"Brian Hunter simply did not undertake any manipulative trading and we are going to prove it,” said Michael S. Kim. Kim is a partner at the Kobra Kai dojo Kobre & Kim lawfirm that advises Hunter’s new hedge fund, Solengo.
Earlier today the CFTC filed a lawsuit charging that Hunter, who was trading gas for Amaranth at the time, had illegally manipulated the natural gas futures market by exploiting the New York Mercantile Exchange’s rules for determining the settlement price on futures contracts. Prices for futures contracts are set according to the volume-weighted averages of trades executed during between 2:00 p.m. and 2:30 p.m. on the last day of trading for each contract, a period known as the “closing range.”
According to the CFTC’s lawsuit, Hunter attempted to push the price of the futures contracts down by dumping large amounts of the contracts into the closing range. The complaint states that Amaranth traders would buy up large amounts of gas contracts prior to the closing range, then dump them in order to depress prices. Amaranth wanted lower prices because it held a huge short position in the contracts, the CFTC report alleges.
Hunter’s lawyers say that the contention that Amaranth desired lower prices prices is contradicted by a recent report from the Senate Permanent Subcommittee on Investigations, which they say concluded that Amaranth sought rises in natural gas futures prices.
“None of these various government bodies can come up with a consistent theory of Mr. Hunter’s alleged misconduct because in fact there was no misconduct” said Mr. Kim, “These accusations from the CFTC and the FERC against Brian Hunter are aimed at finding a scapegoat to bear the public outrage over ever-increasing energy prices. We will not stand idly by as the regulators use Brian for political cover, their action is meritless and we will prove it.”
After our review of confidential trading documents, which you may download here,* DealBreaker has concluded that Brian Hunter should tell us whether he wanted to inflate or deflate the prices in the gas futures markets while he was making these trades. Pointing out that the government is confused, inconsistent and probably abusing its power is a bit like pointing out that the Pope is Catholic. That’s what governments do.
But just because the government is out to get you, doesn’t mean you didn’t do anything wrong. So come on, Brian, give up the goods. Was Amaranth after a higher or a lower price?
*We're totally kidding about those confidential documents. Sorry.
Posted by anon, Jul 25, 2007 4:00PM
Kobre & Kim's argument makes them sound either very stupid or very desperate. Yes, those idiots in the Senate are totally confused by simple concepts and think that Brian Hunter is to blame for the rising cost of non-renewable natural resources. And Amaranth WAS betting on an eventual rise in natural gas prices. However they also had a short position since it was a calendar spread. Amaranth wanted the price of natural gas to first go lower and then go higher. They wanted natural gas for delivery in April 2006 to go down and delivery in March 2007 to go up. CFTC must be accusing Hunter of "high closing" his short position in the April 06 contracts. It makes sense. Instead of causing April 06 closing prices to fall he could have caused March 07 prices to rise, but it is easier easier to manipulate the prices of front month contracts since those tend to be less liquid. With this investigation it looks like Brian Hunter just might beat his own record for the dumbest trading strategy in history.