The United States Court of Appeals for the District of Columbia Circuit addressed a petition for review regarding a $30 million fine imposed by the Federal Energy Regulatory Commission (FERC) on Brian Hunter for allegedly manipulating natural gas futures contracts. Hunter contended that FERC lacked the authority to impose such a fine, as the Commodity Futures Trading Commission (CFTC) holds exclusive jurisdiction over all transactions involving commodity futures contracts. The court found that manipulation of natural gas futures indeed falls within the CFTC's exclusive jurisdiction, and there was no clear indication in the Energy Policy Act of 2005 that would repeal this jurisdiction. Consequently, the court granted Hunter's petition for review.
The case centers on Hunter's trading activities on the New York Mercantile Exchange (NYMEX), regulated by the CFTC, where he allegedly manipulated the settlement price for natural gas futures contracts during specific settlement periods in early 2006 by selling a significant volume of contracts—between 14.4% and 19.4% of market volume—which negatively impacted the settlement price and benefited his trading position.
Federal regulators became interested in Hunter’s trading activities, leading to a civil enforcement action by the CFTC on July 25, 2007, which accused him of violating section 13(a)(2) of the Commodity Exchange Act by manipulating natural gas futures prices. The following day, FERC initiated an administrative enforcement action against Hunter, claiming he violated section 4A of the Natural Gas Act by manipulating settlement prices that affected natural gas prices in regulated markets. After a protracted administrative process, FERC ruled against Hunter and imposed a $30 million fine. Hunter is now petitioning for review, arguing that FERC lacks jurisdiction in this enforcement action, a position supported by the CFTC. The jurisdictional conflict between the two agencies is significant, as courts do not defer to either agency’s claims when they conflict. Since the Future Trading Act of 1921, Congress has aimed to regulate futures markets to curb speculation, with various legislative amendments leading to the establishment of the CFTC in 1974. At the time of Hunter’s trades, the Commodity Exchange Act granted the CFTC exclusive jurisdiction over specific transactions involving commodity futures, while not limiting the jurisdiction of the SEC or other regulatory bodies.
Congress established CEA section 2(a)(1)(A) to grant the CFTC exclusive jurisdiction over transactions on futures markets, such as the NYMEX. In response to the California energy crisis, the Energy Policy Act of 2005 expanded FERC's authority to regulate market manipulation, specifically making it unlawful to use deceptive practices in natural gas transactions, as detailed in section 4A of the Natural Gas Act (15 U.S.C. 717c-1). FERC implemented regulations against manipulative trading in natural gas (18 C.F.R. 1c.1). The Act includes two references to the CFTC, mandating a memorandum of understanding for information sharing, while clarifying that it does not affect the CFTC’s exclusive jurisdiction (15 U.S.C. 717t-2(c)). The case presents two key questions: whether CEA section 2(a)(1)(A) covers manipulation of natural gas futures contracts, and if Congress intended to repeal this section when enacting the Energy Policy Act. The text of CEA section 2(a)(1)(A) clearly grants the CFTC exclusive jurisdiction over futures contracts, including those for natural gas. FERC fined Hunter for manipulating natural gas futures, affirming that such transactions fall under the CFTC's jurisdiction. FERC contends that both agencies can enforce regulations when manipulation in one market impacts another, suggesting a shared enforcement role.
FERC's argument that the CFTC can only regulate day-to-day trading activities, excluding manipulation schemes, is unsupported by the text of CEA section 2(a)(1)(A). The CFTC asserts that if FERC's jurisdictional interpretation were accepted, any agency with manipulation oversight could also regulate futures contract trading, undermining the CFTC's exclusive jurisdiction over such contracts. The legislative history emphasizes that the CFTC's authority over futures markets is exclusive and preempts both state and federal agencies. While section 2(a)(1)(A) acknowledges the jurisdiction of other federal agencies, it clearly establishes the CFTC's exclusive authority over commodity futures contracts and related transactions.
FERC's reliance on the FTC v. Ken Roberts Co. case is examined, where the FTC's subpoena was enforced because the activities did not fall under the exclusive jurisdiction of the CFTC. The decision indicated a strong endorsement of the CFTC's exclusive jurisdiction, highlighting the aim of avoiding overlapping regulatory authority. The distinction made in Ken Roberts supports the CFTC's position, as Hunter's alleged manipulation scheme clearly involves transactions in commodity futures contracts, thus affirming the CFTC's exclusive jurisdiction in this context.
Limits exist within CEA section 2(a)(1)(A), but once a scheme falls under its jurisdiction, the CFTC holds exclusive authority. The determination of whether the Energy Policy Act repeals this jurisdiction by implication rests heavily on FERC, as such repeals are generally disfavored and require a clear, manifest intent. FERC argues that the Energy Policy Act of 2005 allows for complementary jurisdiction with the CFTC, particularly through section 4A, which appears to empower FERC to prohibit manipulation in its regulated markets. However, section 4A does not clarify FERC's ability to infringe upon the CFTC’s exclusive jurisdiction. Since FERC can regulate manipulative trading in non-CFTC jurisdictions, there exists no irreconcilable conflict between the statutes, negating the grounds for implied repeal.
FERC also cites section 23’s savings clause, asserting it only pertains to a memorandum of understanding between FERC and CFTC. However, section 23's language suggests the agencies regulate separate markets, indicating the clause may not be as limiting as FERC claims. The ambiguity surrounding section 23, combined with the presumption against implied repeals, undermines FERC’s position. FERC's reliance on other court decisions and out-of-circuit cases does not clarify Congressional intent regarding the Energy Policy Act, nor does it establish that section 4A intrudes on CFTC jurisdiction. Therefore, lacking evidence for an implied repeal of CEA section 2(a)(1)(A), FERC cannot assert jurisdiction over Hunter for manipulation of natural gas futures contracts. The petition for review is granted.
