Judicial Review of Brian Hunter Penalty Decision Pits FERC Against CFTC
On June 11, 2012, FERC submitted a brief to the United States Court of Appeals for the District of Columbia Circuit (“D.C. Circuit”) in defense of its authority to impose a $30 million civil penalty on former gas trader Brian Hunter. The case is before the court on a petition for review of FERC’s penalty order in the Hunter case and pits FERC against not only Hunter, but the Commodities Futures Trading Commission (“CFTC”), which argued to the court that FERC lacked jurisdiction to fine the trader.
In the proceedings under review, FERC determined that Hunter manipulated physical natural gas markets in violation of section 4 of the Natural Gas Act in order to benefit certain swaps positions while working as the head natural gas trader for Amaranth Advisors LLC. Hunter appealed the decision to the DC Circuit and the CFTC intervened, contesting FERC‘s jurisdiction in the matter. The CFTC argued that the Commodity Exchange Act (“CEA”) granted exclusive jurisdiction over futures trading to the CFTC (see April 30, 2012 edition of the WER). FERC’s brief to the court did not contest the CFTC’s jurisdiction under the CEA to govern swaps or futures in the Brian Hunter case; instead, FERC argued it has an overlapping jurisdiction in the matter. FERC explained that this form of overlapping jurisdiction occurs with multiple other agencies in several other areas of energy regulation.
FERC relies in its brief on the enforcement provisions of the Energy Policy Act of 2005 that expressly broadened FERC’s jurisdiction over “any entity” engaging in manipulative conduct. Further, FERC also argued that legislative history supports FERC’s position. FERC further argued that the CFTC’s exclusive jurisdiction over futures does not govern manipulation. FERC argued that Congress realized the potential for overlap by expressly directing FERC and the CFTC to execute a Memorandum of Understanding on investigative matters. FERC also listed examples of when the two agencies collaborated on other matters regarding market manipulations.
Finally, in its brief FERC also argued that Hunter is not entitled to de novo review in district court. FERC argued that the court of appeals has exclusive jurisdiction over reviews of FERC penalty orders under the Natural Gas Act.
A copy of the FERC brief is available here.