REVISED JUNE 24, 2010

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 09-20651

RICHARD HERSHEY; ROBERTO E. CALLE GRACEY, 

Plaintiffs–Appellants

v.

ENERGY TRANSFER PARTNERS, L.P.; ENERGY TRANSFER COMPANY;

ETC MARKETING, LTD.; HOUSTON PIPELINE COMPANY, 

Defendants–Appellees

************************************************************************

ROBERTO E. CALLE GRACEY,

Plaintiff–Appellant

v.

ENERGY TRANSFER PARTNERS, L.P.; ENERGY TRANSFER COMPANY,

also known as LA Grange Acquisition, L.P.; ETC MARKETING, LTD.;

HOUSTON PIPELINE COMPANY,

Defendants–Appellees

Appeal from the United States District Court 

for the Southern District of Texas

United States Court of Appeals

Fifth Circuit

F I L E D

June 23, 2010

Lyle W. Cayce

Clerk
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2

Before REAVLEY, PRADO, and OWEN, Circuit Judges.

PRADO, Circuit Judge:

This is a putative class action under the Commodities Exchange Act

(“CEA”), alleging manipulation of natural gas futures and options prices.

Richard Hershey and Roberto E. Gracey (“Plaintiffs”) purchased and sold New

York Mercantile Exchange (“NYMEX”) natural gas futures contracts. Plaintiffs

sued Energy Transfer Partners, L.P. and its affiliates (collectively, “Defendants”)

for allegedly manipulating the price of natural gas delivered atthe Houston Ship

Channel (“HSC”) and alleged economic harm to their NYMEX natural gas

futures contracts caused by that manipulation. Plaintiffs purport to represent

a class of natural gas futures and options contracts traders over the period of

Defendants’ alleged manipulation.

The Commodities Futures Trading Commission (“CFTC”) and theFederal

Energy Regulatory Commission (“FERC”) alleged in previous enforcement

actions that Defendants created and then exploited price differences between the

HSC and the Henry Hub, a major confluence of natural gas pipelines and the

settlement price for all NYMEX natural gas futures contracts. We must now

decide whether Plaintiffs may bring a proper claim under the CEA for the

alleged manipulation of HSC prices. Because we find that Plaintiffs failed to

sufficiently allege that Defendants specifically intended to manipulate NYMEX

natural gas futures contracts, we affirm the district court’s dismissal. 

I. FACTUAL AND PROCEDURAL BACKGROUND

A. The Natural Gas Futures Market

Natural gas is a commodity: a tangible good bought and sold in commerce.

BLACK’S LAW DICTIONARY 291 (8th ed. 2004). This tangible good produces a
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1 Or, simply, a “future.” 

3

variety of intangible financial derivatives,traded on public markets by investors

who have little interest in actually obtaining the natural gas. The market at

issue here is NYMEX, although most of Defendants’ allegedly manipulative

trades occurred on the Intercontinental Exchange (“ICE”), an Internet-only

competitor of NYMEX. 

If the buyer purchases the commodity for cash and the seller delivers the

good “on the spot,” it is called a “spot sale.” Thus, a spot sale reflects the current

price, and therefore the actual present value, of the commodity. Arguably the

most important commodities transaction is the futures contract,1 an agreement

“to buy or sell a standardized asset (such as a commodity, stock, or foreign

currency) at a fixed price at a future time.” BLACK’S LAW DICTIONARY, supra, at

699. The asset that is the subject of the future is called the “underlying.” The

modifier “underlying” has an important effect on “commodity”—the “underlying

commodity” of a futures contract is a specific good, governed by the terms of the

futures contract. See Three Crown Ltd. P’ship v. Caxton Corp., 817 F. Supp.

