Denny Chin, a district judge for the Southern District of New York, has rejected motions by Amaranth Advisors, Amaranth Advisors (Calgary) and Brian Hunter, the portfolio manager whose nat
Denny Chin, a district judge for the Southern District of New York, has rejected motions by Amaranth Advisors, Amaranth Advisors (Calgary) and Brian Hunter, the portfolio manager whose natural gas trades resulted in the hedge fund manager’s collapse two years ago, to dismiss market manipulation charges brought against them by the Commodity Futures Trading Commission.
In a complaint filed last July, the US commodities market regulator charged the defendants with attempted manipulation of the natural gas markets and accused Amaranth of making false statements to the New York Mercantile Exchange to cover up the manipulation attempts.
The complaint alleges that Amaranth and Hunter engaged in a scheme to manipulate the price on the last day of trading of the March 2006 and May 2006 natural gas futures contracts traded on Nymex. For each of the days at issue, the CFTC says, the defendants acquired more than 3,000 Nymex gas futures contracts in advance of the closing range, which for the most part they sold during the closing range.
According to the complaint, the defendants held large short natural gas financially-settled swaps positions, primarily held on the IntercontinentalExchange. The settlement price of ICE swaps is based on the Nymex natural gas futures settlement price determined by trading during the closing range on expiry day. The CFTC alleges that the defendants intended to lower the prices of the Nymex gas futures contracts to benefit their larger swaps positions on the ICE and elsewhere.
The defendants sought to dismiss the manipulation charge on the grounds that the CFTC had failed to state a claim upon which relief could be granted and also failed to plead the claims with sufficient particularity.
However, the court held that the CFTC had sufficiently pled both elements of an attempted manipulation, namely, an intent to affect market prices and an overt act in to further this. Specifically, the court ruled that the CFTC had sufficiently alleged facts from which an intent on the part of Amaranth and Hunter to affect the prices of gas futures contracts could be reasonably inferred.
Hunter, who is a Canadian citizen and directed part of the trading in question while in Amaranth’s Calgary office, also sought to dismiss the complaint against him on the grounds that the US federal court lacked jurisdiction.
However, the court held that his personally placing orders through a Nymex broker and directing other traders at Amaranth to trade on Nymex showed that he was clearly transacting business in New York and thus subject was to the court’s jurisdiction.
The case against both Amaranth and Hunter continues. The CFTC is seeking a permanent injunction, civil monetary penalties and other relief from each defendant in the case.