The approved settlement agreement resolves the two-year-old anti-manipulation case against the collapsed Amaranth hedge fund.
The U.S. Commodity Futures Trading Commission (CFTC) and the
Federal Energy Regulatory Commission (FERC) each announced on
August 12, 2009, an approved settlement agreement resolving the
two-year-old anti-manipulation case against the collapsed Amaranth
hedge fund. The settlement requires the Amaranth parties to pay
$7.5 million to the U.S. Treasury.
The uncontested joint settlement was agreed to by FERC's Office
of Enforcement litigation staff and several Amaranth affiliates,
including Amaranth Advisors, Amaranth LLC, Amaranth Partners LLC,
Amaranth Capital Partners LLC, Amaranth Management Limited
Partnership, Amaranth International Limited, Amaranth Group Inc.,
Amaranth Advisors (Calgary) ULC and Matthew Donohoe. FERC's
case against Amaranth involves allegations of actual manipulation,
and the settlement approved by FERC resolves all claims against the
Amaranth parties that arose out of conduct alleged to have violated
FERC's natural gas anti-manipulation rule.
The settlement was also approved on August 12, 2009, in the U.S. District Court for the Southern District of New York, resolving the CFTC's attempted manipulation claim against the Amaranth parties. The federal court order, entered on August 12, 2009, by the Honorable Denny Chin, requires that the Amaranth entities pay the $7.5 million civil monetary penalty. Additionally, the court's order permanently enjoins the Amaranth entities from violating the anti-manipulation provisions of the Commodity Exchange Act. The order also prohibits Amaranth Advisors L.L.C. from violating Section 9(a)(4) of the Commodity Exchange Act (CEA), which prohibits anyone from making false, fictitious or fraudulent statements to registered entities, such as the NYMEX.
Notably, the settlement includes stipulation of facts by the Amaranth parties regarding their positions in the natural gas futures contracts, sales of those contracts and positions in derivative swaps. Those stipulations include that FERC properly raised questions about the effects of futures contracts trading on prices in the physical natural gas market because the trading at issue appeared atypical, anomalous and unusual, and therefore had the potential to erode public confidence in the validity of the settlement price. The settlement also states that FERC properly investigated the trading, and the Amaranth parties concede FERC's subject matter jurisdiction in this proceeding. Amaranth Advisors L.L.C., Amaranth Advisors (Calgary) ULC and Matthew Donohoe acknowledge that they are accountable for their trading in NYMEX NG Futures Contracts, which raised legitimate questions about the effect of the trading on prices in the physical natural gas market. The Amaranth parties also agreed to dismiss their pending appeal in the U.S. Court of Appeals for the District of Columbia Circuit, and agreed that they will not make any public statement denying any allegation in the order to show cause or the settlement agreement, or create or tend to create the impression that the order to show cause or the settlement agreement are without factual basis.
The settlement does not involve Brian Hunter, the lead energy trader for Amaranth, who also was named in both the FERC and CFTC cases. The remaining litigation by FERC and CFTC against Hunter will not be affected by the settlement. The FERC hearing in the case against Hunter is scheduled to start on August 18, 2009.
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