Hedge fund tried to sway gas prices, regulator says
WASHINGTON -- The Commodity Futures Trading Commission has alleged that Amaranth Advisors LLC tried to manipulate US natural gas prices and is seeking to bar the hedge fund's former head of energy trading for life.
The regulator filed a civil enforcement action in federal court in New York yesterday, saying the fund and trader Brian Hunter tried to sway prices with large sell orders late in the trading session on Feb. 24 and April 26, days when monthly futures contracts expired. Hunter established his own fund in Calgary after he left Amaranth.
Greenwich, Conn.-based Amaranth, which lost $6.6 billion in the biggest-ever hedge fund failure, controlled more than half the US natural gas market at one point, according to a Senate report. While the firm's blowup didn't disrupt the market, it showed that large players can swing prices and hurt gas consumers, the Senate study found.
Hunter "actually bragged about flexing his muscles upon America's natural gas markets," said Gregory Mocek, enforcement director for the commission.
Michael Kim, an attorney for Hunter with the New York firm of Kobre & Kim LLP, said in a statement that Hunter had done nothing wrong: "Brian Hunter simply did not undertake any manipulative trading and we are going to prove it."
In a letter to investors, Nicholas Maounis, founder of Amaranth, denied the fund attempted to manipulate prices. "The allegations made by the CFTC today, while certain to attract extensive media attention, lack any basis in the evidence or law," Maounis wrote.
Amaranth on April 26 sold 99 percent of its May Nymex gas futures in the final four minutes of the session, according to the commission's complaint. Hunter "was concerned that Centaurus Advisors LLC, another hedge fund, was going to be a large buyer," which could boost prices and harm Amaranth's trades.
A futures contract is an agreement to buy or sell gas for a future delivery date. The so-called settlement price is determined by the weighted average of trades made between 2 p.m. and 2:30 p.m. on the final day of trading.
Amaranth "intentionally waited to sell their May 2006 Nymex natural gas futures contracts" to affect prices, the commission said.
The commission is seeking $130,000 for every "overt act" that violates trading laws, said Mocek.
The CFTC failed to show "that prices during the period of time discussed in the complaint were even affected by Mr. Hunter's trading," said the statement from Kim, Hunter's attorney.