1033, 1043 (S.D.N.Y. 1993) (noting that, in a claim under the CEA provision at

issue here, the “‘commodity underlying’ . . . refers to the commodity specified

within the particular futures contract” and finding that particular Treasury

notes were not the commodity underlying Treasury bill futures or eurodollar

futures); see also Leist v. Simplot, 638 F.2d 283, 286 (2d Cir. 1980) (noting that

“the contract involved in this case, the May 1976 Maine potato futures contract,

is for 50,000 pounds of Maine grown potatoes of a specified quality to be

delivered at specified points in cars ofthe Bangor & Aroostook Railroad, between

May 7 and May 25, 1976”). 
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2 See In re Amaranth Natural Gas Commodities Litig. (Amaranth), 587 F. Supp. 2d 513,

520–24 (S.D.N.Y. 2008) (providing an overview of the commodities futures market, NYMEX,

and natural gas trading and stating that in the spring of 2006, “less than two percent of

natural gas futures went to delivery”). 

4

A future hedges, or limits, risk and allows for speculation. For example,

if Party A thinks that the price for natural gas will increase, it can acquire a

future for the later delivery of natural gas at a current set price to avoid paying

a possibly higher price at a later date. Party B believes that the price will

decrease and agrees to deliver the natural gas to Party A at the later date for the

agreed price. Party B may profit from the transaction by waiting to actually

acquire the natural gas for delivery until a later date, thereby benefitting from

the difference between the amount received for the future and the actual cost to

acquire the natural gas. 

Most parties who trade in natural gas futures do not want (and simply

would be unable to take physical delivery of) the natural gas. Instead, these

parties trade in natural gas futures like traditional investors trade in stocks and

bonds.2 The parties financially offset the future by further futures trading as

one would sell a stock on the public market. For these parties, the difference

between the contract price and the offsetting transaction represents the loss or

profit. 

The futures contract has two positions, a long and a short. The long party

pays for the contract and is obligated to take delivery. The short party receives

payment for the future and is obligated to make delivery. If a short party holds

the future until it comes due, the “prompt month,” then the futures contract

becomes a presently enforceable contractual obligation to deliver the natural gas.

The parties on opposing sides of the future do not deal with one another; rather,
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3 See N.Y. Merchantile Exch., Inc., NYMEX Rulebook, § 220.01 (2009), available at

http://www.cmegroup.com/rulebook/NYMEX/2/220.pdf(last visitedJune 22, 2010) (hereinafter

NYMEX Rulebook). 

4 The actual calculation of the settlement price is based on a series of inputs. As

detailed in Plaintiffs’ Amended Complaint:

The settlement price of a NYMEX natural gas futures contract is the volumeweighted average price of trades made during the 30-minute settlement period,

which is the last 30 minutes of trading on the termination day for the “promptmonth” contract. The “prompt-month” is the next calendar month. The

“termination day” for NYMEX natural gas futures contracts is the third-to-last

business day of the month preceding the prompt month, and the settlement

period occurs from 2:00 p.m. to 2:30 p.m. EST on the termination day (except for

when the NYMEX is operating on a holiday schedule). So, for example, for

August 2007, the prompt-month contract was the September 2007 NYMEX

natural gas futures contract. The last business day in August 2007 was Friday,

August 31, so the settlement period for the September 2007 NYMEX natural

gas futures contract took place from 2:00 p.m. to 2:30 p.m. on Wednesday,

August 29, 2007. 

5

they make their trades through a clearinghouse, such as NYMEX. See In re

Natural Gas Commodity Litig. (Natural Gas Litig.), 337 F. Supp. 2d 498, 502

(S.D.N.Y. 2004). The clearinghouse allows futures parties to offset their

obligations easily, which introduces fluidity to the market. 

The public markets for futures standardize the contracts. Everything,

except for price, remains the same from one futures contract to the next.3 The

NYMEX natural gas futures contracts rules “apply to all natural gas bought and

sold for future delivery on [NYMEX] with delivery at the Henry Hub.” Id.

