Power & Pipes

FERC, CFTC, and State Energy Law Developments

A natural gas trader pleaded guilty in federal district court last week to conspiring to commit commodities fraud and wire fraud in an insider trading scheme over natural gas futures. His co-conspirator had pleaded guilty last July to conspiracy to commit wire fraud and to violate various provisions of the Commodity Exchange Act and the Commodity Futures Trading Commission’s (CFTC) anti-manipulation rule. This case represents part of the US Department of Justice's new effort to prosecute insider trading in the commodity markets under the CFTC’s anti-manipulation rule.


Congress amended the Commodity Exchange Act through the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. The amendments included adding an anti-manipulation provision to Section 6(c)(1) of the Act, 7 U.S.C. § 9(1), to which the CFTC promulgated a companion regulation at 17 C.F.R. § 180.1 (Rule 180.1).

These anti-manipulation provisions make it unlawful for any person to use or employ, or attempt to use or employ, any manipulative or deceptive device or contrivance in connection with any swap, contract of sale of any commodity in interstate commerce, or future delivery on or subject to the rules of any registered entity. Covered actions include fraudulent schemes or making untrue or misleading statements of material fact.

The CFTC considers insider trading to be a fraudulent or manipulative scheme. In 2018, the CFTC announced a new “Insider Trading & Information Protection Task Force” to prosecute abuse of confidential information. The CFTC has also indicated its intent to continue to file enforcement actions in parallel with criminal referrals.

The Fraudulent Scheme/Insider Trading

Between 2013 and 2016, the natural gas trader and allegedly two others used confidential information obtained by another co-conspirator regarding that co-conspirator’s employer's natural gas futures trades. The group used this information to prearrange profitable trades. According to the CFTC’s Order against one co-conspirator, he “disclosed information about the prices, quantity, volume, thresholds or limits of impending trades” by his company and provided “inside information regarding natural gas market conditions, including his views on the market, ahead of a weekly energy market report.” The CFTC found that the co-conspirator had a duty to keep this information confidential and not to disclose it to others or use it for his own benefit. The co-conspirator did both, including disclosing to the natural gas trader who pleaded guilty last week.

The natural gas trader and allegedly two others received this inside information to engage in prearranged trades. In total, the scheme generated nearly $1 million in illicit gains, of which the natural gas trader admitted to obtaining nearly $350,000.

In addition to the CFTC’s investigation, the DOJ’s Criminal Division Fraud Section prosecuted both the natural gas trader and one of his co-conspirators. Both have pleaded guilty, and sentencing is scheduled for later this year.

This case represents the DOJ’s new effort to prosecute insider trading in the commodity markets under the CFTC’s anti-manipulation rule. DOJ’s success and the CFTC’s intent to make criminal referrals suggests greater civil and criminal enforcement of insider trading in the commodity markets.