In 2006, the “Enron loophole” allowed Amaranth Advisers hedge fund to shift its trades from the regulated New York Mercantile Exchange (NYMEX) to the unregulated Intercontinental Exchange (ICE) in Atlanta.

That let Amaranth corner the natural gas market, betting that futures prices would rise. The hedge fund lost about $6 billion and imploded as natural gas prices fell to a two-year low in September 2006.

Last July, the Federal Energy Regulatory Commission and the Commodity Futures Trading Commission charged that Amaranth manipulated prices paid in the physical natural gas markets. FERC has proposed $291 million in penalties and the forfeiture of “unjust profits.”

“Unregulated markets are known as ‘dark markets’ because there is very little oversight of the trades,” said Rep. Bart Stupak, D-Michigan, chairman of the subcommittee on Oversight and Investigations, during a hearing on energy speculation last December.

By trading on the “dark” ICE market, traders can avoid the Commodity Futures Trading Commission’s rules which are in place to prevent price distortions or supply squeezes.

Stupak said trading volumes on ICE “have skyrocketed in the past three years and are now as large or even larger in some months, than the volumes traded on the regulated futures market.”

The lack of oversight “makes it difficult for regulators to detect excessively large positions which could lead to price manipulation,” Stupak said.

Advising McCain

Gramm, who is now a vice chairman of financial services company UBS, began advising McCain in 2005 when the Arizona senator indicated he planned to run for President.

Since then, McCain has adopted much of Gramm’s anti-tax, anti-regulatory agenda. Most strikingly, McCain shifted to support Bush’s tax cuts, which McCain had voted against in 2001 and 2003. He now vows that, if elected President, he would make them permanent.

Yet Gramm’s influence over McCain’s economic agenda – and the checkered political-business history of Gramm and his wife Wendy – have largely escaped media scrutiny.

Gramm received more than $34,000 in campaign contributions from Enron and served as one of the company’s key legislative allies in Washington, including his help in 2000 removing federal oversight from energy trades on electronic platforms.

At the height of the Enron scandal in January 2002, Gramm’s press secretary Larry Neal told The New York Times that Gramm did not “recall a conversation” he apparently had with Enron’s chairman Ken Lay in 2000 to discuss that Enron legislative priority.

An internal Enron e-mail dated Aug. 10, 2000, under the subject “CFTC Reauthorization” – sent by Enron’s top lobbyist Richard Shapiro to Steve Kean, Enron’s executive vice president – said the company needed to get Lay on the phone with Gramm so the bill could be passed.

“The bill is not moving quickly in the Senate due to Senator Phil Gramm's desire to see significant changes made to the legislation (not directly related to our energy language),” Shapiro said.

“Last week at the [2000] Republican Convention, I asked the Senator about the bill and he said they were working on it, but much needs to be changed for his support. More telling perhaps, were Wendy Gramm's comments that she would rather the current bill die if a better bill can be passed next year.

“What this means is that we must, at the least, remove Senator Gramm's opposition to the bill to move the process and more importantly seek to gain his support of the legislation.”

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