The ongoing turf battle between the Commodity Futures Trading Commission and Federal Energy Regulatory Commission took another turn this week when a trio of U.S. Senators sharply criticized the former for usurping an enforcement action from the latter and agreeing to a monetary settlement that was a fraction of what was originally intended.
A letter authored by Senators Dianne Feinstein (D-Calif.), Maria Cantwell (D-Wash.) and Carl Levin (D-Mich.) to CFTC Chairman Timothy Massad chides his agency for its recent settlement with Brian Hunter, a former natural gas trader for the now shuttered Amaranth Advisors hedge fund. He was accused of trying to manipulate the price of natural gas futures contracts traded on the New York Mercantile Exchange. Amaranth saw most of its $9 billion in assets evaporate after Hunter’s ill fated futures buying spree, intended to drive up the price of those contracts.
The senators’ point of contention: the original $30 million fine from FERC was overturned when the CFTC intervened to assert exclusive jurisdiction and was backed by the U.S. Court of Appeals for the District of Columbia in doing so. Hunter subsequently settled with the CFTC for $750,000, a sum the legislators called “an embarrassment.”
“Incredibly, the CFTC undermined the FERC case after jointly investigating Mr. Hunter, finding clear evidence of manipulation, and coordinating legal action with FERC,” they added. “The CFTC chose to engage in a jurisdictional battle to the detriment of the American people.”
As complex securities and hedges involving electricity, natural gas, and other energy commodities creep into the world of commodities regulation, both regulators have increasingly seen their market policing duties overlap and facedongoing criticism from members of Congress for the resulting inter-agency squabbles. Pressure from legislators led the two agencies to hammer out a new data-sharing agreement in March, accompanied by promises of better cooperation.
The senators also took issue with the CFTC’s efforts to take charge of the case. With the Energy Policy Act of 2005, Congress vested authority in FERC to police manipulation in the energy market . By intervening in this case, the CFTC “subverted Congressional intent to expand FERC’s regulatory and enforcement authority,” they wrote.
“These actions raise concerns about whether the CFTC’s authority as currently exercised can effectively regulate energy markets and prohibit market manipulation,” the letter says. “We request the CFTC provide an explanation for its actions and a plan of action outlining in detail how it plans to work proactively with FERC to carry out meaningful market regulation and enforcement in cases of manipulation going forward.” The senators gave the CFTC an Oct. 24 deadline for providing this information.