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Analysis of Market Manipulation

Brattle is an industry leader in the detection, analysis, and proof (or disproof) of manipulative behavior in energy, commodity, financial, and securities markets.

We are well-versed in the analysis of manipulation as alleged under the fraud-based anti-manipulation rules of the Federal Energy Regulatory Commission (FERC), Commodity Futures Trading Commission (CFTC), Securities and Exchange Commission (SEC), and Federal Trade Commission (FTC), as well as equivalent rules in place in the European Union. We have also worked on manipulation cases brought pursuant to state laws or actions by the U.S. Department of Justice (DOJ). We provide clients with a holistic perspective concerning the types of behavior that these agencies may deem manipulative.

Our approach is based on a logical framework that evaluates behavior in a manner that is analytically consistent with past enforcement outcomes and current enforcement cases. Because our approach is objective, its application can be equally useful for the disproof or proof of manipulation. We have used it successfully to provide analytical support and expert testimony to address government investigations of alleged manipulative behavior and to defend against charges of manipulation raised in government enforcement actions and related civil litigation.

Areas of Expertise

Engagements
REPRESENTATIVE ENGAGEMENTS

Below is a list of representative engagements for our Analysis of Market Manipulation practice.

Assisting internal investigation
Brattle is assisting a client concerned that various trades placed over time could be questioned as “uneconomic” and thus fraudulent under the agencies’ market manipulation rules. These transactions may have led to various financial benefits and/or out-of-market payments that could be alleged as potential manipulation targets. The analysis is evaluating trading data to determine whether intentionally uneconomic trades were in fact placed into the market and, if so, whether those trades distorted market outcomes. This analysis will provide the client and its counsel with an understanding of the agency’s potential “best case” and the associated potential liability involved.
Best execution of paired FX forwards
The Brattle Group consulted on two cases involving a series of highly-structured paired FX forward contracts (Nevada Partners Fund, et. al v. U.S. and Kearney Partners Fund, et al v. U.S.). We analyzed the profit potential and investment risk in the FX trades relative to typical FX pricing, information, risk, and best execution. We also analyzed how the FX trades were executed and documented relative to standard banking practices for such trades, including the internal evaluation and approval of the trades, their structure, and the fee/pricing arrangements. In both cases, our work was used by the trial team to inform its case from the start of fact discovery through trial. In separate engagements, Brattle identified and worked with industry experts to develop testimony on the fundamentals of the underlying FX trades relative to similar market trades, the execution of the trades by the bank relative to industry customs and practices, and the trades’ profit potential.
Plaintiff’s actions related to the California Energy Crisis
The Brattle Group provided litigation support and expert testimony in many proceedings before the FERC seeking refunds from sellers into the California Power Exchange (PX), the California ISO, and the bilateral markets in the Pacific Northwest in the aftermath of the Energy Crisis of 2000-2001. Our clients included the largest utility companies in California, the California Attorney General, and the California Public Utilities Commission. Brattle experts offered testimony on manipulative gaming schemes, the exercise of market power, price discrimination, fraudulent misrepresentation in electricity and ancillary services sales, and the price impacts of such seller behavior on prices. Brattle testimony linked manipulative activities directly to violations of the PX and ISO tariffs and sellers’ market-based-rate authorizations and also explained why the resulting distorted prices in bilateral contracts were contrary to the public interest in the context of the Mobile-Sierra Doctrine.
Amaranth Advisors/Brian Hunter natural gas attempted manipulation
The Brattle Group was engaged to conduct economic analyses in connection with allegations that Amaranth Advisors and its head natural gas trader, Brian Hunter, attempted to manipulate settlement prices of NYMEX futures contracts for delivery of natural gas to the Henry Hub. The alleged manipulation occurred during the months of February, April, and May of 2006. Brattle’s analysis included using company, NYMEX, and ICE trading records to recreate Amaranth’s NYMEX and off-NYMEX natural gas positions over time, to calculate profit-and-loss on Amaranth’s trading, to carry out econometric analysis of price movements across multiple natural gas futures contracts over time, and to examine how Amaranth’s trading fit into the overall trading taking place on the NYMEX and on ICE, the primary off-NYMEX platform where Amaranth traded natural gas contracts.
Assistance to a Canadian electricity market monitor
We are currently working for the market monitoring unit of a Canadian provincial regulator to assist it with the implementation of its anti-manipulation rules. The project involves application of the framework to various scenarios cited by the market monitor as potential violations of the rules, as well as the development of processes and procedures to monitor for and detect manipulative activity and enforce the rules if violations are confirmed.
Experts
Publications
Article
Derivatives' Roles in Manipulation
October 2017
Published in the Futures and Derivatives Law Report, Volume 37, Issue 9