§ 220.01. Each NYMEX futures contract represents ten billion British thermal

units of natural gas. Id. § 220.05. The price for the natural gas that is delivered

at the Henry Hub is the “settlement price” of the NYMEX natural gas futures

contract.4
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5 The Henry Hub has corollaries in other commodities. For example, all NYMEX

futures concerning light, sweet crude oil are tied to a hub in Cushing, Oklahoma. See In re

Crude Oil Commodity Litig. (Crude Oil Litig.), No. 06 Civ. 6677, 2007 WL 1946553, at *1–*2

(S.D.N.Y. June 28, 2007).

6 There is no obligation of delivery or performance based on the swap. 

6

The Henry Hub is a physical delivery point near Erath, Louisiana, and the

confluence of many interstate and intrastate natural gas pipelines. Amaranth,

587 F. Supp. 2d at 523. The spot price of physical delivery at the Henry Hub

underpins every natural gas future on NYMEX, regardless of whether that

future goes to physical delivery. See NYMEX Rulebook, § 220.01.5

The Henry Hub is notthe exclusive delivery pointfor all natural gas in the

United States. Defendants’ purchases and sales represent the bulk of the trades

involving natural gas delivered through the HSC, a major conduit of natural gas

to the Texas market. Because the price of delivery can vary among hubs, many

large traders in natural gas commodities arbitrage—a practice of taking

advantage of the price differential among markets. BLACK’S LAW DICTIONARY,

supra, at 112. Defendants here used natural gas futures “basis swaps” to

accomplish this arbitrage. A swap is a pure financial instrument,6 based on the

difference between two fluctuating values. In the natural gas basis swaps here,

the value of the swap is the difference between the settlement price of the

NYMEX natural gas futures contract for a given contract month and that of the

monthly index at the HSC for that same month. Put simply, the wider the gap

between prices at the Henry Hub and the HSC, the more money Defendants

stood to make from their basis swaps. 

Although prices differ between delivery hubs, those differences quickly

converge because of the nature of the public market. This convergence is due,
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7 See FERC, 120 F.E.R.C. ¶ 61,086, Docket No. IN06-3-002, available at

http://www.ferc.gov/EventCalendar/Files/20070726084254-IN06-3-002.pdf (last visited June

22, 2010). 

8 See Complaint at 1–2, CFTC v. Energy Transfer Partners, L.P., No. 3:07-cv-01301

(N.D. Tex. July 26, 2007), available at http://www.cftc.gov/ucm/groups/

public/@lrenforcementactions/documents/legalpleading/enfetpcomplaint072607.pdf. 

7

in large part, to a system of price reporting. Through Internet terminals

connected to ICE or NYMEX, traders can see the flow of trades. Additionally,

Platts, a reporting agency, collects certain price and volume information from

trading participants, and publishes the monthly Inside FERC’s Gas Market

Report (“IFERC”). The public pricing information influences traders’ forecasts

and impacts decisions to acquire natural gas. The public pricing information

will reflect any dips or spikes in prices, which in turn impacts the price at other

hubs, demonstrating a high correlation between prices of natural gas at hubs

nationwide. 

B. CFTC and FERC Enforcement Actions against Defendants

Plaintiffs’ allegations substantially mirror the allegations in regulatory

actions against Defendants by the CFTC and FERC. In July 2007, the FERC

issued an Order to Show Cause and Notice of Proposed Penalties (“FERC Order

to Show Cause”) alleging that Defendants engaged in manipulative trading.7 On

the same day, the CFTC filed a complaint in the Northern District of Texas

against Defendants, alleging market manipulation and seeking injunctive and

equitable relief, along with civil penalties under the CEA.8

The FERC Order to Show Cause alleges, with great specificity,

Defendants’ use of financial constructs and coordinated trades to manipulate

HSC prices:

[Energy Transfer Partners (“ETP”)] dominated sales of
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9 See Press Release, CFTC, Energy Transfer Partners, L.P. and Three of Its

Subsidiaries to Pay a $10 Million Penalty to Settle CFTC Action Alleging Attempted

Manipulation of Natural Gas Prices (Mar. 17, 2008), available at

http://www.cftc.gov/pressroom/pressreleases/pr5471-08.html (last visited June 22, 2010).

