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Brian Hunter Fined $30 Million For His Nat Gas Manipulation Scheme

Tyler Durden's picture




 

It isn't a Wall Street CEO. But it is a start. One of the most well known market manipulation crimes of the pre-Great Financial Crisis era, has just been fined $30 million. Yes, it is far less than what Hunter has made during his career, but it is not just a wristslap either. And at least it has finally happened: after 5 years many had assumed that regulators would totally screw this up as well. From DealBook: "Energy regulators on Thursday fined a former hedge fund trader $30 million for his role in a scheme that manipulated prices in the natural gas futures market. Mr. Hunter and Matthew Donohoe, a fellow Amaranth trader, sold huge sums of natural gas futures contracts in early 2006 to drive down the settlement price of the trades, according to the Federal Energy Regulatory Commission. Mr. Hunter placed the trades during a so-called settlement period, the last 30 minutes of trading on the day that a futures contract expires." Now... For that precious metals market manipulation that only fringe lunatic website allege is happening...

More from Dealbook:

Amaranth stood to gain as the settlement price dropped, the commission said. Using separate derivative positions, the fund bet on a decline in the settlement prices.

The trades were “fraudulent or deceptive” and violated the commission’s antimanipulation rule, according to an order against Mr. Hunter.

Ultimately, Mr. Hunter’s energy trading desk caused the demise of Amaranth. The fund’s energy traders placed big bets on natural gas in 2006, only to see prices plummet in the fall of that year.

 

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Thu, 04/21/2011 - 15:34 | 1193617 Sudden Debt
Sudden Debt's picture

30 million... that will teach him...

peanuts for these guys.

 

 

Thu, 04/21/2011 - 16:17 | 1193850 SpeakerFTD
SpeakerFTD's picture

He got a payout of $100MM after Katrina made Amaranth $1B++.   Never heard of they clawed any of it back, but I think it would have been difficult for them to do that.

In any case, this settlement game was a pretty minor thing compared to his manipulation of the H/J spread.    And yes, I took it in the teeth more than once from his expiry games.  Nice to see the U.S. Treasury can profit from my old pain.

Thu, 04/21/2011 - 16:32 | 1193935 alexanderstollznow
alexanderstollznow's picture

"

He got a payout of $100MM after Katrina made Amaranth $1B++.   Never heard of they clawed any of it back, but I think it would have been difficult for them to do that."

yep it is just sooo hard to claw back profits made legitimate trades. 

 

Thu, 04/21/2011 - 17:13 | 1194111 SpeakerFTD
SpeakerFTD's picture

He lost them $6B++ the following year, including all the paper profits he had "earned" by from Katrina.

 I have a feeling all the Amaranth investors would lost everything would question how "legitimate" his payout was in retrospect.

Fri, 04/22/2011 - 08:16 | 1195654 anynonmous
anynonmous's picture

"It isn't a Wall Street CEO. But it is a start."

 

For a moment I thought I had mistakenly clicked on  Ritholtz's Big Picture blog or Erin Burnette's CNBS blog (if she has one).  What gives Zero Hedge?  This is the same Zero Hedge I used to frequent, isn't it? $30m is a joke and and no it isn't Wall Street, IT'S Calgary Canada, which may as well be Bumfcuk AR.  And no, the dude was not a CEO he was a rogue Canuck trader. 

Tyler you really must have someone review all articles written by the interns.

 

Thu, 04/21/2011 - 15:35 | 1193620 Muir
Muir's picture

" "Energy regulators on Thursday fined a former hedge fund trader $30 million for his role in a scheme that manipulated prices in the natural gas futures market. Mr. Hunter ... sold huge sums of natural gas futures contracts in early 2006 to drive down the settlement price of the trades... during a so-called settlement period, the last 30 minutes of trading on the day that a futures contract expires." 

SHOCKED I tell you, SHOCKED!

-

Thu, 04/21/2011 - 15:41 | 1193644 Gubbmint Cheese
Gubbmint Cheese's picture

$30 million buys you what? These days it buys you a nice pair of boobs like the ones perpetually bobbing above.. and that's about it.

 

Thu, 04/21/2011 - 15:56 | 1193730 Joeman34
Joeman34's picture

I'd be okay with $30mm.  It's a good start anyway...

Thu, 04/21/2011 - 15:35 | 1193623 SRV - ES339
SRV - ES339's picture

Now... For that precious metals market manipulation that only fringe lunatic website allege is happening...

