FEDERAL COURT REFUSES TO DISMISS NATURAL GAS MANIPULATION CASE AGAINST FORMER ENRON VICE PRESIDENT
U. S. Commodity Futures Trading Commission Previously Charged Hunter Shively With Manipulating Prices in Natural Gas Market
WASHINGTON D.C. - The U.S. Commodity Futures Trading Commission (CFTC) announced today that on March 10, 2004, the Honorable Melinda Harmon, U.S. District Judge for the Southern District of Texas in Houston, denied a motion by defendant Hunter Shively (Shively) to dismiss charges brought against him by the CFTC in a complaint filed on March 12, 2003. In that complaint, the CFTC charged Shively, formerly a Vice President of Enron Corporation (Enron), with manipulation or attempted manipulation of the natural gas markets. (See CFTC News Release 4762-03, March 12, 2003.)
Specifically, the CFTC's complaint alleges that Shively, while with Enron, engaged in a scheme with other Enron traders to manipulate the price of natural gas in the Henry Hub next-day gas spot market (“HH Spot Market”) traded on EnronOnline, Enron’s electronic trading platform. According to the complaint, the scheme involved a plan to purchase an extraordinarily large amount of HH Spot Market natural gas within a short period of time on July 19, 2001, causing prices to rise artificially. The complaint further alleges that immediately following the pre-arranged buying spree, Enron began unwinding its HH Spot Market position and prices declined in that market while Enron unwound its position.
According to the complaint, Shively took various actions, including agreeing to cover trading losses of, and directing a payment from an account he controlled to, other traders involved in the scheme. As alleged in the complaint, the manipulation of the HH Spot Market had a direct and adverse effect on the New York Mercantile Exchange August 2001 natural gas futures contract (“NYMEX Henry Hub Futures”), including causing prices in NYMEX Henry Hub Futures to become artificial.
Shively sought to dismiss the manipulation charge because, he argued, it failed to state a claim upon which relief could be granted. The court refused to dismiss the claim, holding that, for the purposes of Shively's motion, the CFTC had sufficiently alleged facts showing that: (i) Enron had the ability to influence prices in the HH Spot Market and in the NYMEX Henry Hub Futures Market; (ii) artificial prices existed in those markets on July 19, 2001; (iii) Shively was the proximate cause of the price artificiality; and (iv) Shively intended to manipulate prices on July 19, 2001. The court further upheld the CFTC's ability to go forward with its alternate claim against Shively for attempted manipulation.
Until its bankruptcy in December 2001, Enron was one of the largest 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 the leading electronic platform for natural gas spot and swaps trading.
The case against both Shively and Enron continues. The CFTC is seeking against each defendant a permanent injunction, civil monetary penalties and other relief.
To see a copy of the complaint, go to the following Internet web address http://www.cftc.gov/
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