10 See Consent Order of Permanent Injunction, Civil Monetary Penalty and Other

Equitable Relief Against Defendants Energy Transfer Partners, L.P., Energy Transfer Co.,

ERC marketing, Ltd., and Houston Pipeline Co. at 3, CFTC v. Energy Transfer Partners, L.P.,

No. 3:07-cv-01301 (N.D. Tex. Mar. 17, 2008), available at http://www.cftc.gov/ucm/

groups/public/@lrenforcementactions/documents/legalpleading/enfetporder031708.pdf. 

11 See Press Release, FERC, FERC Approves Record $30 Million Settlement in ETP

Market Manipulation Case, 128 F.E.R.C. ¶ 61,269, Docket No. IN06-3-003,

http://www.ferc.gov/news/news-releases/2009/2009-3/09-21-09.pdf (last visited June 22, 2010).

8

fixed-price gas at HSC, often comprising 80 percent or more of total

sales. ETP reported its fixed price sales at HSC to [IFERC] and

thus was able to use its domination of the market to virtually set

the IFERC HSC index. In spite of ETP’s sales activity at HSC, it

was consistently a net buyer of monthly gas priced at the IFERC

HSC index, and thus was positioned to benefitfrom the lower prices

it caused in the months it manipulated fixed-price sales at HSC. . . .

At the same time, ETP had entered into . . . basis swaps to

leverage its benefit from suppressing monthly physical prices at

HSC. . . . [Thus,] ETP profited if the difference between prices at

HSC and the NYMEX Contract widened, i.e., the price at HSC

became lower relative to the higher priced NYMEX Contract. . . .

Because ETP had the power to suppress price at HSC, this was not

really a bet at all, but a manipulation that was spectacularly

successful in October 2005—ETP realized more than $40,000,000 in

unjust profits—and highly profitable in eight other months from

January 2004 through December 2005. 

FERC Order to Show Cause, at 3. 

The CFTC settled with Defendants for $10 million.9 The consent letter

permanently enjoined Defendants from any further manipulation of any

commodity.10 Defendants also settled with the FERC, for $30 million, and

agreed to periodic independent audits.11
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C. Plaintiffs’ Action

Plaintiffs purchased long positions in NYMEX natural gas futures, and

sold those positions at a loss the same day. After the CFTC and FERC actions,

Plaintiffs filed a Consolidated Class Action Complaint, alleging commodity

futures market manipulation and aiding and abetting under 7 U.S.C. §§ 6(c),

13(a), and 25(a). These two traders purport to represent a class of others

similarly situated, defined in their complaint as: “[a]ll persons . . . (a) who sold

NYMEX natural gas futures contracts, or (b) purchased or sold NYMEX natural

gas options contracts between December 29, 2003 and December 31, 2006 . . . .”

Plaintiffs’ allegations are based on the CFTC and FERC actions. The crux of

this case, however, is whether Plaintiffs can wrestle the CFTC and FERC

allegations into a private cause of action. 

Plaintiffs’ theory of liability is as follows: Defendants had the power to

suppress prices at HSC because of their dominant market position at that hub.

Defendants manipulated NYMEX futures and options contracts by selling,

during the bidweek, large quantities of natural gas for delivery at HSC to

depress the price of the natural gas at that hub to an artificial level. Defendants

provided the artificially low price information to Platts, knowing that those

prices would be reflected in HSC’s monthly price index. Those reported figures

resulted in a published index that contained manipulated and artificial figures.

