WASHINGTON Feb 6 Two federal agencies that police the U.S. energy market on Thursday will each try to convince a federal judge that they have the right to decide the fate of a trader whose bets helped bring down a billion-dollar hedge fund.
The case will test the authority of two watchdogs that have similar powers to prevent fraud in billion-dollar markets where sophisticated trades make operations difficult to police.
Brian Hunter was a key trader with hedge fund Amaranth Advisors LLC when it failed in 2006 after booking some $6 billion in bad bets on natural gas futures.
Investors settled a class-action case against Amaranth for about $77 million in 2011, and the Commodity Futures Trading Commission reached a $7.5 million settlement with Amaranth two years earlier.
The Federal Energy Regulatory Commission, the chief overseer of electric power, leveled a $30 million fine against Hunter, a Canadian, who appealed by saying FERC had no authority to punish him.
CFTC put its own case against Hunter on hold early last year and even joined Hunter in his appeal against FERC, arguing the electricity regulator had no power to levy the $30 million fine.
FERC exceeded its authority by seeking to sanction a trader of futures contracts and other securities that are the key area of CFTC authority, the agency has argued.
"FERC also errs by treating this case as a commonplace example of two regulatory agencies sharing overlapping authority," the CFTC argues in court filings.
"Congress expressly granted the CFTC exclusive jurisdiction with respect to the trading activity that forms the basis for the alleged manipulation here."
Officials from the regulators and Hunter did not respond to requests for comment.
The court's ruling on the matter, which is not expected for weeks, could have serious implications for newly aggressive regulators trying to protect consumers and investors in volatile markets.
FERC recently decided to strip JPMorgan Chase & Co from its ability to make preferential trades - or tap "market based rates" - in the energy market for six months as punishment for past market abuses.
Specifically, in the six months from April 1, JPMorgan will only be allowed to make physical electricity sales at cost. Market-based rate authority allows a company to trade power at whatever price the market will bear.