This week’s enforcement update covers:
- FERC and Smith file pleadings on Smith motion for judgment on the pleadings in Barclays case;
- CFTC finds that the Bank of Tokyo-Mitsubishi UFJ, Ltd. engaged in spoofing of Treasury futures and Eurodollar futures – applauds cooperation of the bank;
- Appeals court upholds spoofing conviction against Michael Coscia;
- FERC quorum restored with two new Commissioners;
- Senate unanimously confirms CFTC nominees;
- CFTC orders trader to pay $650,000 civil penalty for spoofing;
- Judge grants motions to dismiss New York ZEC lawsuit; and
- Fifth Circuit denies TOTAL petition for rehearing en banc of declaratory judgment action against FERC.
FERC and Smith file pleadings on Smith motion for judgment on the pleadings in Barclays case. On August 10, FERC filed its opposition to Ryan Smith’s motion for judgment on the pleadings in the U.S. District Court for the Eastern District of California in FERC’s case against Barclays and four former traders. FERC argues that Smith’s statute of limitations defense is inconsistent with a plain reading of the tolling agreement that required “written notice to Mr. Smith that the investigation is terminated” — not implied notice from FERC in the Order to Show Cause. Moreover, according to FERC, Smith’s argument differs from his previous position that the Notice of Alleged Violation allegedly provided “written notice” of termination of the investigation. In any event, FERC asserts that the court need not consider Smith’s argument about FERC’s administrative penalty assessment process because FERC filed this action before the statute of limitations started running again.
August 17, Smith filed a reply in support of his motion for judgment on the pleadings. Smith argues FERC’s investigation ended when the October 31, 2012 Order to Show Cause and attached Enforcement Staff Report provided written notice of a proposed penalty and ordered Smith to elect where to adjudicate FERC’s civil penalty claim. The Order to Show Cause thus satisfied the tolling agreement provision stating that the agreement would terminate when “Enforcement provides written notice to Mr. Smith that the investigation is terminated.” According to Smith, FERC did not file suit in federal court until nearly one year later, rendering its claims against Smith time-barred. Nothing that occurred during the interim, extra-statutory Order to Show Cause process constituted an adjudication or other “action, suit or proceeding” for statute of limitations purposes. Accordingly, Smith argues that FERC’s claims against Smith are time-barred.
CFTC finds that the Bank of Tokyo-Mitsubishi UFJ, Ltd. engaged in spoofing of Treasury futures and Eurodollar futures. On August 7, issued an order filing and settling charges against The Bank of Tokyo-Mitsubishi UFJ, Ltd. (BTMU) for engaging in multiple acts of spoofing in a variety of futures contracts on the Chicago Mercantile Exchange and the Chicago Board of Trade, including futures contracts based on United States treasury notes and Eurodollars. According to the CFTC’s order, BTMU engaged in this activity through one of its employees (Trader A), who accessed these markets through a trading platform from one of BTMU’s Tokyo offices. The order finds that during the period starting July 2009 through December 2014, Trader A placed multiple orders for futures contracts with an intent to cancel the orders before their execution. Trader A’s spoofing strategies included submitting orders on opposite sides of the same market at nearly the same time. According to the CFTC, Trader A engaged in this spoofing activity in order to move the market in a direction favorable to his orders. The order requires BTMU to pay a $600,000 civil monetary penalty. The CFTC became aware of the conduct through BTMU’s voluntary self-reporting, and the CFTC gave BTMU credit for its self-reporting, cooperation, and remediation.
For more information, please this Sidley Update: Some Good Deeds Apparently Do Get Rewarded: CFTC Settles Spoofing Case and Indicates It Gave Substantial Credit for Cooperation and Voluntary Remediation
Appeals court upholds spoofing conviction against Michael Coscia. On August 7, the U.S. Court of Appeals for the Seventh Circuit rejected an appeal by Michael Coscia, who was sentenced to three years in prison in 2016 after a federal jury found the owner of Panther Energy Trading guilty of commodities fraud and spoofing. The Seventh Circuit rejected Coscia’s arguments by that the anti-spoofing statute was unconstitutionally vague, ruling that the anti‐spoofing provision provides clear notice and does not allow for arbitrary enforcement. The appeals court also found that Coscia’s spoofing and commodities fraud convictions were supported by sufficient evidence.
