In the 1980s the SEC and the CFTC had turf battles that ultimately ended with an accord between the two agencies. More recently the CFTC and the Federal Energy Regulatory Commission have spared over which agency has jurisdiction when futures contracts are used as part of a manipulative scheme which alters the price of physicals in the energy markets. The dispute has left market participants caught in the middle between two federal regulatory agencies in a manner which is reminiscent of the SEC – CFTC battles of the 1980s. This time the D. C. Circuit has stepped in to resolve the matter. Hunter v. Federal Energy Regulatory Commission, No. 11-14777 (D.C. Cir. Decided March 15, 2013).
In Hunter the CFTC and FERC claimed to have jurisdiction over the activities of Brian Hunter, an employee of hedge fund Amaranth. Mr. Hunter traded natural gas futures contracts on the New York Mercantile Exchange or NYMEX. In April 2006 he essentially shorted the price of natural gas. His portfolio had been constructed to benefit from a decline in the price. Thus in February, March and April he sold significant number of futures contracts. The volume of his trading reduced the settlement price for natural gas, a benefit for Mr. Hunter.
In July 2007 the CFTC filed an enforcement action against Mr. Hunter, alleging manipulation in violation of Section 13(a)(2) of the Commodity Exchange Act. FERC followed, filing an administrative proceeding against Mr. Hunter alleging manipulation in violation of Section 4A of the Natural Gas Act. Eventually FERC found against Mr. Hunter, imposing a $30 million fine. This appeal followed. The CFTC intervened in support of Mr. Hunter on his claim that FERC lacks jurisdiction.
The Court began its analysis by concluding that deference is not due either agency here. While Chevron deference is typically due an agency interpreting its statute, where two governmental agencies have competing jurisdictional claims, the D.C. Circuit has never deferred.
Turning to Section 2(a)(1)(A) of the CEA which governs the jurisdiction of the CFTC, the Court found the statutory language compelling. In part the Section provides that “The Commission shall have exclusive jurisdiction . . . with respect to accounts, agreements . . . and transactions involving contracts of sale of a commodity for future delivery . . .” (emphasis added).
In contrast, the Natural Gas Act makes it unlawful to manipulate the price of natural gas and vests jurisdiction over such claims with FERC. In Section 23 of the Act, however, Congress directed that FERC and the CFTC enter into a memorandum of understanding about information sharing. That Section further provides that it has no effect on the CFTC’s exclusive jurisdiction.” In this case Mr. Hunter’s alleged scheme focused on trading natural gas futures contracts with an intent to manipulate. Thus the CEA “by its plain terms” vests the CFTC with exclusive jurisdiction over the manipulation of natural gas futures contracts.
The Court rejected the contrary arguments of FERC. Its claim that because the manipulation of one market impacted another both agencies have an enforcement role ignores the plain language of the statute. Indeed, acceptance of such a proposition would effectively eviscerate the exclusive jurisdictional grant to the CFTC.
Equally unpersuasive is FERC’s claim that the Energy Policy Act constitutes an implicit repeal of the CEA’s exclusive jurisdiction provision. Not only are such claims disfavored the Court noted, but more importantly, the contention cannot be sustained absent an express contradiction of the original Act in the subsequent legislation. That is not the case here. Accordingly, the Court granted the petition, ruling in favor of Mr. Hunter and the CFTC.