Hedge fund, trader charged with gas price manipulation

The US Commodity Futures Trading Commission has charged hedge fund Amaranth Advisors and its former chief energy trader, Brian Hunter, with attempting to manipulate natural gas prices.

Nick Snow
Washington Correspondent

WASHINGTON DC, July 27 -- The US Commodity Futures Trading Commission has charged hedge fund Amaranth Advisors and its former chief energy trader, Brian Hunter, with attempting to manipulate natural gas prices.

The two allegedly attempted to manipulate prices of gas futures traded on the New York Mercantile Exchange on Feb. 24 and Apr. 26, 2006, CFTC said in charges filed in US District Court for the Southern District of New York.

The dates were the final trading days for the following months' NYMEX gas futures contracts, CFTC said. The settlement price of each NYMEX gas contract is determined by the volume weighted average of executed trades during 2-2:30 p.m. on such "expiry days."

Amaranth and Hunter, Calgary, allegedly acquired more than 3,000 NYMEX gas futures contracts in advance of this closing range on the expiry days, which they planned to, and for the most part did, sell during the closing range, CFTC said.

CFTC also alleged that the defendants held large short positions in financially settled gas swaps, primarily on the Intercontinental Exchange (ICE), where swap settlement prices are determined by the NYMEX gas futures settlement price. They allegedly intended to lower prices on the NYMEX gas futures contracts to favor their larger swap positions on ICE and elsewhere, CFTC said.

It also charged that Amaranth Advisors made false statements to NYMEX to cover their activities.

In September 2006, Amaranth lost more than $6 billion, or 65% of its reported assets at the end of August, after prices for gas, in which it had taken an unusually large position, plunged due to high storage levels and the absence of hurricane-related and other disruptions. The hedge fund transferred its energy portfolio to a third party, reportedly at a deep discount, when it was unable to meet margin calls and other payment demands.

Contact Nick Snow at nsnow@cox.net.

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