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.
Brattle Principals Shaun Ledgerwood, Jeremy Verlinda, and Guy Ben-Ishai, and Director of Global Development James Keyte have co-authored an article in the Energy Law Journal in which they address whether the use of antitrust laws, specifically Section 2 of the Sherman Act, to address alleged market manipulation makes sense from an economic perspective.
Below is a list of representative engagements for our Analysis of Market Manipulation practice.
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.
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.
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.
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.
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.