Defendants engaged in this manipulation intending to drive the HSC price down

against the Henry Hub price so they could profitfrom the difference between the

two delivery hubs. The low HSC monthly index caused the NYMEX price to

fluctuate artificially, resulting in a lower price. Plaintiffs suffered damages by

trading NYMEX natural gas futures and options contracts at artificial prices

during the enumerated class period. 
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D. The District Court’s Dismissal

Defendants moved to dismiss Plaintiffs’ Amended Complaint, arguing that

Plaintiffs failed to allege that Defendants specifically intended to manipulate the

price of natural gas at the Henry Hub, and thus Plaintiffs failed to allege the

CEA’s requirement that the manipulation be specifically directed toward the

underlying commodity of the contract. It would be illogical, Defendants argued,

for Defendants to intend to depress Henry Hub prices ifthey allegedly benefitted

from the difference between Henry Hub and HSC prices. Plaintiffs responded

that the underlying of a NYMEX futures contract is natural gas generally,

rather than gas delivered at the Henry Hub, because the Henry Hub spot price

merely sets national benchmark. Because the HSC and Henry Hub prices were

correlated, Plaintiffs argued that Defendants’ manipulation of the HSC price

would necessarily drive down the cost of gas at the Henry Hub. 

The district court agreed with Defendants and dismissed the case with

prejudice. The district court reasoned that the private right of action under the

CEA applies only to alleged manipulation of the price of the commodity

underlying the contract, 7 U.S.C. § 25(a), and found that the commodity

underlying Plaintiffs’ NYMEX natural gas futures is the natural gas bought and

sold for delivery at the Henry Hub. 

The district court held that Plaintiffs failed to state a claim because they

did not allege facts tending to show that Defendants had specifically intended

to manipulate the cost of natural gas delivered atthe Henry Hub. Plaintiffs filed

a motion to reconsider, which the district court denied. Plaintiffs timely

appealed. 

II. ANALYSIS

A. Jurisdiction and Standard of Review
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12 The parties dispute whether the heightened pleading requirements of Federal Rule

of Civil Procedure 9(b) apply to this case. Because we hold that Plaintiffs failed to state a claim

under the liberal pleading standards of Rule 8, we do not reach this issue. 

11

We have jurisdiction under 28 U.S.C. § 1291 over the final order of the

district court dismissing Plaintiffs’ Amended Complaint. We review de novo the

district court’s dismissal under Federal Rule of Civil Procedure 12(b)(6). EPCO

Carbon Dioxide Prods., Inc. v. JP Morgan Chase Bank, NA, 467 F.3d 466, 469

(5th Cir. 2006) (citation omitted). To survive a Rule 12(b)(6) motion to dismiss,

Plaintiffs’ Amended Complaint need only include “a short and plain statement

of the claim showing that the pleader is entitled to relief.” FED.R.CIV.P. 8(a)(2).

“‘[D]etailed factual allegations’ are not required.” Ashcroft v. Iqbal, 129 S. Ct.

1937, 1949 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 554, 555

(2007)).12

However, the complaint must allege “sufficient factual matter, accepted

as true, to ‘state a claim that is plausible on its face.’” Id. at 1949 (quoting

Twombly, 550 U.S. at 570). “A claim has facial plausibility when the pleaded

factual content allows the court to draw the reasonable inference that the

defendant is liable for the misconduct alleged.” Id. at 1949 (citing Twombly, 550

U.S. at 556). A court should not accept “threadbare recitals of a cause of action’s

elements, supported by mere conclusory statements,” which “do not permit the

court to infer more than the mere possibility of misconduct.” Id. at 1949–50.

B. The Private Right of Action under the CEA

The CEA provides a private right of action against individuals “who

purchased or sold a [futures] contract” if those individuals “manipulat[ed] the

price of any such contract or the price of the commodity underlying such

contract.” 7 U.S.C. § 25(a)(1)(D). The parties do not dispute that Plaintiffs
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12

acquired and sold NYMEX natural gas futures contracts during the period of

Defendants’ alleged manipulation. However, we have yet to define

“manipulation” under the CEA, nor have we defined “commodity underlying.”