The article, published in the October 2017 issue of The Journal of the Law of Investment & Risk Management Products Futures & Derivatives Law Report, discusses the role derivatives play in market manipulation.

Article
Market Manipulation in Energy-Related Markets
August 2017
Published in the American Bar Association's (ABA) Transportation and Energy Industries Digest
Report
Building an Effective Trade Surveillance System: A Framework-Based Approach using Guidance from Two Recent FERC White Papers
March 20, 2017
Published by The Brattle Group, Inc.

The whitepaper outlines a cost-effective, learning-driven approach for companies to develop in-house trade surveillance systems to analyze potentially manipulative behavior.

Article
D.C. Circuit Clarifies that SEC Need Not Show Market Impact in Manipulation Cases
December 09, 2015
Published in the ABA's Securities Litigation Journal
Book
Market Power and Market Manipulation in Energy Markets: From the California Crisis to the Present
April 2015
Gerald A. Taylor, Shaun D. Ledgerwood, Romkaew P. Broehm, Peter S. Fox-Penner, Gerald A. Taylor, Shaun D. Ledgerwood, Peter S. Fox-Penner, and Romkaew P. Broehm
Published by PUR Inc.
Article
Market Manipulation Push is Widening the Compliance Gap
January 23, 2015
Published in Risk.net
Presentation
A Framework for Market Manipulation Compliance and Enforcement
January 2014
Presented to the Houston Chapter of the Energy Bar Association, Houston, TX
Article
Uneconomic trading and market manipulation
July 2013
Published in Energy Risk
Presentation
A Unifying Approach to Market Manipulation Compliance
June 2013
Presented at the Platts European Gas and Power Trading Conference, London, UK
Presentation
A Holistic Approach to Market Manipulation Compliance
April 2013
Presented to the partners of a national law firm interested in applications to energy, commodities and securities trading, Washington, DC
Article
A Framework for Analyzing Market Manipulation
September 2012
Published in Review of Law & Economics, Volume 8, No. 1
Article
A Comparison of Anti-Manipulation Rules in U.S. and EU Electricity and Natural Gas Markets: A Proposal for a Common Standard
April 2012
Published in Energy Law Journal
Report
Completing the Puzzle: Defining Manipulation Under REMIT
January 2012
Published by The Brattle Group, Inc.
Report
Losing Money to Increase Profits: A Proposed Framework for Defining Market Manipulation
March 2011
Published by The Brattle Group, Inc.
News & Knowledge
October 25, 2018
Shaun Ledgerwood to Present at S&P Global Platts Nodal Trader Conference

Brattle Principal Shaun Ledgerwood will speak at the S&P Global Platts 11th Annual Nodal Trader Conference, to be held October 25-26 in New York, NY.

February 21, 2018
Shaun Ledgerwood and John Tsoukalis to Present at Energy Risk Event on Trade Surveillance & Market Compliance for Energy Trading Organizations

Brattle Principal Shaun Ledgerwood and Senior Associate John Tsoukalis will present at Energy Risk’s training event, “Trade Surveillance & Market Compliance for Energy Trading Organizations,” taking place February 21-22, 2018 in Houston, TX.

