Unexpected price increases for natural gas during the past winter heating season have stimulated action by state regulators across the country. Most recently, North Carolina and New Mexico have...
Trading Spaces? Will CFTC Move Into FERC's House?
sell power at market prices, an obligation for all generators to agree to a set of tariff restrictions which FERC can then enforce directly as well as through RTOs. This "bootstrap" approach may be the best FERC can do in the absence of direct legislative authorization, and may even work on a prospective basis once all elements are in place. 16
In the markets for other commodities and services, regulated both by the SEC and the CFTC, the regulatory agency can make findings that the market has been manipulated, and can seek individual and firm penalties against the perpetrators that have the effect of barring those involved from ever participating in the markets again as well as penalizing the actions. There are cases approving actions by those agencies to provide reparations as well. That approach-the regulatory equivalent of the death penalty-has been upheld by the courts.
Legal Remedies: When Markets (Traders?) Go Bad
In most markets and in most cases, the question of reimbursement of those who lost money due to the manipulation of the market is generally left to the courts to resolve. This means that the injured parties can bring suit for all of their damages against the malefactors who manipulated the market, but that those who were innocent sellers into a high market are not at risk. The black-letter rule in most markets, absent statutory limitation, is that (here quoting the Securities Exchange Act): 17
"Section 10(b) of the Securities Exchange Act of 1934 § 15 U.S.C.A. 78j(b)) imposes private civil liability on those who commit a manipulative or deceptive act in connection with the purchase or sale of securities, but it does not impose liability on those who do not engage in a manipulative or deceptive practice but who aid and abet such a violation of § 10(b)-and specifically does not apply to a bank which, as indenture trustee for some bond issues by a public building authority, is alleged to be secondarily liable for aiding and abetting a claimed fraud as to those bonds, but is not alleged to have committed a manipulative or deceptive act within the meaning of § 10(b).
Accord, Strobl v. New York Mercantile Exchange, 768 F.2d 22 (2d Cir. 1985) (also permitting suit under the antitrust laws); . Following , however, Congress added CEA section 22, 7 U.S.C. 25, which regularizes private actions for violation of the CEA, and expands the implied right of action found by the Court to suits against those who willfully abet the violation, but imposes a nexus obligation and a relatively short two year statute of limitations.
That widespread approach to the regulation of markets, rather than prices, fits far better with normal American concepts of fairness than the approach taken by FERC in the ongoing California proceedings. Consider a simple but useful example.
If widow Jones, seeing the silver market rise when it was cornered by the Hunt Brothers and others, decided to melt down the family silver to put her children through college, and sold it at a price later determined to have been excessive,