1. Specific Intent for Manipulation Claims under the CEA

To be liable for commodities fraud, a defendant must possess “the intent

to deceive, manipulate, or defraud.” Ernst & Ernst v. Hochfelder, 425 U.S. 185,

193–94 (1976) (discussing scienter requirement for securities fraud). The

obligation to plead specific intent may be traced back to decisions establishing

an agency’s burden of proof. See Grossman v. Citrus Assocs. of N.Y. Cotton

Exch., Inc., 706 F. Supp. 221, 231 (S.D.N.Y. 1989) (citing In the Matter of Cox,

[1986–1987 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 23,786 at 34,060–61

(CFTC July 15, 1987)); see also In re Soybean Futures Litig., 892 F. Supp. 1025,

1058–59 (N.D. Ill. 1995) (“The court recognizes that a manipulation claim

requires a showing of specific intent, that is, a showing that ‘the accused acted

(or failed to act) with the purpose or conscious object’ of influencing prices.”)

(quoting In re Ind.Farm Bureau Coop. Assoc., Inc., [1982–1984 Transfer Binder]

Comm. Fut. L. Rep. (CCH) ¶ 21,796 at 27,283 (CFTC Dec. 17, 1982)). 

Although we have not had an opportunity to specifically adopt a pleading

standard for commodities manipulation claims, the specific intent standard

appears to have substantial support. See Amaranth, 587 F. Supp. 2d at 530

(applying specific intent standard against private cause of action); CFTC v.

Enron Corp., No. H-03-909, 2004 WL 594752, at *4 (S.D. Tex. Mar. 10, 2004)

(applying specific intent to claim by CFTC against firm for market

manipulation); Natural Gas Litig., 337 F. Supp. 2d at 507 (discussing different

manipulation standards, each of which includes the specific intent requirement);
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Grossman, 706 F. Supp. at 231 n.12 (collecting cases). In Volkart Bros., Inc. v.

Freeman, we established that manipulation is “any and every operation or

transaction or practice . . . calculated to produce a price distortion of any kind in

any market either in itself or in relation to other markets.” 311 F.2d 52, 58 (5th

Cir. 1962) (citation omitted). Despite this broad standard, we noted the

importance of specific intent, stating that “there must be a purpose to create

prices not responsive to the forces of supply and demand.” Id. Because the

specific intent standard is grounded in sound reasoning and precedent, we adopt

it for private causes of action under the CEA, 7 U.S.C. §§ 13(a) and 25(a). 

2. The Underlying Commodity of a NYMEX Natural Gas

Futures Contract

As previously discussed, all natural gas futures traded through NYMEX

are governed by the NYMEX Rulebook. See NYMEX Rulebook, § 220.01. Only

the price varies from one futures contract to the next. Each future obligates the

long party to accept delivery, and the short party to make delivery over the

physical pipelines at Henry Hub over the course of the delivery month. Id.

§ 220.10. The NYMEX standard contract provides details of the delivery,

including its timing and flow rate. See, e.g., id. §§ 220.12 & 220.13. It is

exceedingly unlikely that Plaintiffs ever expected to accept delivery of natural

gas through an interconnection point at Henry Hub as each namedPlaintiff held

his respective futures contract for a single trading day before selling it for a loss.

However, this fact does not obviate the futures holder’s obligation to accept

delivery at the Henry Hub. 

Plaintiffs argue that, contrary to the district court’s finding, the

underlying of a NYMEX natural gas future is natural gas generally, rather than

the gas delivered at the Henry Hub. Plaintiffs contend that prices of physical
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natural gas, wherever bought or sold, directly affect NYMEX natural gas futures

contract prices. Plaintiffs further argue that the interconnected nature of the

industry necessitates a finding that natural gas generally is the underlying

commodity because the fungible commodity at any hub is “inextricably linked”

with the NYMEX natural gas futures price. Plaintiffs also point out that the

private cause of action provision of the CEA does not reference NYMEX prices

nor any specific delivery location, but allows a claim for manipulation of the

“underlying commodity” of a futures contract. 7 U.S.C. §§ 13(a), 25(a). 

