Release: 4869-03
For Release: November 25, 2003
To view Reliant Energy order, click here.
To view CMS Marketing Services order, click here.

U.S. COMMODITY FUTURES TRADING COMMISSION IMPOSES A TOTAL OF $34 MILLION IN CIVIL PENALTIES ON THREE ENERGY TRADING FIRMS

Reliant Energy Services, Inc. To Pay $18 Million To Settle Charges of False Reporting and Attempted Manipulation, As Well As Charges of Wash Sales

CMS Marketing Services & Trading and CMS Field Services To Pay $16 Million to Settle Charges of False Reporting and Attempted Manipulation

WASHINGTON D.C. - The U.S. Commodity Futures Trading Commission (CFTC) announced today the issuance of two administrative orders filing and simultaneously settling charges of wrongdoing against three energy firms.

The first order charged Reliant Energy Services, Inc. (RES), a wholly-owned subsidiary of Reliant Resources, Inc., with false reporting and attempted manipulation of natural gas prices, as well as engaging in wash sales and reporting of non-bona fide electricity prices.

The second order charged CMS Marketing Services & Trading (CMS MS&T) and CMS Field Services, respectively, current and former subsidiaries of CMS Energy Corporation (CMS Energy), with false reporting and attempted manipulation of natural gas prices.

CFTC Chairman James Newsome stated:

Today’s announcement is further demonstration of the aggressive work that continues to effectively serve notice that this conduct will not be tolerated by the Commission.

In commenting on these matters, CFTC Director of Enforcement Gregory Mocek said:

The Divsion of Enforcement continues to methodically investigate and prosecute misconduct in the energy trading arena. Over the past 11 months the Commission has imposed more than $130 million in civil penalties.

CFTC Finds that Reliant Energy Services, Inc. (RES) Engaged In Illegal False Reporting, Attempted Manipulation and Wash Sales

The RES order finds that from at least February 1999 through May 2002, the Houston offices of RES reported false and/or misleading information, including price and volume information, concerning natural gas cash transactions to certain reporting firms. According to the order, price and volume information is used by the reporting firms in calculating published indexes of natural gas prices for various pipeline hubs throughout the United States. Natural gas futures traders refer to the published indexes for price discovery and for assessing price risks.

The order also finds that during the relevant period, RES knowingly reported, as RES trades, trades that did not occur at RES and reported certain trades at false and/or misleading prices and/or volumes in an attempt to benefit RES. By such conduct, the order finds that RES engaged in false reporting and attempted to manipulate the price of natural gas, in violation of the Commodity Exchange Act (CEA). If successful, RES’s conduct could have affected prices of New York Mercantile Exchange (NYMEX) natural gas futures contracts.

The order further finds that on seven occasions, between April and November 2000, certain traders on RES’s west power trading desk executed non-competitive, prearranged wash sales during off-exchange trading of electricity contracts, in violation of the CEA. According to the order, the trades were for the same contract, delivery point, quantity and price, executed with the same counterparty companies and counterparty traders. The order also finds that the trades were prearranged and designed to produce a wash financial result, with neither party making nor taking, nor intending to make or take, delivery or a bona fide position in the market or market risk. Finally, the order finds that illegal trading resulted in the reporting of non-bona fide prices, in violation of the CEA.

The Commission’s order requires RES to pay a civil monetary penalty of $18 million as well as cease and desist from further violations of the CEA. The CFTC order further requires RES and Reliant Resources, Inc. to comply with an undertaking to continue to cooperate with the CFTC.

The order recognizes the cooperation of RES and Reliant in the investigation of this matter.

In consenting to the entry of the order and the findings in the order, RES neither admitted nor denied the findings in the order.

CMS Marketing Services & Trading and CMS Field Services Found to Have Engaged in False Reporting and Attempted Manipulation

The CFTC order naming CMS MS&T and CMS Field Services finds that from at least November 2000 through September 2002, CMS MS&T, located in Houston, Texas, and CMS Field Services, located in Tulsa, Oklahoma, reported false information, including price and volume information concerning natural gas cash transactions, to certain reporting firms.

The order finds that during the relevant period, CMS MS&T and CMS Field Services knowingly reported trades that did not occur and reported certain trades at false prices and/or volumes to benefit the companies. The CFTC order finds that, by such conduct, CMS MS&T and CMS Field Services engaged in false reporting and attempted to manipulate natural gas prices, in violation of the CEA. If successful, the companies' conduct could have affected prices of NYMEX natural gas futures contracts.

The activity referred to in the Commission’s order predates the sale of CMS Field Services to Cantera Natural Gas, Inc. in July 2003. CMS Field Services is now named Cantera Gas Company.

In consenting to the entry of the order and the findings in the order, CMS MS&T and CMS Field Services neither admitted nor denied the findings in the order.

The CFTC order requires CMS MS&T and CMS Field Services to pay a civil monetary penalty of $16 million as well as cease and desist from further violations of the CEA and CFTC regulations. The CFTC order further requires CMS MS&T, CMS Field Services, CMS Energy Corporation, and Cantera Natural Gas, Inc., the current owner of CMS Field Services, to comply with an undertaking to cooperate with the CFTC.

The order recognizes the cooperation of CMS MS&T, CMS Field Services and CMS Energy Corporation in the investigation of this matter.

The Commission appreciates the cooperation of the President’s Corporate Fraud Task Force and the National Futures Association in these matters and in the Commission’s ongoing energy investigations.

The CMS subsidiaries matter reflects the work of the following CFTC staff: James Garcia, Michael Otten, Judy Lee, Meredith Wade, Kurt Windeler, Michael Solinsky, Gretchen L. Lowe, and Richard B. Wagner.

Additionally, the following CFTC staff worked on the RES action: Laura Gardy, William O. Hoar, Kurt Windeler, Maura Viehmeyer, Kim Bruno, Michael Solinsky, Kathleen M. Banar, Gretchen L. Lowe, and Richard B. Wagner.

To see copies of the settlement orders, go to the following Internet web address http://www.cftc.gov/

Media Case Contact, CFTC Division of Enforcement
Gretchen Lowe, Associate Director
Washington, DC
(202) 418-5379

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