FERC issued an order February 12 denying approval of an uncontested settlement agreement negotiated between FERC Enforcement Staff and trader Amaranth Advisors.  The settlement agreement was filed November 24 of last year and intended to resolve all the issues arising from the FERC’s July 26 order demanding that Amaranth show cause why it should not be required to disgorge nearly $300 million allegedly garnered from market manipulation.  FERC stated in its February 12 order that “[h]aving considered the gravity of the alleged violations, the potential remedies for those violations if proven to have occurred, and the remedies offered in the Settlement, the Commission concludes that the settlement is not in the public interest and hereby rejects it.”

The settlement agreement between FERC Enforcement Staff and Amaranth was the product of a  protracted and contentious process.  While the terms of the settlement agreement were not made public, it was believed that the settlement agreement represented a significant decrease in the proposed penalties from FERC’s $291 million starting point in the show-cause order.  While FERC and Amaranth now go back to the drawing board, it is likely that FERC’s actions will cause both parties to rethink their settlement efforts while they gear up for litigation.  Whether or not FERC made the best move in denying this uncontested settlement is up for debate, as is what this order means for future enforcement actions.  The industry will certainly stay tuned.