Although no circuit has squarely addressed what constitutes the

underlying commodity of a NYMEX natural gas futures, cf. Leist, 638 F.2d at

286 (concerning a case involving May 1976 Maine potato futures and noting that

those futures involve “Maine grown potatoes of a specified quality to be delivered

at specified points in cars of the Bangor & Aroostook Railroad, between May 7

and May 25, 1976”) (emphasis added), we cannot agree with Plaintiffs’ position.

Plaintiffs concede that the settlement price of a NYMEX natural gas futures

contract is the price of natural gas delivered at the Henry Hub. Under the CEA,

actionable manipulation must be directed at “the price of the commodity

underlying such contract.” 7 U.S.C. § 25(a)(1)(D) (emphasis added). By

definition, the underlying of a futures contract depends on the contract itself.

It is undisputed that the contract in question here is the NYMEX natural gas

futures contract. Therefore, Plaintiffs must allege that Defendants specifically

intended to manipulate the underlying of that contract, not some hypothetical

natural gas futures contract. 

The NYMEX natural gas futures contract is specifically tied to, and

standardized against, the spot price at the Henry Hub. Although a party to a
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NYMEX natural gas futures contract, at an abstract level, deals generally with

natural gas, that party may only accept or make delivery at the Henry Hub.

This delivery restriction, standard to all NYMEX natural gas futures contracts,

leads us to reason that the underlying commodity of a NYMEX natural gas

futures contract is not natural gas wherever bought and sold, but the specific

natural gas delivered at the Henry Hub. 

C. Plaintiffs’ Amended Complaint

The district court found that a private cause of action under the CEA

requires Plaintiffs to plead that (1) Defendants possessed an ability to influence

market prices; (2) an artificial price existed; (3) Defendants caused the artificial

prices; and (4) Defendants specifically intended to cause the artificial price. See

In re Energy Transfer Partners Natural Gas Litig., No. 4:07-cv-3349, 2009 WL

2633781, at *3 (S.D. Tex. Aug. 26, 2009) (citing 7 U.S.C. § 13(a); Amaranth, 587

F. Supp. 2d at 530; Natural Gas Litig., 337 F. Supp. 2d at 507; Crude Oil Litig.,

2007 WL 19465553, at *3; Enron Corp., 2007 WL 594752, at *4). We agree with

the district court’s finding and adoptthis standard for pleading under the CEA’s

private cause of action, 7 U.S.C. §§ 13(a), 25(a). 

Plaintiffs’ allege that Defendants intentionally manipulated the price of

natural gas at the HSC. When Defendants reported these artificial prices to

Platts, the artificial prices impacted the published index and likely influenced

the price of gas at the Henry Hub, thus impacting the price of NYMEX natural

gas futures contracts. The parties dispute the plausibility of Plaintiffs’

allegation that Defendants specifically intended to influence either the price at

the Henry Hub or the price of NYMEX natural gas, assuming the truth of

Plaintiffs’ other factual allegations.
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Plaintiffs attemptto tie Defendants’ manipulation ofthe HSC prices to the

price of Henry Hub natural gas and NYMEX futures contracts by arguing that

Defendants knew or should have known that their manipulation of natural gas

prices at HSC would result in the artificial suppression of the prices of NYMEX

natural gas futures contracts. In other words, Plaintiffs argue that Defendants

were aware that the correlation between the natural gas hubs would cause the

Henry Hub price to sink if they flooded the HSC. Directing a similar argument

to the underlying commodity, Plaintiffs contend that because Defendants

submitted artificially low HSC price information for publication, the depression

of Henry Hub spot prices was “intentional and inevitable.” Plaintiffs’ argument

is without merit: intentionality and inevitability are not legally equivalent. 

In Amaranth, a class of futures traders alleged that a slew of corporate

entities, collectively “Amaranth,” conspired to drive up the price of NYMEX

futures and benefit from advantageous swaps. 587 F. Supp. 2d at 524.

