For Release: December 19, 2002
DYNEGY MARKETING & TRADE AND WEST COAST POWER LLC PAY $5 MILLION TO SETTLE CFTC CHARGES OF ATTEMPTED MANIPULATION AND FALSE REPORTING
Energy Companies Settle Claims Under the Commodity Exchange Act That They Intentionally Reported False Natural Gas Price and Volume Information to Energy Reporting Firms in an Attempt to Affect Prices of Natural Gas Contracts
WASHINGTON D.C. - The Commodity Futures Trading Commission (CFTC) announced today the issuance of an administrative order settling charges of attempted manipulation and false reporting against energy companies Dynegy Marketing & Trade (Dynegy) and West Coast Power LLC (West Coast) (the Respondents).
In commenting on this matter, CFTC Chairman James E. Newsome said: "This action involved the collaborative efforts of the CFTC, FERC and the Department of Justice and represents an outstanding example of how various law enforcement agencies can work together toward the common goal of ensuring that the nation’s energy markets operate in an efficient and competitive manner."
Commenting further, Chairman Newsome said: "My philosophy has been, and will continue to be, that the Commission has a responsibility to investigate alleged wrongdoing in a comprehensive and timely fashion. And, when violations are found, the Commission will come down hard. Over the course of the past year, the news has been peppered with admissions, accusations, and speculation of wrongdoing in the energy markets and, as a result, I have committed the Commission’s resources to finding and punishing the wrongdoers. It is my belief that with the filing and simultaneous settling of this enforcement action, the Commission sends a clear message to all companies that engaged in similar behavior...a message that their actions will not be tolerated and that they will be prosecuted and subjected to the full consequences of the law."
The CFTC settlement order finds that from at least January 2000 through June 2002, Respondents reported false natural gas trading information, including price and volume information, to certain reporting firms. According to the order, price and volume information is used by the reporting firms in calculating published surveys or indexes (indexes) of natural gas prices for various hubs throughout the United States. The order finds that Dynegy knowingly submitted false information to the reporting firms in an attempt to skew those indexes for Dynegy’s financial benefit. According to the order, natural gas futures traders refer to the published indexes for price discovery and for assessing price risks. The CFTC found that Dynegy’s false reporting conduct violated the Commodity Exchange Act (CEA).
Gregory G. Mocek, Director, CFTC Division of Enforcement, said: "This action reflects the diligence of our attorneys and investigators. As part of our aggressive investigation of these companies, we uncovered significant violations of the Commodity Exchange Act. We will continue to pursue all other companies that potentially committed the same types of egregious acts. Since false reporting can have serious repercussions on the futures markets, we will bring down the hammer on all violators. These respondents and their counsel did the right thing by cooperating with our staff."
The order further finds that in an effort to ensure that its reported information would be used by the reporting firms, Dynegy caused West Coast to submit information misrepresenting that West Coast was a counterparty to fictitious trades. In addition, the order finds that Dynegy did not maintain required records concerning the information which it provided to the reporting firms or the true source of the information relayed to those firms, as required by Commission Regulations. As a result of their actions, Respondents violated the CEA and Commission Regulations.
The order further finds that Respondents specifically intended to report false or misleading or knowingly inaccurate market information concerning, among other things, trade prices and volumes, to manipulate the price of natural gas in interstate commerce, and that Respondents’ provision of the false reports and their collusion, which was designed to thwart the reporting firms’ detection of the false information, were overt acts that furthered the attempted manipulation. According to the order, Respondents’ conduct constitutes an attempted manipulation under the CEA, which, if successful, could have affected prices of NYMEX natural gas futures contracts.
The CFTC orders provide for the following sanctions:
In consenting to the entry of the order and the findings in the order, the Respondents neither admitted nor denied the findings of the order or the allegations of the complaint. Dynegy has cooperated in the Commission’s investigation of this matter by, among other things, conducting an independent internal investigation and providing the results of that investigation to Commission staff. The Commission has taken that cooperation into consideration in its decision to accept Respondents’ Offer.
The following CFTC Division of Enforcement staff are responsible for this case: Joseph Rosenberg, John Velasquez, David Acevedo, Lenel Hickson, Stephen Obie and Vincent McGonagle.
To see a copy of the settlement orders, go to the following Internet web address http://www.cftc.gov/
Media Case Contacts:
Director of CFTC Division Enforcement, Washington, DC
Regional Counsel, New York Regional Office
CFTC Division of Enforcement