Belatedly, the C.F.T.C. Acts
The latest enforcement action from the Commodity Futures Trading Commission shows just how aggressive that regulator is. Not very.
That is not, however, what the news release says. “This case demonstrates the commission’s ongoing vigilance to punish those who attempt to compromise the integrity of the futures markets,” said Walter Lukken, the commission’s acting chairman. “The C.F.T.C. continues in its unwavering determination to ensure that the futures markets operate in an open and competitive manner free from price distortions.”
The case is brought against Amaranth Advisors, the failed hedge fund, and its former head trader, Brian Hunter. It says that on two days in 2006 they set out to manipulate the settlement prices of natural gas futures on the New York Mercantile Exchange by engaging in heavy selling during the period when the settlement price would be set. Amaranth had over-the-counter positions whose value would rise if the settlement price was low.
Amaranth failed last September because of its gas trading. Regulators seem to have noticed something funny was going on when Amaranth was making the big trades that now are challenged, but their action was minimal. The NYMEX asked about the trading, but seems to have been satisfied by a letter the C.F.T.C. now says was full of lies. So now, months after the fund collapsed, the commission is seeking an injunction barring the defunct fund from any more violations of the commodities laws. That’ll teach ‘em.
“The C.F.T.C. stands ready to enforce the provisions of the Commodity Exchange Act against those who attempt to manipulate U.S. futures and commodity prices. The filing today sends an important message to market participants that such conduct will be met with appropriate sanctions.” That is the view of C.F.T.C. Commissioner Michael Dunn, according to the news release.
Or perhaps the important message is that the commision will act 10 months after your hedge fund suffers a spectacular collapse. Too bad there was no real investigation back when the trading was taking place.