ENRON SETTLES CFTC COMPLAINT CHARGING IT WITH MANIPULATING NATURAL GAS PRICES IN JULY 2001
Federal District Court Enters Consent Order Of Permanent Injunction Against Enron
WASHINGTON, D.C. - The U.S. Commodity Futures Trading Commission (CFTC) announced today that United States District Judge Melinda Harmon of the United States District Court for the Southern District of Texas entered a consent order of permanent injunction prohibiting violations of the Commodity Exchange Act and granting other relief against Enron Corp. The consent order resolves all charges brought by the CFTC against Enron. (See CFTC News Release No. 4762-03, March 12, 2003).
In its complaint, the CFTC alleged that on July 19, 2001, Enron and natural gas trader Hunter Shively engaged in a manipulative scheme by using Enron's former web-based electronic trading platform to buy an extraordinarily large amount of natural gas in a short period of time. The complaint further alleged that immediately following the pre-arranged buying spree, 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 was further alleged, the manipulation of the Henry Hub Spot Market had a direct and adverse effect on the New York Mercantile Exchange August 2001 natural gas futures contract, including causing prices in NYMEX Henry Hub Futures to become artificial.
The complaint also charged Enron with operating Enron Online (EOL) as an illegal futures exchange from September through December 2001. According to the complaint, in September 2001, Enron allegedly modified EOL to effectively allow outside users to post bids and offers. The complaint alleged that Enron listed at least three swap contracts on EOL that allegedly were commodity futures contracts. The complaint further alleged 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 or designation. According to the complaint, Enron failed to do these things, and the complaint charges that, as a result, EOL operated as an illegal futures exchange.
The complaint further charged Enron with offering an illegal agricultural futures contract on EOL.
In announcing this settlement, Gregory G. Mocek, the Director of Enforcement for the CFTC stated,
This settlement demonstrates the CFTC's exhaustive efforts to identify and root out manipulation of the natural gas and energy markets. Our message is clear: the Division of Enforcement will vigorously pursue predatory and unlawful conduct that harms American consumers. In the wake of Enron, we prosecuted Dynegy Marketing and Trade for illegal activity in the natural gas market in December 2002. Since that time, we have charged a total of 25 companies and individuals and assessed over $222 million in civil monetary penalties while we simultaneously assisted other members of the President's Corporate Fraud Task Force in their respective prosecutions.
The consent order permanently enjoins Enron from violating the Commodity Exchange Act, compels it to cooperate in any further CFTC investigations relating to this matter, and imposes on Enron a $35 million civil monetary penalty.
The following CFTC Division of Enforcement staff members are responsible for this case: W. Derek Shakabpa, Michael R. Berlowitz, John J. Cipriani, David Acevedo, Stephen J. Obie, Lenel Hickson, Jr., Richard B. Wagner, and Vincent McGonagle.
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