For Release: March 12, 2003
CFTC CHARGES ENRON WITH PRICE MANIPULATION AND OTHER ILLEGAL ACTS
Enron and Former Enron Vice President Charged With Manipulating Prices in Natural Gas Market; Enron Charged Further With Operating an Illegal, Undesignated Futures Exchange and Offering Illegal Lumber Futures Contracts Through Its Internet Trading Platform
WASHINGTON, D.C. - The U.S. Commodity Futures Trading Commission (CFTC) announced today the filing of a complaint in federal district court in Houston, Texas, charging defendants Enron Corp. (Enron), an Oregon Corporation headquartered in Houston, and Hunter S. Shively (Shively) of Houston, Texas, with manipulation or attempted manipulation, and charging Enron with operating an illegal futures exchange, and trading an illegal, off-exchange agricultural futures contract.
Until its bankruptcy in December 2001, Enron was one of the largest energy companies in the United States. Its natural gas trading unit was based in Houston and managed several natural gas over-the-counter (OTC) products. Enron’s natural gas trading unit was divided into geographical regions and included a natural gas futures desk. Shively was the desk manager for Enron’s Central Desk from May 1999 through December 2001.
From November 1999 through at least December 2001, Enron Online (EOL) was Enron’s web-based electronic trading platform for wholesale energy, swaps, and other commodities, including the Henry Hub (HH) natural gas next-day spot contract that was delivered at the HH natural gas facility in Louisiana. The HH is the delivery point for the natural gas futures contract traded on the New York Mercantile Exchange (NYMEX), and prices in the HH Spot Market are correlated with the NYMEX natural gas futures contract. During its existence, EOL became a leading platform for natural gas spot and swaps trading.
The complaint charges that on July 19, 2001, Shively, through EOL, caused Enron to purchase an extraordinarily large amount of HH Spot Market natural gas within a short period of time, causing artificial prices in the HH Spot Market and impacting the correlated NYMEX natural gas futures price.
The complaint also charges Enron with operating EOL as an illegal futures exchange from September through December 2001. According to the complaint, in September 2001, Enron modified EOL to effectively allow outside users to post bids and offers. Enron listed at least three swaps on EOL that were commodity futures contracts. The complaint further alleges that with this modification, Enron was required to register or designate EOL with the CFTC or notify the CFTC that EOL was exempt from registration. Enron failed to do either of these things, and the complaint charges that, because of this failure, EOL became an illegal futures exchange.
Finally, the complaint charges Enron with offering an illegal agricultural futures contract on EOL. According to the complaint, between at least December 2000 and December 2001, Enron offered a product on EOL it called the US Financial Lumber Swap. The complaint alleges that the EOL lumber swap was an agricultural futures contract that was not traded on a designated exchange or otherwise exempt, and therefore was an illegal agricultural futures contract.
The CFTC is seeking against each defendant a permanent injunction, civil monetary penalties and other remedial and ancillary relief.
In announcing today’s filing, CFTC Chairman James E. Newsome commented on the action:
“These charges are part of a continuing effort by Commission staff to police the markets. The Commission’s investigation into Enron is ongoing, and the Commission continues to aggressively ensure the integrity of markets over which the Commission has jurisdiction.”
Gregory G. Mocek, Director of the CFTC’s Division of Enforcement noted:
“The CFTC is committed to aggressive enforcement of the Commodity Exchange Act. Today’s filing demonstrates this fact. This is the first step in addressing Enron’s violative conduct. We will continue to pursue all other allegations against the company and its employees. I am very proud of the work of the staff of the Division of Enforcement in bringing this action today.”
The following CFTC Division of Enforcement staff members are responsible for this case: Gregory G. Mocek, Vincent McGonagle, Susan B. Bovee, Stephen J. Obie, Lenel Hickson, Jr., David Acevedo, W. Derek Shakabpa, John R. Velasquez, Jr., David W. MacGregor, Joseph Rosenberg, Gregory Compa and John J. Cipriani. The Commission would like to thank the Enron Task Force for its assistance and continuous leadership in cooperative enforcement.
To see a copy of the complaint, go to the following Internet web address http://www.cftc.gov/
Media Case Contact:
Vincent A. McGonagle
Deputy Director, CFTC Division of Enforcement, Washington, D.C.
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