Press Releases

 Washington, DC – U.S. Senator Dianne Feinstein today renewed her call for passage of legislation she has sponsored to improve oversight of energy trading markets – and to close the “Enron Loophole” – in the wake of price-manipulation charges brought against Amaranth Advisors hedge fund and its former head trader, Brian Hunter.

The Commodities Futures Trading Commission (CFTC) and the Federal Energy Regulatory Commission (FERC) have alleged that Amaranth Advisors – which at one point controlled more than half of the U.S. natural gas market – had sought to manipulate natural gas prices in the United States. The Greenwich, Conn.-based hedge fund collapsed in September 2006 after announcing that speculation in natural gas trading had resulted in a $6.6 billion loss. It was the biggest hedge fund failure ever.

“Yesterday, the Federal Energy Regulatory Commission unanimously announced that it will file preliminary charges against Amaranth Advisors and two of its traders for alleged price manipulation of natural gas prices. This comes on the heels of similar charges filed earlier this week by the Commodities Futures Trading Commission,” Senator Feinstein said. “The moves by the FERC and the CFTC are very welcome. Manipulation must not be permitted to happen. I hope that the size and seriousness of the penalties will be made note of.

Despite this, we still need additional oversight in the energy markets. That’s why we should pass legislation to require energy traders to provide an audit trail and meet the same reporting standards as their colleagues on NYMEX. If CFTC had real-time trading records in 2006, it could have acted to prevent these alleged market manipulations from happening repeatedly.  The time has come to shine light on the energy market.”

The CFTC’s civil enforcement action, filed in federal court on Wednesday, seeks to permanently block former Amaranth head trader Hunter’s access to all commodities markets in the United States. The Commission specifically alleged that Hunter and Amaranth attempted to sway prices with large sell orders on Feb. 24 and April 26, in a bid to intentionally drive down prices in the regulated NYMEX market. Their alleged objective was to profit on its positions held in the unregulated Intercontinental Exchange market, a market that CFTC could not monitor in 2006 because the Enron Loophole prevented access to records. Amaranth has also been accused by the CFTC of covering up the manipulation.

Similarly, the FERC yesterday unanimously moved forward to file preliminary charges against Amaranth, Hunter, and another former trader of the hedge fund – Matthew Donohue – for engaging in alleged manipulation of natural gas price futures in February, March and April 2006, which led to inflated prices in the East and Gulf Coasts (regions under the FERC’s jurisdiction). The agency called for $291 million in penalties. This is the first time that the FERC has used it authority to prosecute market manipulation – authority which Senator Feinstein, working with Senators Maria Cantwell and Jeff Bingaman, fought to include in the Energy Policy Act of 2005.

The speculative activity and collapse of Amaranth resulted in inflated natural gas costs and led investors to suffer massive losses. Investors who suffered losses include the public-employee retirement fund of the county of San Diego, which lost as much as $87 million in investments. In addition, at a recent hearing of the Senate Permanent Subcommittee on Investigations, the American Public Gas Association reported that Amaranth’s activities led to massive losses for consumers nationwide.  The Department of Energy reports that 2006 was the most expensive year for residential natural gas on record, with prices averaging 76 percent above prices in 2000, when the Enron loophole exempted electronic markets from CFTC oversight.  Prices even exceeded 2005, when Gulf of Mexico natural gas production dropped and prices spiked in the wake of Hurricane Katrina and Rita.
 
In February, Senator Feinstein joined with Senators Olympia Snowe (R-ME), Carl Levin (D-MI), and Maria Cantwell (D-WA) to introduce legislation that would increase transparency and oversight for the electronic over-the-counter trading of energy commodities such as oil, natural gas, coal and electricity.  Other cosponsors include Senators Barbara Boxer (D-Calif.), Russ Feingold (D-WI), Jeff Bingaman (D-NM), Joe Lieberman (I-CT), Frank Lautenberg (D-NJ), Barbara Mikulski (D-MD), John Kerry (D-MA), and Bernard Sanders (I-VT).

The Oil and Gas Traders Oversight Act would:

  • Require U.S. energy traders who electronically trade futures in the U.S. to keep records and report large positions carried by their market participants in energy commodities for five years or longer. These are the same requirements that apply to traders that do business on the New York Mercantile Exchange (NYMEX).

  • Energy commodities include: coal, crude oil, gasoline, heating oil, diesel fuel, electricity, propane, and natural gas.

  • Require traders to provide such records to the Commodity Futures Trading Commission (CFTC) or the Justice Department upon request, the same reporting requirements for NYMEX traders.

  • Require persons in the United States, who trade U.S. energy commodities delivered in the U.S. on foreign futures exchanges, to keep similar records and report large trades.
    
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