CFTC acts on Enron, crackdown elsewhere

Commodity Futures Trading Commission (CFTC) Chairman Jim Newsome has maintained all along that the CFTC has authority to investigate Enron for fraud and manipulation and no legislation giving the CFTC additional authority was warranted. While the investigations are not complete, the CFTC charged Enron

The charges contend that Enron VP Hunter S. Shively on July 19, 2001, purchased for Enron through EOL an extraordinarily large amount of Henry Hub spot market natural gas within a short period of time, causing artificial prices in the spot market as well as in the New York Mercantile Exchange (Nymex) natural gas futures market.

CFTC Director of Enforcement Greg Mocek calls the charges the first step in addressing Enron's alleged violations and notes that the CFTC's investigation is ongoing. "As individuals and their culpability are found we will seek to amend the complaint," he says.

CFTC Regional Counsel Stephen Jay Obie says Enron and Shively met the criteria needed to charge them with manipulation. That criteria is that: 1) they had the ability to influence prices, 2) they intended to manipulate prices, 3) artificial prices existed, and 4) they caused the artificial prices.

Charges of operating an illegal futures exchange stem from a modification made to EOL in September 2001, which allowed users to post bids and offers, effectively transforming it from a bilateral OTC market to a multilateral futures market. The CFTC complaint contends that with the modification Enron was required to register or seek an exemption from the regulator - two things Enron did not do.

"EOL in its original manifestation wasn't - in my opinion - an illegal futures exchange. It was when they started allowing counterparties to trade directly with each other that Enron was just effectively a credit counterparty in all those transactions," says Nymex President Robert "Bo" Collins.

The charges did not satisfy some Enron critics. "Too little to late," was how Senator Dianne Feinstein (D-- Calif.) described the charges. Feinstein is sponsoring the Energy Market Oversight Act, which would give greater authority to both the CFTC and FERC in investigating instances of fraud and manipulation in the energy markets.

Nymex used to be a big supporter of Feinstein's legislation, but recently has taken a step back.

"A lot has changed since then," Collins says. He still favors higher standards of regulation than currently exist but says that the CFTC, FERC and the Attorney General's office have been very aggressive in enforcing existing laws.

The CFTC also settled with El Paso Merchant Energy. The company agreed to pay $20 million in a CFTC settlement order regarding claims that it intentionally reported false natural gas price and volume information to energy reporting firms in an attempt to affect prices of natural gas contracts.

By Daniel P. Collins and Yesenia Salcedo