FERC quorum is restored with two new Commissioners. On August 3, the U.S. Senate voted unanimously to confirm Neil Chatterjee and Robert Powelson as Commissioners at FERC. Neil Chatterjee was sworn in as a FERC Commissioner on August 8. Robert Powelson was sworn in as a FERC Commissioner on August 10. FERC now has a quorum for the first time since February. On August 10, President Trump named Neil Chatterjee as Chairman until Kevin McIntyre is confirmed. FERC will resume its open meeting schedule on September 20.
Senate unanimously confirms CFTC nominees. On August 3, the U.S. Senate voted unanimously to confirm the nomination of J. Christopher Giancarlo as Chairman for the CFTC. In addition, the Senate unanimously confirmed Brian D. Quintenz and Rostin Behnam as Commissioners. Giancarlo has served as Acting Chairman since January. On August 15, Brian Quintenz was sworn in to serve as a Commissioner of the CFTC.
CFTC orders trader to pay $650,000 civil penalty for spoofing. On July 26, the CFTC issued an order filing and settling charges against Simon Posen for engaging in thousands of incidents of spoofing in gold, silver, and copper futures contracts traded on the Commodity Exchange, Inc., and crude oil futures contracts traded on the New York Mercantile Exchange over a period spanning more than three years. According to the order, Posen traded from home for his own account and was not employed by any corporate entity. The CFTC’s order requires Posen to pay a $635,000 civil monetary penalty. In addition, the order permanently bans Posen from trading in any market regulated by the CFTC and from applying for registration or claiming exemption from registration with the CFTC in any capacity.
Judge grants motions to dismiss New York ZEC lawsuit. On July 25, Judge Valerie Caproni of the U.S. District Court for the Southern District of New York granted motions to dismiss a lawsuit challenging the New York zero emission credit (ZEC) program for nuclear power generation. Following a similar decision in Illinois, Judge Caproni dismissed the lawsuit – brought by a groups of power generators and trade groups – in part for lack of jurisdiction and in part for failure to state a claim. In the order, Judge Caproni ruled that the court does not have equity jurisdiction over the plaintiffs’ Federal Power Act preemption claims. Judge Caproni found that the New York ZEC program is neither field nor conflict preempted by the Federal Power Act. In addition, Judge Caproni denied plaintiffs’ Dormant Commerce Clause claims, rejecting arguments that the ZEC program facially discriminates against out-of-state energy producers by selecting only New York nuclear power plants to receive ZECs and that the ZEC program imposes an undue burden on interstate commerce by distorting market pricing and incentives.
Fifth Circuit denies TOTAL petition for rehearing en banc of declaratory judgment action against FERC. On July 24, TOTAL filed a petition for rehearing en banc in the Fifth Circuit related to its declaratory judgment action against FERC. In June, the Fifth Circuit affirmed the District Court for the Southern District of Texas in dismissing TOTAL’s appeal. TOTAL brought its action over a year ago when FERC commenced enforcement proceedings, arguing that the Natural Gas Act precludes FERC from adjudicating violations or imposing penalties because those activities are vested exclusively in federal district courts. In petitioning for rehearing en banc, TOTAL argued that the Fifth Circuit panel’s holding in June that it must dismiss this appeal for lack of ripeness is inconsistent with Stolt-Nielsen SA v. Animal Feeds International Corp., in which the Supreme Court held that being forced to defend an unauthorized adjudicative proceeding can constitute sufficient hardship for Article III ripeness.
On August 8, the Fifth Circuit issued an order summarily denying TOTAL’s petition.