On April 25, 2012, the Commodity Futures Trading Commission (“CFTC”) filed a petition in the United States Court of Appeals for the District of Columbia (“D.C. Circuit”) supporting energy trader Brian Hunter’s appeal of a FERC order imposing a $30 million civil penalty on Hunter for alleged market manipulation (see April 25, 2011 edition of the WER).
Hunter is currently appealing FERC’s $30 million civil penalty, and one of Hunter’s defenses is that FERC lacks jurisdiction over futures trading. The CFTC’s petition supports this position, relying on language in the Commodities Exchange Act giving the CFTC exclusive jurisdiction over futures trading.
However, in the FERC proceeding, the FERC Administrative Law Judge hearing the case determined that Brian Hunter engaged in fraudulent conduct and intended to lower the settlement price of natural gas futures contracts, which impacted FERC jurisdictional physical transactions. The ALJ found Hunter’s actions would affect physical natural gas deals because natural gas futures contracts may become physical delivery requirements, and the settlement price affects physical basis contract prices. Thus, FERC found Hunter was subject to the FERC anti-manipulation rule, notwithstanding CFTC jurisdiction over futures.
The CFTC petition does not defend Hunter’s actions or maintain their legality. In fact, the CFTC has had its own civil case against Hunter pending since 2007. That case has been put on hold until the jurisdictional disputes between these two agencies are settled. As such, the CFTC’s recent petition in the D.C. Circuit is part of the on-going battle.