This week’s enforcement update covers:
- CFTC orders W Resources, LLC to pay a $150,000 civil penalty for registration violations;
- Senate Energy & Natural Resources Committee considers FERC nominees; new GC withdraws from FERC v. Powhatan case.
- Rostin Behnam sworn in as a Commissioner of the CFTC;
- Appeals court denies petition for rehearing related to spoofing conviction against Michael Coscia;
- FERC approves settlement agreement with American Transmission Company;
- FERC Enforcement settles with Westar Energy; and
- FERC approves settlement agreement with City Power and Tsingas.
CFTC orders W Resources, LLC to pay a $150,000 civil penalty for registration violations. On September 5, the CFTC issued an order requiring W Resources, LLC to pay a $150,000 civil penalty for acting as a Commodity Pool Operator (CPO) without registering with the CFTC. The order finds that W Resources operated three funds as commodity pools by trading commodity options to hedge financial exposure to physical oil and gas assets. According to the CFTC, beginning around October 2013, W Resources operated the funds without registering with the CFTC as a CPO, in violation of the registration provisions of the CEA. In addition, W Resources did not file a notice of exemption with the National Futures Association (NFA) under CFTC regulations, or otherwise seek relief from the CFTC. Under the order, W Resources agreed to carry to expiration any position in commodity interests existing on the date of the order, and W Resources will not transact in any other commodity interests unless it registers with the CFTC, notifies NFA of an applicable exemption from registration, or otherwise seeks and receives no-action relief from the CFTC.
Michael Sackheim, our Sidley colleague, commented, “I think the Funds, as private placements, were probably eligible to file for a CFTC rule 4.13(a)(3) exemption from CPO registration because the crude oil options they traded for hedging on NYMEX were probably de minimis. A key takeaway from the CFTC’s order is that if you operate a collective investment vehicle that trades commodity interests, if there is an available CPO registration exemption, you need to file for it.”
Senate Energy & Natural Resources Committee considers FERC nominees; new GC withdraws from FERC v. Powhatan case. On September 7, the Senate Committee on Energy & Natural Resources held a nomination hearing to consider FERC nominees Richard Glick and Kevin McIntyre. Senator Maria Cantwell (D-WA) began the questioning by asking Mr. McIntyre about FERC’s role in prohibiting manipulation in the energy markets. According to Senator Cantwell, there was “manipulation to a great degree” during the Western energy crisis in 2000-2001, including schemes to move power in and out of markets to spike rates. Senator Cantwell noted that FERC has investigated over 100 cases of manipulation and collected over $500 million in civil penalties since Congress gave FERC enhanced manipulation authority in 2005. Mr. McIntyre responded that he is committed to policing energy markets to keep them free from manipulation. According to Mr. McIntyre, FERC’s role in enforcement is “very important.” Mr. McIntyre remarked, “I believe in a robust program of enforcement and if confirmed I would bring that view to my work at the FERC. … I think it goes beyond just ‘just and reasonable rates.’ … Congress did in the Energy Policy Act of 2005 give express authority to the FERC to police market manipulation in energy markets regulated by the FERC. … I think it’s essential that the FERC get that right.”
In related news: Reflecting his new role at FERC, James Danly (formerly of Skadden) has withdrawn from representing Chen, et al. in FERC v. Powhatan because he’s going to FERC to become General Counsel. FERC Chair Neil Chatterjee announced Danly has been named General Counsel at the Commission, effective September 18, 2017. How Danly’s experience as counsel for respondents might impact FERC’s enforcement efforts will be interesting to watch—will concerns about process finally have a sympathetic ear?
Rostin Behnam sworn in as a Commissioner of the CFTC. On September 6, Rostin Behnam was sworn in to serve as a Commissioner of the CFTC for a term expiring in June 2021. Behman was unanimously confirmed by the U.S. Senate on August 3. After the swearing in, Commissioner Behnam remarked, “I am honored to join the Commission at this critical time, working hard to protect investors and ensure the market is free of fraud and manipulation. I look forward to working with Chairman Giancarlo, my fellow and future Commissioners and staff to address the issues before the Commission and support safe, transparent, and competitive markets.”
Appeals court denies petition for rehearing related to spoofing conviction against Michael Coscia. On September 5, the U.S. Court of Appeals for the Seventh Circuit summarily denied Michael Coscia’s petition for rehearing with request for rehearing en banc. As we previously reported, on August 7, the Seventh Circuit upheld Coscia’s conviction and three-year prison sentence for commodities fraud and spoofing.
FERC approves settlement agreement with American Transmission Company. On August 28, FERC approved a settlement between FERC’s Office of Enforcement and American Transmission Company, LLC (ATC). The settlement resolves Enforcement’s investigation into whether ATC violated Section 203 of the Federal Power Act (FPA) and FERC’s related regulations by acquiring certain FERC-jurisdictional facilities without prior FERC approval, as well as whether ATC violated Section 205 of the FPA and FERC’s regulations by failing to timely file certain FERC-jurisdictional agreements. Under the settlement, ATC admitted the violations and agreed to pay a civil penalty of $205,000. ATC also agreed to implement measures designed to ensure compliance in the future, including submitting an annual compliance report.
FERC approves settlement agreement with Westar Energy. On August 24, FERC approved a settlement between FERC’s Office of Enforcement and Westar Energy, Inc. (Westar) related to alleged violations of provisions of the Southwest Power Pool (SPP) tariff and Section 35.41(b) of FERC’s regulations. During the relevant timeframe, Westar submitted mitigated energy offer curves (EOCs) into the SPP market for six jointly-owned units in four separate power plants. SPP’s Market Monitoring Unit (MMU) referred Westar to FERC Enforcement for submitting mitigated EOCs inconsistent with the SPP Tariff, and potentially targeting outsized make-whole payments. FERC Enforcement alleged that Westar violated the SPP tariff by submitting inaccurate cost inputs for its mitigated EOCs, which must be based on the individual resource’s costs and unit characteristics. In addition, Enforcement determined that Westar violated Section 35.41(b) of FERC’s regulations related to accurate communications by submitting mitigated EOCs that did not reflect actual costs or a reasonable cost estimate, and failing to provide SPP’s MMU with data responses sufficient to replicate Westar’s mitigated EOCs. Enforcement did not identify evidence indicating that Westar intentionally targeted outsized make-whole payments. Westar admitted to the violations and agreed to pay a civil penalty of $180,000.
FERC approves settlement agreement with City Power and Tsingas. On August 22, FERC approved a settlement between FERC’s Office of Enforcement and City Power Marketing, LLC and K. Stephen Tsingas. As we previously reported, FERC Enforcement and City Power/Tsingas reached a settlement agreement in March, but were waiting for FERC approval once the quorum was restored. Under the settlement, City Power agreed to make a civil penalty payment of $9,000,000 to the U.S. Treasury. Tsingas agreed to make a payment in total of $2,720,000, consisting of $1,300,000 in disgorgement to PJM and a penalty of $1,420,000 to the U.S. Treasury. In addition, Tsingas further agreed that he, and any person acting on his behalf, will be banned from engaging or participating, whether through consulting, advising, directing, or strategizing, in any trading transaction (physical or financial) within FERC’s jurisdiction for three years from the date of the settlement agreement. City Power and Tsingas neither admitted nor denied the alleged violations. Solely for the purpose of resolving this matter through settlement, FERC agreed that it (or any entity assigned to collect) will not assert that Tsingas is personally liable for the penalty against City Power, whether under a theory of joint and several liability or otherwise.