On April 21, 2011, the Federal Energy Regulatory Commission (FERC) issued an Order Affirming Initial Decision and Ordering Payment of Civil Penalty in connection with an Administrative Law Judge’s (ALJ) Initial Decision that a natural gas trader for Amaranth, Brian Hunter, engaged in market manipulation, in violation of Section 4A of the Natural Gas Act (NGA) and Part 1c.1 of FERC’s regulations.1 The case focused on Hunter’s trading activities in natural gas futures contracts (NG Futures Contracts) on the New York Mercantile Exchange (NYMEX). FERC’s Order affirmed the Initial Decision of the ALJ and assessed a civil penalty against Mr. Hunter in the amount of $30 million. FERC’s Order represents the first fully litigated proceeding involving FERC’s enhanced authority to investigate allegations of and penalize instances of market manipulation, which FERC received following the enactment of the Energy Policy Act of 2005. Further, FERC’s Order likely sets the stage for subsequent legal challenges to FERC’s claimed jurisdiction.

In its Order, FERC determined that Hunter’s trading strategy concerning NG Futures Contracts in February, March, and April 2006 was developed in a manner that was designed to lower the settlement price of NG Futures Contracts in order to benefit Hunter’s positions on other trading platforms and generate a profit on related financial instruments, including large short positions maintained by Amaranth in natural gas swaps. In affirming the ALJ’s Initial Decision, FERC alleged that Hunter’s conduct satisfied all three elements of a market manipulation claim, as required by Section 4A of the NGA and Part 1c.a of FERC’s regulations. FERC asserted that the ALJ correctly determined that Hunter’s trading strategy in February, March, and April 2006 constituted market manipulation because (1) it involved the use of a fraudulent scheme (2) with the requisite scienter and (3) in connection with a FERC-jurisdictional transaction.