January 29, 2018
Shaun Ledgerwood and John Tsoukalis to Present at EUCI Conference on Financial Transmission and Auction Revenue Rights

Brattle Principal Shaun Ledgerwood and Senior Associate John Tsoukalis will present at Electric Utility Consultants, Inc.’s (EUCI) conference, “Financial Transmission and Auction Revenue Rights (FTRs/CRRs/TCRs/ARRs),” taking place January 29-30, 2018 in Washington, DC.

January 17, 2018
Brattle Economists Author Article on Derivatives' Roles in Manipulation

Brattle Principal Shaun Ledgerwood and Senior Associate Jeremy Verlinda have authored an article published in the October 2017 issue of The Journal of the Law of Investment & Risk Management Products Futures & Derivatives Law Report, which discusses the role derivatives play in market manipulation.

August 01, 2017
Article by Drs. Shaun Ledgerwood and Jeremy Verlinda on Energy Manipulation Cases Published in ABA Transportation and Energy Industries Digest

Brattle economists Shaun Ledgerwood and Jeremy Verlinda review two recent energy-related manipulation cases where the plaintiffs claimed antitrust harms, but received very different outcomes following Motions to Dismiss.

July 20, 2017
Brattle to Host ABA Market Manipulation Teleconference

The Brattle Group will host the upcoming American Bar Association (ABA) teleconference, “Market Manipulation: When Is It An Antitrust Issue?,” taking place on Thursday, July 20, 2017 from 12:00 – 1:00 PM EST.

March 20, 2017
Building an Effective Trade Surveillance System: Guidance from FERC White Papers

Brattle Principal Shaun Ledgerwood and Associate John Tsoukalis have authored a white paper that outlines a cost-effective, learning-driven approach for companies to develop in-house trade surveillance systems to analyze potentially manipulative behavior.

October 07, 2016
Shaun Ledgerwood to Moderate Market Manipulation Panel at Global Antitrust Economics Conference

Brattle Principal Shaun Ledgerwood will present at the Global Antitrust Economics Conference, taking place October 7, 2016 at Northwestern University’s Pritzker School of Law in Chicago, IL.

December 09, 2015
Brattle Economists Author Article on Proof of Intent in the SEC

Brattle principals Shaun Ledgerwood and Paul Hinton recently authored the article “D.C. Circuit Clarifies that SEC Need Not Show Market Impact in Manipulation Cases” for the American Bar Association’s Securities Litigation Committee.

July 28, 2015
Shaun Ledgerwood to Chair Panel on Analysis of Market Manipulation at EUCI FTR Conference

Brattle principal Shaun Ledgerwood will chair a panel titled, “What Trading Organizations Can Do to Proactively Manage Swaps Manipulation Risks” at EUCI’s Conference on Financial Transmission Rights, to take place on Tuesday, July 28, 2015 at the Key Bridge Marriott in Washington, DC.

March 31, 2015
Shaun Ledgerwood to Speak on Market Manipulation in U.S. Electricity Markets at Gulf Coast Power Association Spring Conference

Brattle principal Shaun Ledgerwood will speak on the current state of market manipulation activity in the U.S. electricity markets at the upcoming 29th Annual Gulf Coast Power Association (GCPA) Spring Conference.

December 10, 2014
Shaun Ledgerwood to Speak at EUCI Conference on Integrating Energy Trading, Valuation, Market and Credit Risk Management

Brattle principal Shaun Ledgerwood has been selected to present at an upcoming EUCI conference, “Integrating Energy Trading, Valuation, Market and Credit Risk Management,” taking place December 10-11, 2014 in Scottsdale, AZ.

June 20, 2014
Shaun Ledgerwood Quoted in EnergyRisk Article Discussing Increased Use of Surveillance Technology in Commodities Trading

Principal Shaun Ledgerwood was recently cited in an EnergyRisk article on the use of technology in monitoring commodities trading for potential manipulation-like behavior.