JPM does not, I repeat does not, participate in PM price manipulation...

JPM does not, I repeat does not, participate in PM price manipulation...

JPM does not, I repeat does not, participate in PM price manipulation...

JPM does not, I repeat does not, participate in PM price manipulation...

JPM does not, I repeat does not, participate in PM price manipulation...

JPM does not, I repeat does not, participate in PM price manipulation...

JPM does not, I repeat does not, participate in PM price manipulation...

Thu, 04/21/2011 - 15:39 | 1193648 Imminent Crucible
Imminent Crucible's picture

It's a start? Well, I suppose it's something. But Hunter is a nobody, runs no money-centers, has no influence in politics, pulls no strings.  He's only famous for (1) getting incredibly lucky by being very long Ngas when Rita & Katrina hit in 2005, and then blowing up by doubling down in hurricane-free 2006.

He was a manipulator in the sense that Amaranth at one point held nearly 20% of the Ngas futures market, but there was no government collusion or backing to that. It was just stupid, not complicitous.

Thu, 04/21/2011 - 17:57 | 1194335 Abiggs
Abiggs's picture

The true reason for the blow up was that Amaranth's broker and clearing firm (JPM) illegally relayed his position to their traders who in turn announced it to their clients, causing a gas squeeze of massive proportions (it was reflected in the power markets at the time; ISO prices were hitting their celings) - it's game over when you have a transparent position of that size without the Fed's backing, keeping you liquid...

JPM and Citadel went on to make money off of VH's position after taking it over - so much for "luck" and "manipulation"...

Thu, 04/21/2011 - 18:05 | 1194367 WALLST8MY8BALL
WALLST8MY8BALL's picture

Correct - at that time PJM spiked and NYISO J zone was over $120 pk hour/MW - think it almost hit 200$ at one point in 06

Thu, 04/21/2011 - 15:52 | 1193717 dogismyth
dogismyth's picture

what's the big deal...doesn't this happen daily? Who gets the money from the fine?  Is that returned to investor or the american public?  No?  So why would I give two fucks about someone getting nailed for doing the wrong thing.

Thu, 04/21/2011 - 17:05 | 1194087 Imminent Crucible
Imminent Crucible's picture

Kinda tells you what the real point of the SEC investigations is, doesn't it? Money for the guvmint, not redress for the public that overpaid on their gas bill.

For some reason, it reminded me of Jimma Cottah's Windfall Profits Tax, better known as the Let's Loot Exxon Shareholders Act. Prezdet Peanut gouged $80 billion in earnings from the oil companies, and gave the proceeds to poor people to buy gas wit--er, that is, he kept the money and used it to buy votes and supplement presidential pensions & whatnot.

Mon, 04/25/2011 - 19:31 | 1205757 tomster0126
tomster0126's picture

yeah, that's the real question--where does the money go?  IMO, it should go directly back to the consumers.  Wouldn't that be something?  Everyone in America with a registered address wakes up with a 10 dollar check from last night's lawsuit? 

 

www.forecastfortomorrow.com

Thu, 04/21/2011 - 16:03 | 1193750 Pez
Pez's picture

Let's take BILLIONS .....when we'll only lose... MILLIONS?! BOOHAHAHAHAHAHAHAH BOOHAHAHAHAHAHAH

Thu, 04/21/2011 - 16:00 | 1193764 Makey
Makey's picture

Ummm.  Not really following this.  He put on too much of a spread that he couldn't get out of, John Arnold ran him and people piled on. He lost 7B and his fund went under.  What is the fine for exactly?  What were the rules that were broken. This seems like a dangerous precedent to me...

Thu, 04/21/2011 - 17:34 | 1194215 SpeakerFTD
SpeakerFTD's picture

I don't think the penalty has anything to do with his blow-up directly.

I think it has do with other months when he traded huge size at settlement in order to influence the exact settlement price.   Not that it would matter that much on futures expiration, especially since futures settle over 30 minutes, but it could matter on options expiry, since you can run a strike and it only takes a sustained 2-5 minute effort to do so.    When he was still in the market, that kind of price behavior was actually fairly common, unlike most options expiries now which are relatively tame affairs.

Thu, 04/21/2011 - 16:12 | 1193827 WALLST8MY8BALL
WALLST8MY8BALL's picture

I personally am very pleased that crook has to pay. Too bad he isnt getting a few decades in the Pound his Ass sideways prison. That DBag hurt alot of honest folks

Thu, 04/21/2011 - 16:13 | 1193831 Makey
Makey's picture

Who did he hurt?  Investors who willingly gave him money to trade??  Sorry, your loss.  Explain yourself.

