Blast from the Past – Brian Hunter and Amaranth’s Manipulation
Does anyone remember Brian Hunter? Just a few short years ago he was the famed (or 
is it infamous?) Amaranth lead energy trader who allegedly tanked the firm via massive trading losses. In a famous case of where was the risk manager – in September 2006 Amaranth collapsed after approximately $6 billion in losses in a single week largely due to bad bets in the natural gas market.
For some perspective here is a video about Amaranth from CNBC:
The Huffington Post has a nice description of Mr. Hunter’s “trading strategy” which it refers to a banging the close:
“By flooding the NYMEX with Sell orders in Nat Gas in the last 10-15 minutes of trading (the Close), Hunter found that he could manipulate the price downward as there were no likely buyers for the type of size he was representing for sale.
Hunter concurrently held similar Nat Gas positions at the ICE that were much larger. Those positions are called look alikes, because they a not physically settled like their counterparts at the NYMEX are. After First Notice, those long contracts can be delivered against. This is true for any commodity.
Conversely, ICE contracts are settled financially, like the S&P 500 for example, so a trader does not have to worry about getting delivered against. Hunter was short his contracts, so he did not have to worry about delivery in this case. His goal, however, was to artificially depress NYMEX Nat Gas contracts so as to lower his larger ICE look alike Nat Gas contract position and burgeon his account balance. Herein is the manipulation.“
The notoriously secretive Mr. Hunter, he reportedly won’t allow his picture to be taken by journalists, is back. It should be known that accordingly to New York magazine (which refers to Mr. Hunter as an “international jerk of mystery”) denies that he is the root of all evil. This is (supposedly) one of the only pictures available of him (yet it remains unconfirmed) – nice catch!:
In July 2007 the Federal Energy Regulatory Commission (“FERC”) had Amarath and two of its former traders Brian Hunter and Matthew Donohoe of violating federal anti-manipulation regulations in natural-gas futures trades in March, April and May of 2006 on the New York Mercantile Exchange.
In August 2009 FERC approved a settlement with Amaranth and Donohoe which required the parties to pay $7.5 million. Mr. Hunter did not participate in the settlement. Maybe he should have in light of these instant messages….
A federal administrative judge, Carmen Cintron, ruled last week that Mr. Hunter 
violated market-manipulation rules. Judge Cintron’s decision will now go onto the Federal Energy Regulatory Commission (“FERC”) for a final decision.
Mr. Hunter, who is certainly lawyered up, has been fighting FERC every step of the way since 2007 during which time there was his interesting attempt to reinvent himself at Solengo.
A recent example of Mr. Hunter trying to fight FERC was on August 14, 2009 he filed a motion seeking to disqualify Judge Cintron because she may have been engaged in improper ex parte consultations, citing certain sections of the Administrative Procedure Act. Mr. Hunter’s motion was denied.
It is anticipated that FERC could take about two months two make a decision but the Wall St. Journal, quoting a FERC spokeswoman, said the final timetable is set by the commission.
Matthew Menchel, a lawyer who represents Mr. Hunter said in repsonse to Judge Cintron’s ruling, “The FERC should never have presided over this matter which is outside its competence and jurisdiction. Its decision means nothing in our view, and the FERC will have to accept the consequences when we get to the DC Circuit, which the FERC has been trying to avoid for the last few years.” Sounds like fighting words to me and that this case is turning into the things’ Administrative and Constitutional Law Professor’s dream about at night.
Here is an interesting perspective arguing for trader’s personal responsibility, and subsequently Mr. Hunter’s personal responsibility for his own actions.
If that is the case, and the decision really does mean nothing to Mr. Hunter and Mr. Menchel, why indeed show up to defend yourself in from of FERC? or is this just another case of delaying the inevitable of what many feel are just desserts.
Why show up? So his lawyer, Menchel, can exact his duty to “zealously defend his clients interests” which of course he collects a large fee for – perhaps the ABA ethics committee could opine on a lawyer defending his clients interests in a for the lawyer, by his own admission, says “doesn’t matter?” well at least everone who lost money with Amaranth can sleep well at night knowing no stone is going unturned to defend Hunter.