on December 1, and instructed the parties to submit a joint proposed pretrial order.