Amaranth allegedly accomplished its manipulation by acquiring massive long

positions of NYMEX natural gas futures, thereby “signal[ing] significant

demand, causing market prices to rise.” Id. As those futures contracts went to

settlement, “Amaranth would sell a significant number of futures . . . artificially

depress[ing] the settlement price of those futures.” Id. Amaranth would “lose

money on the futures but would profit on the swaps.” Id. All of Amaranth’s

alleged manipulations were directed toward and directly impacted the NYMEX

natural gas futures market and the Amaranth plaintiffs alleged that Amaranth

specifically intended to manipulate the market of the futures that they had

purchased. 

The Amaranth plaintiffs’ allegations are different than those made by
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17

Plaintiffs here. Defendants directed every alleged manipulation toward the

HSC. Indeed, Defendants benefitted from a scheme that depended on the spread

between the Henry Hub and HSC. The wider the spread, the greater the return

on the financial basis swaps and thus it would be counterproductive for

Defendants to drive down the Henry Hub spot price. 

In Natural Gas Litigation, a group of traders brought similar claims to

those presented here, following enforcement actions after CFTC and FERC

investigations. 337 F. Supp. 2d at 502. The Natural Gas Litigation plaintiffs

alleged that “a group of companies that market and trade natural gas in the

physical and futures markets, acted together to unlawfully manipulate the

prices of natural gas futures and option contracts traded on the NYMEX.” Id. at

502 (footnote omitted) (emphasis added). Although the alleged scheme in

Natural Gas Litigation involved the defendants’ submission of false pricing

information on spottrades at various delivery hubs, itis clear thatthe complaint

alleged an overarching scheme to influence NYMEX natural gas futures prices.

Id. at 502–03. 

The scheme in Natural Gas Litigation is decidedly different from

Plaintiffs’ allegations here. Although the Natural Gas Litigation defendants

reported artificial prices at hubs other than the Henry Hub in order to influence

published price indices, the plaintiffs alleged that the intent behind these false

reports was to drive down NYMEX natural gas futures prices. Id. Here, the

intent of Defendants’ alleged false reporting was to drive down the price of

natural gas at the HSC hub. The effect on the Henry Hub, and NYMEX futures

contracts, was merely an unintended consequence of the Defendants’

manipulative trading. 
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In Soybean Futures, the district court granted that “[a]s a general

matter . . . questions of intent are inappropriate for resolution on summary

judgment” but recognized that in some instances dismissal is appropriate

because “‘the plaintiff presents no indication of motive and intent supportive of

his position.’” 892 F. Supp. at 1058 (quoting Powers v. Dole, 782 F.2d 689, 696

(7th Cir. 1986)). Plaintiffs here cannot tie Defendants’ manipulation of the HSC

price index to an intent or motive to manipulate the Henry Hub price and thus

summary judgment was not premature. Under a specific intent standard, mere

knowledge is not enough; Defendants must have specifically intended to impact

the NYMEX natural gas futures market. Plaintiffs here allege only that

Defendants knew or should have known that their manipulative actions would

depress the NYMEX natural gas futures prices. Therefore, Plaintiffs have not

stated a claim under the CEA. 

III. CONCLUSION

The CFTF and FERC enforcement actions against Defendants raise the

specter of manipulation; accepting Plaintiffs’ allegations as true leads to the

same conclusion. The alleged manipulation had only a tangential, although

perhaps foreseeable, effect on the price of natural gas delivered at the Henry

Hub and the price of NYMEX natural gas futures contracts. To state a claim

under the CEA, however, Plaintiffs must plead facts establishing that

Defendants specifically intended to influence the natural gas delivered at the

Henry Hub or the price of NYMEX natural gas futures contracts. They failed to

do so. We therefore AFFIRM the district court’s order dismissing this case.

AFFIRMED.
09-20651

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