Thu, 04/21/2011 - 16:23 | 1193887 WALLST8MY8BALL
WALLST8MY8BALL's picture

WAKEY WAKEY Makey. I used to work at NYMEX before the CME (Chicago Mafia Enterprise) took it over. those that had positions in the money in options that he blew out with his scamming were hurt. Too bad you werent on the opposite of those trades cus then you would know, and too bad a site like ZH wasn't around to call out these things (SEE JPM Silver manipulation).

Thu, 04/21/2011 - 18:05 | 1194370 gkm
gkm's picture

So the fact that the trade could have been closed beforehand ITM but wasn't is the reason there is a problem here? I'm just saying if there was money on the table then take it off before some else does. Not that what he did was right.
I hear that pinning goes on around op ex sometimes and someone ends up with the sharp end.

Thu, 04/21/2011 - 18:12 | 1194388 Abiggs
Abiggs's picture

FAIL - You're obviously talking out of your back side since working at the NYMEX doesn't offer you a look into the book/order flow. And even if miraculously you did see the order flow, the overwhelming majority (95%) of gas and power trades are matched on ICE (including BH's trades). This fact is only known to folks in the industry...

Thu, 04/21/2011 - 18:12 | 1194392 WALLST8MY8BALL
WALLST8MY8BALL's picture

Have you ever heard of Clearport? I used to run it so believe me i saw every trade - and alot of shit go down that no one else did. Ill leave it at that

Thu, 04/21/2011 - 18:40 | 1194429 Abiggs
Abiggs's picture

Clearport is a CME product and has nothing to do with ICE - you would not have seen BH's OTC trades sir

Thu, 04/21/2011 - 16:21 | 1193855 Atch Logan
Atch Logan's picture

Really, so we are now all supposed to think JUSTICE is being done, America has become clean of all the crooks and fraudsters.  What a lark.  What a sham.

Let's get serious.  When Diamond and the little GS creep are called up, when Mulvaney from BOA is called up, when they are HUNG, then I will believe America must might be on the right track.  Stability be damned: the only stability in America is for the rich.

Thu, 04/21/2011 - 16:49 | 1193999 Urban Redneck
Urban Redneck's picture

Converting from partnerships to corporations has completely skewed the risk-reward restraint in finance, since it is already a "supposedly" highly regulated industry, how about adding 1 very simple regulation- 

Unlimited personal financial liability for anyone occupying a corner office or board suite.

Thu, 04/21/2011 - 16:57 | 1194040 Turtlelord
Turtlelord's picture

Extremely valid point!!

Thu, 04/21/2011 - 17:12 | 1194110 Imminent Crucible
Imminent Crucible's picture

Remember Sarbanes-Oxley? Any CEO who signs off on a company report that turns out to be fraudulent, or just plain grossly in error, has to face the music, pay fines, go to jail.

How many bank CEO's, insurance CEO's, ratings agencies CEO's, etc. have been charged under SarBox? Zip, that's how many.

Angelo Mozilo paid a 10% windfall profits tax to the govt and walked away. I don't think more regulations are gonna do it.

Fri, 04/22/2011 - 06:16 | 1195556 Urban Redneck
Urban Redneck's picture

Sarbox applies only to fraud, errors, and omissions in Corporate filings which is not where the fraud, errors, and omissions usually occur.  For example, a CEO employing "Linda Green" isn't liable for her fraud as long as he accurately represents the FI's foreclosure activities in the quarterly and annual reports under Sarbox.  The utter jokes we have at the DOJ and SEC don't help either.  However, if bankers are held liable, not just to reduced bonuses through claw-backs, but the forfeiture of their Connecticut fiefdoms in the event of private civil actions for harm, then excessive risk taking is disincented.

Look at GS's requests for bailouts before Rubin was Treasury Secretary, compared to afterwards - the conversion to partnership and the IPO timed perfectly with the loss of "their guy" in Secretary's office, who could no longer personally execute foreign bailouts on their behalf.  (see table below)

The group-think that prevades the industry has just led others to follow in their footsteps- reduce the risk profile to executives, and increase risk profile of the portfolio.

Compare that to the response of the Private Banks in Switzerland (not the public TBTFs) in response the the Madoff feeder funds scandal.

