U.S. COMMODITY FUTURES TRADING COMMISSION SETTLES LAWSUIT WITH AMERICAN ELECTRIC POWER COMPANY AND AEP ENERGY SERVICES, INC. FOR FALSE REPORTING AND ATTEMPTED MANIPULATION IN NATURAL GAS MARKETS
Federal Government Collects $81 Million: Defendants Ordered to Pay $30 Million Civil Monetary Penalty to CFTC; AEP Energy Services, Inc. to Pay an Additional $30 Million to U.S. Department of Justice to Avoid Federal Criminal Prosecution, and $21 Million to the Federal Energy Regulatory Commission
WASHINGTON, D.C. – The U.S. Commodity Futures Trading Commission (CFTC) announced today that it has entered into a Final Judgment and Consent Order (Judgment and Order) with defendants American Electric Power Company, Inc. (AEP) and AEP Energy Services, Inc. (AEPES), a subsidiary of AEP. The Judgment and Order entered by the U.S. District Court for the Southern District of Ohio, requires the defendants to pay a $30 million civil monetary penalty in settlement of charges that defendants falsely reported natural gas trades and attempted to manipulate natural gas prices.
Today’s Judgment and Order resolves the CFTC’s lawsuit against the defendants, brought on September 30, 2003, in the U.S. District Court for the Southern District of Ohio (see CFTC Release 4846-03). The CFTC’s complaint charged that from at least November 2000 through October 2002, AEP and AEPES repeatedly and deliberately reported false natural gas trading information, including price and volume information, to certain firms that compile natural gas price indexes. The complaint further alleged that AEP and AEPES knowingly delivered false information to price index compilers in an attempt to skew those indexes for their financial benefit.
AEPES Acknowledges & Accepts Responsibility for Its Wrongdoing
Under the terms of the Judgment and Order, AEPES acknowledges and accepts responsibility for submitting knowingly inaccurate data, including incorrect volumes and/or prices, fictitious trades, or incomplete reports of actual trades, relating to one or more of the 38 delivery points or hubs for which AEPES provided information during the period. AEPES specifically acknowledges that many of the spreadsheets submitted for its Gulf Natural Gas Trading Desk contained one of more instances of false data favoring the company’s financial positions and that two other trading desks covering the Northeast and Mid-Continent regions submitted knowingly inaccurate data for at least one delivery point.
The Judgment and Order mandates that AEP and AEPES cooperate fully and expeditiously with the CFTC and its Enforcement Division concerning the reporting of trade prices and/or volumes to energy reporting services and price indexes.
AEPES Pays Additional $30 Million Penalty to Avoid Criminal Prosecution by Federal Prosecutors
In addition to settling charges brought by the CFTC, AEPES entered into a deferred prosecution Agreement (Agreement) with the U.S. Department of Justice and the U.S. Attorney’s Office for the Southern District of Ohio to avoid federal criminal charges. The Agreement requires AEPES to pay an additional $30 million dollar criminal penalty to resolve an investigation into AEPES’ false reporting of natural gas trades. The Agreement provides that should AEPES commit any federal crime within a fifteen-month probationary period, federal prosecutors could charge AEPES for any federal crime it commits, including the false reporting and attempted manipulation alleged in the Commission’s complaint.
AEP to Pay a Further Civil Penalty of $21 Million to FERC
Also today, the Office of Market Oversight and Investigations of the Federal Energy Regulatory Commission (FERC) announced that it has entered into a Stipulation and Consent Agreement with AEP, AEPES, and American Electric Power Service Corporation, another subsidiary of AEP, under which AEP will pay a further civil penalty of $21 million to settle claims that former AEP affiliates Jefferson Island Storage and Hub, LLC and Louisiana Intrastate Gas Company violated FERC regulations.
Comment by CFTC Acting Chairman Sharon Brown-Hruska
“The derivatives markets play a significant role in our economy. Over the last three years, we aggressively pursued a large number of companies and individuals who committed illegal acts that either affected or could have affected natural gas markets. As of today, the Commission has assessed nearly $300 million in penalties against a number of those that we have investigated. Our enforcement actions send a clear signal that market abuses will not be tolerated,” said Acting Chairman Sharon Brown-Hruska.
CFTC Enforcement Director Gregory Mocek Comments
Commenting on the settlement, CFTC Director of Enforcement Gregory Mocek stated:
“The $81 million penalty assessed today reflects the gravity of the defendant’s illegal conduct in the natural gas markets. I applaud the extensive efforts of our enforcement staff to expose the company’s wrongdoing, as well as their efforts in assisting the Department of Justice and FERC. Over the last three years, corporate compliance departments have changed their controls and the way they report sensitive market information. It is obvious that our diligent enforcement actions in this area have had a positive impact on the veracity of traders.”
The Commission would like to thank the Department of Justice and FERC for their ongoing cooperative efforts in pursuing illegal conduct in the energy markets. Additionally, the following CFTC Division of Enforcement staff were responsible for this case: Gregory Compa, Nancy Gogel, Michael McLaughlin, Armand Nakkab, Karin Roth, David W. MacGregor, Lenel Hickson, Jr., Stephen J. Obie, Richard Wagner, and Vincent McGonagle.
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