For Release: May 23, 2008
Federal Court Rejects Amaranth Hedge Fund and Head Trader Brian Hunter’s Attempt to Dismiss Government’s Natural Gas Case Against Them
CFTC Previously Charged Amaranth Advisors LLC, Amaranth Advisors (Calgary) ULC and Brian Hunter with Attempting to Manipulate Prices in U.S. Natural Gas Market
Washington, DC — The U.S. Commodity Futures Trading Commission (CFTC) announced today that on May 21, 2008, the Honorable Denny Chin, U.S. District Judge for the Southern District of New York, denied motions by defendants Amaranth Advisors LLC, Amaranth Advisors (Calgary) ULC (together, Amaranth) and Brian Hunter to dismiss charges brought against them by the CFTC in a complaint filed on July 25, 2007. In that complaint, the CFTC charged the defendants with attempted manipulation of the natural gas markets and charged Amaranth with making false statements to the New York Mercantile Exchange (NYMEX) to cover up defendants’ attempted manipulation. (See CFTC News Release 5359-07, July 25, 2007.)
Specifically, the complaint alleges that Amaranth and Hunter engaged in a scheme to attempt to manipulate the price on the last day of trading of the March 2006 and May 2006 natural gas futures contracts traded on NYMEX. The complaint alleges that, for each of the days at issue, the defendants acquired more than 3,000 NYMEX natural gas futures contracts in advance of the closing range, which they planned to, and for the most part did, sell during the closing range. The complaint also alleges that defendants held large short natural gas financially-settled swaps positions, primarily held on the IntercontinentalExchange (ICE). The settlement price of the ICE swaps is based on the NYMEX natural gas futures settlement price determined by trading done during the closing range on expiry day. The Complaint alleges that defendants intended to lower the prices of the NYMEX natural gas futures contracts to benefit defendants’ larger swaps positions on ICE and elsewhere.
The defendants sought to dismiss the attempted manipulation charge on grounds that the CFTC, in its pleadings, failed to state a claim upon which relief could be granted and also failed to plead the claims with sufficient particularity. The court refused to dismiss the claim, holding that the CFTC sufficiently plead both elements of an attempted manipulation: (1) an intent to affect market prices and (2) an overt act in furtherance thereof. More specifically, the court held that the CFTC had sufficiently alleged facts from which one could reasonably infer an intent on the part of Amaranth and Hunter to affect the prices of natural gas futures contracts. The court also held that the complaint alleged numerous overt acts committed by defendants in furtherance of their intent to manipulate the settlement prices of natural gas futures. The court further held that the CFTC satisfied applicable pleading standards concerning the false statements claim.
In addition, Hunter, who is a Canadian citizen and directed part of the trading in question while in Amaranth’s Calgary office, sought to dismiss the complaint against him because, he argued, the U.S. federal court lacked jurisdiction. The court rejected this argument, holding that his personally placing orders through a NYMEX broker and directing other traders at Amaranth to trade on NYMEX showed that he was clearly transacting business in New York and thus subject to the court’s jurisdiction.
The case against both Amaranth and Hunter continues. The CFTC is seeking a permanent injunction, civil monetary penalties and other relief from each defendant in the case.
The following CFTC staff members are responsible for this matter: Michael C. McLaughlin, Elizabeth C. Brennan, David Oakland, Linda Y. Peng, Karin N. Roth, W. Derek Shakabpa, David W. MacGregor, Michael Penick, Manal Sultan, Lenel Hickson, Jr., Stephen J. Obie, and Vincent McGonagle.
Last Updated: May 23, 2008