Table 1:

During the tenure of last three FED Chairmen, almost every time Wall Street receives a bailout or handout from Washington, there is a convenient banker occupying the office of US Treasury Secretary to provide said bailout.  When there is not a banker occupying the Secretary's office, which is almost half the time, the other bankers rarely receive their coveted taxpayer handouts.

The distribution 11 Secretaries, 32 years (53% with a banker in office), 17 bailouts/handouts (debatable number),  

Miller: 1979-1981, Previous Experience: FED, Bailout(s): Chrysler
Regan
: 1981-1985, Previous Experience: Merrill Lynch, FED, Bailout(s): Continental Illinois NBT
Baker
: 1985-1988, Previous Experience: Lawyer, Bailout(s):
Brady: 1988-1993, Previous Experience: Senator, Bailout(s): S&L Industry
Bentsen
: 1993-1994, Previous Experience: Senator, Bailout(s):
Rubin: 1995-1999, Previous Experience: Goldman Sachs, Bailout(s): Mexico, LTCM  
Summers
: 1999-2001, Previous Experience: Harvard & World Bank, Bailout(s): Glass-Stegall Repeal
O'Neill
: 2001-2002, Previous Experience: Alcoa, Bailout(s):
Snow: 2003-2006, , Previous Experience: CSX, Bailout(s):
Paulson: 2006-2009, Previous Experience: Goldman Sachs, Bailout(s):Goldman/AIG, Citi, Fannie/Freddy, TARP, GM, Chrysler
Geithner
: 2009- , Previous Experience: FED, IMF , Bailout(s): ARRA, Dodd-Frank, POMO, QE1, QE2

 

 

Thu, 04/21/2011 - 16:49 | 1194011 Makey
Makey's picture

WALLST : What in the world are you talking about?  I should feel sorry for people on the other side of losing trades?  Not really a illegal activity.  Don't play the game.  We are all still aware that he lost 7B right?  Are we fining the people who were on the other side of those trades?

Thu, 04/21/2011 - 18:02 | 1194361 WALLST8MY8BALL
WALLST8MY8BALL's picture

Makey,  you fail to realize that his winning were in the Nat Gas Futures and his losses were mostly n OTC Nat Gas basis swaps such as Alberta Basis, Northwest Rockies or Citygate. The OTC market is not easily manipulated in Nat Gas ever since the Exchange started to clear Cash settled contracts via the Clearport Clearing was introduced. You dont have to feel sorry, but I feel great bout this!

Thu, 04/21/2011 - 18:39 | 1194476 Abiggs
Abiggs's picture

Again you're talking out of your behind here - OTC doesn't necessarily clear on Clearport - OTC matched on ICE clears through LCH. And again, the vast majority of gas and power trades are matched on ICE - this is like comparing the amount of trades executed on the Nasdaq vs NYSE and claiming that you know what's going on beacause you have a veiw into the NYSE book without seeing Nasdaq's....

Thu, 04/21/2011 - 16:54 | 1194020 American idle
American idle's picture

Poor people living off the rich should be shot on sight.
All of them.
And poor children too. Mow 'em down.
These parasites have gone too far!

Palin/Satan '12

Thu, 04/21/2011 - 19:05 | 1194574 Hephasteus
Hephasteus's picture

No vicitims were compensated in this justice. But bigger victimizers got to eat smaller victimizers.

Ya justice!!

What ya doing?

Were making snow victims!!

Thu, 04/21/2011 - 20:02 | 1194744 ArsoN
ArsoN's picture

Funny how you only get tagged once you lose influence.  

Thu, 04/21/2011 - 20:54 | 1194851 NotApplicable
NotApplicable's picture

Turns out that he only had a temporary card to "The Club."

Thu, 04/21/2011 - 21:56 | 1194999 surfersd
surfersd's picture

Maybe they can give some of the money to the MotherRock investors.

 

Fri, 04/22/2011 - 06:23 | 1195569 nah
nah's picture

http://www.youtube.com/watch?v=NpkbJ3G1yio

.

hans buubee im your white knight... your so funny

Mon, 04/25/2011 - 19:32 | 1205753 tomster0126
tomster0126's picture

I can't stand Hunter and the rest of the Canadian oil junkies.  The new KeystoneXL pipeline project is going to shatter the Midwest consumer economy and pump tons of shit-dirty oil sands into our cars.  stop it at all costs, please!

 

www.forecastfortomorrow.com

Wed, 04/27/2011 - 09:26 | 1211095 Abiggs
Abiggs's picture

Only he's a gas trader

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