Amaranth in civil lawsuit battle

The Amaranth saga continues as the US Commodities and Futures Trading Commission (CFTC) announced today it is filing a civil enforcement action against the hedge fund and its former head energy trader, Brian Hunter.

The regulator is charging Amaranth Advisors, Amaranth Advisors (Calgary) and Hunter with attempted manipulation of the price of natural gas futures, and with subsequent misrepresentations of these actions to the Nymex energy exchange in New York.

“On two separate occasions, on February 24 2006 and April 26 2006, Amaranth and Mr. Hunter intentionally and unlawfully attempted to manipulate the price of natural gas futures contracts on Nymex,” said Gregory Mocek, director of the CFTC's enforcement division, during a conference call held today.

The CFTC alleges that, on both occasions, Amaranth acquired more than 3,000 Nymex natural gas futures contracts in advance of the closing range, the vast majority of which were subsequently sold during the closing range. “The defendants attempted to ‘bang the close’, in order to artificially lower natural gas futures prices in the closing range on expiry days of the Nymex natural gas contracts in question,” said Mocek.

They did so, the CFTC said, because they simultaneously held large short natural gas financially-settled swaps positions, primarily on the Intercontinental Exchange (Ice). The settlement price of the Ice swaps is based on the Nymex natural gas futures settlement price, determined by trading done during the closing range on expiry day. A lower natural gas price would have benefited Amaranth’s swaps position on Ice. When questioned by Nymex about the April 26 2006 trading, the CFTC says Amaranth subsequently issued false statements.

The CFTC said it could impose fines of $130,000 for each violation. The next stage of the investigation remains unclear, as does the extent, and sources, of damages the CFTC expects to obtain, a factor somewhat complicated by the fact that Amaranth is in liquidation, and that Hunter is resident in Canada.

The CFTC’s action comes after Hunter sued this week to block the US Federal Energy Regulatory Commission (FERC) from taking enforcement action against him. Hunter said the CFTC, not FERC, has jurisdiction over the Nymex, where Amaranth’s trading took place. He left Amaranth last year to start Solengo Capital, a Calgary-based hedge fund.