Daily Archives: November 29, 2004

More gas trader indictments

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U.S. prosecutors charged five former natural gas traders for allegedly supplying fake trade data to publishers that produce indexes used to value natural gas contracts. This post and this post refer to earlier indictments of the same nature against other El Paso Corp. traders.
Prosecutors alleged that two of the traders – Donald E. Burwell and James P. Phillips – operated as part of a conspiracy at El Paso Merchant Energy run that the government alleges was run by the head of gas trading. The executive who allegedly ran the conspiracy was not identified in the indictments.
Messrs. Burwell and Phillips, along with former El Paso trader Greg Singleton and former Dynegy Inc trader Michelle Marie Valencia were all charged with conspiracy, wire fraud and false reporting. A fifth trader — Jerry A. Futch Jr. — formerly of Reliant Energy Corp, was charged with four counts of reporting false transaction data. All five defendants pleaded innocent at an arraignment Monday and were released on $50,000 bond.
In an interesting twist, all the defendants except Mr. Futch were allowed to turn themselves in to the U.S. Marshal’s Office Monday morning, as is typical in white collar criminal cases. However, for some reason, Mr. Futch was not allowed to do so and was arrested at his home as he was getting ready to take his two children to school. No word yet on the reason for the government’s heavy handed handling of Mr. Futch.
The indictments follow a lengthy investigation into alleged efforts to manipulate the trading indexes, which are used to value billions of dollars in gas contracts and derivatives. Industry publications, such as the Inside FERC Gas Market Report, use data from traders to calculate the index price of natural gas. Accordingly, movement in index prices often affects the level of profits traders can generate. In these particular trader cases, it remains unclear whether the publication actually used the false information provided, but the government needs only to prove that fake trades were reported and not not that they were actually published or affected the markets.
Moreover, in an earlier case involving Ms. Valencia in which she was charged with false reporting, a federal district judge threw out the charges after ruling that the part of the Commodity Exchange Act that deals with reporting of false and misleading information on on commodity trades is unconstitutionally broad and vague. That ruling is currently on appeal at the Fifth Circuit Court of Appeals in New Orleans, which has already conducted oral argument in the case and is currently preparing its decision.

More on basketball, hockey style

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On the heels of this earlier post on the fight that occurred on November 19 at the Pistons-Pacers game, do not miss Professor Sauer’s analysis of the affair, with a Stros twist:

The Pacers’ brawl is not the first instance of a fan being leveled by a player-thrown haymaker. In one memorable incident in 1999, a fan raced onto the field at Milwaukee County Stadium and jumped on Billy Spiers in right field. Spiers’ Astros teamates were quick on the scene to defend him. I recall Mike Hampton landing a series of blows to the head of that bozo. Billy Spiers (a former Tiger in addition to being an Astro) was one of my favorite players. Put me in Hampton’s shoes and I’d have done the same thing, though not so effectively. Thanks for that, Mike.
Now, how different is Hampton’s defense of his teammate from Jermaine O’Neal and Stephen Jackson’s defense of Ron Artest? While there are differences, they are mostly a matter of degree. The common thread between the two incidents is the out of control fan.
Many issues are highlighted by the fight in Detroit. The NBA paid service to the media with swift and draconian punishment for the players involved. But to me, fan control is a more serious and more difficult problem than player control. Each time fans rush the court or the playing field after a game, they illustrate the raw power inherent in a crowd that no level of security short of an armored division can manage. The trick for sports management is to short-circuit the potential for a crowd to turn into a mob.

Definite clear thinking. Read the entire post.

Houston’s bull on oil prices

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This earlier post reported on an interview of Matt Simmons, the Houston-based investment banker who is an expert on forecasting oil supplies. Following that interview, this Barron’s interview of Mr. Simmons warns that the Saudi oil supplies are not what they appear to be and that, because the Saudi oil industry is state-run, there is no independent auditor of national reserves who can verify just how large — or small — the Saudis’ reserves are. As Mr. Simmons notes, that makes a big difference for the following reasons:

With global demand for oil on the rise, and prices hovering near $50 a barrel, the Saudis’ production profile is more than academic. The No. 1 oil producer, Saudi Arabia pumps 13% of the world’s oil and boasts 23% of its oil reserves. Moreover, the Saudis alone claim to have excess production capacity and the ability to increase output if demand continues to rise.

If the Saudis’ numbers are correct, the kingdom could continue to produce at current levels of about 10 billion barrels a day for the next 50 years, or more. That would give the industrial world time to develop alternative energy sources and prepare for a graceful transition.

If Simmons is right, however, the world could face a dangerous imbalance between rising oil demand and diminishing supply, perhaps within the next 10 years. Oil prices could soar, economies could suffer, and oil-dependent nations, such as the U.S., China and Japan, would be forced to scramble for additional energy sources.

Matt Simmons’ opinions are not to be taken lightly. Read the entire article.