U.S. Commodity Futures Trading Com'n v. Dizona

• Citation: 594 F.3d 408
• Decision Date: 14 January 2010
• Docket Number: No. 08-20418.,08-20418.
• Parties: U.S. COMMODITY FUTURES TRADING COMMISSION, Plaintiff-Appellant, v. Anthony DIZONA, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

594 F.3d 408

U.S. COMMODITY FUTURES TRADING COMMISSION, Plaintiff-Appellant, v. Anthony DIZONA, Defendant-Appellee.

No. 08-20418.

United States Court of Appeals, Fifth Circuit.

January 14, 2010.

Nancy Ruth Doyle, Asst. Gen. Counsel (argued), John W. Dunfee, Commodity Futures Trading Com'n, Washington, DC, Joseph Konizeski, Commodity Futures Trading Com'n, Chicago, IL, for Plaintiff-Appellant.

Marie Roach Yeates (argued), Julie Plantes Woody, Vinson & Elkins, L.L.P., William G. Rosch, III, Rosch & Ross, Fred Stumpf, Stumpf Farrimond, Houston, TX, for Dizona.

Appeal from the United States District Court for the Southern District of Texas.

Before REAVLEY, DAVIS and BENAVIDES, Circuit Judges.

BENAVIDES, Circuit Judge:

This civil appeal stems from a suit alleging violations of the Commodity Exchange Act, 7 U.S.C. §§ 1 et seq. (2002). The United States Commodity Futures Trading Commission ("the Commission") brought this suit against Anthony Dizona, a commodities trader on the West Trading Desk of Coral Energy Resources, L.P. ("Coral"). The jury found that Dizona had attempted to manipulate the market price of natural gas in interstate commerce in violation of 7 U.S.C. § 13(a)(2). The jury, however, rejected the allegation that Dizona had knowingly delivered false reports that tended to affect the market price of natural gas in violation of § 13(a)(2). Both parties filed a motion for judgment as a matter of law. The district court granted Dizona's motion and denied the Commission's motion. The Commission now appeals the judgment, contending that the district court erred in granting Dizona's motion for judgment as a matter of law and as a result, the jury's verdict as to the attempted manipulation charge should be reinstated. The Commission also argues that the district court erred in denying the Commission's motion for judgment as a matter of law and that it is entitled to a new trial on the charge of knowing delivery of false reports. Finding no reversible error, we AFFIRM.

I. FACTUAL AND PROCEDURAL HISTORY

The Commission is an independent federal regulatory agency that is charged with enforcing the provisions of the Commodity Exchange Act. The Commission filed a complaint for injunctive and other equitable relief in federal district court, alleging that six individuals — an analyst and five traders employed by Shell Trading Gas and Power Company — had engaged in acts that violated the Act. The defendants were in the business of buying and selling natural gas for profit on behalf of the West Desk at Coral in Houston, Texas. The traders on the West Desk traded natural gas at several locations in the western part of the United States. Denette Johnson was the head of the West Trading Desk at Coral. Dizona, Courtney Moore, John Tracy, and Robert Harp were all traders on the West Trading Desk at Coral. Kelly Dyer was an analyst on the West Trading Desk.

The complaint alleged that from October 2001 through June 2002, the defendants entered into transactions calling for the delivery of natural gas on behalf of Coral. The transactions at issue are called "physical" trades of natural gas in interstate commerce. Physical trades require the delivery of a specific amount of natural gas on agreed upon days during the following month. The price of a physical trade is either agreed upon at the time of the trade, a "fixed price" or set by a published index, called an index price. The defendants' duties included reporting the price and volume data of their trades to reporting services that generated natural gas price indices, such as Inside FERC Gas Market Report ("IFERC") and Natural Gas Intelligence ("NGI"). These publications would solicit this data during "bidweek," which was generally the last five business days of a month. The editors of these publications would receive the data from the traders and perform an analysis on the data. Based upon their analysis, the editors would determine an index price. An index price is the editor's "opinion of a value that would represent a central value for natural gas during that bidweek period in that market."

The Commission alleged that the defendants submitted price and volume data to IFERC and NGI that was not based on actual trades. Thus, the Commission charged that the defendants knowingly delivered price and volume data to the reporting services that was knowingly false or inaccurate in violation of § 13(a)(2). The Commission further charged that the purpose of this false reporting was to attempt to manipulate the natural gas price indices in violation of § 13(a)(2). Five of the six defendants settled with the Commission prior to trial, leaving Dizona as the only remaining defendant.

At the jury trial, the Commission put on evidence that, during bidweek of each month, the traders would send Dyer their "mark," which was each trader's estimate as to what the index price would be the following month. After receiving the traders' marks, Dyer would send an email to the traders that had a chart with information about the delivery locations. For each delivery location, the trader's mark (estimated price) was listed in the first column and the next two columns indicated whether a higher ("Up") or lower ("Down") index price would be "Good" or "Bad" for the West Desk's book. Attached to this email was a spreadsheet for the traders to input their trade data for all fixed-price baseload trades to be reported to IFERC and NGI. This spreadsheet, which was a shared document on the West Desk's computer network, was circulated by email from trader to trader. After all the traders input their trade data, the spreadsheet was sent by facsimile to IFERC and NGI. The editors of the publications would perform an analysis on the data reported by the traders and determine the index price.

The bulk of the Commission's evidence had been produced by Coral pursuant to a subpoena and was admitted at trial through the Commission's investigator as a summary witness, Mary Kaminski, who summarized the voluminous exhibits. To show that Dizona attempted to manipulate the market, Kaminski compared the trading data Dizona input into the monthly spreadsheets that were sent to the natural gas publications with the trade data listed in Exhibit 27. Exhibit 27 was a spreadsheet that the Commission asserted contained the actual trading data for the relevant time period. Kaminski testified that her comparison of the data revealed that 300 of the 304 natural gas trades reported to the publications for Dizona's assigned trading locations were not "actual" Coral trades.

The Commission also called an expert, Dr. Elud Ronn, a finance professor at the University of Texas and an expert in the field of energy finance. Dr. Ronn was retained to determine whether there was a bias in the traders' reporting procedure at the West Desk and whether it was "systematic in nature." Dr. Ronn testified the West Desk reported in a way that would positively affect Coral's earnings, as indicated by Dyer's "good" indicators, approximately 81 percent of the time. In other words, the bias was in the direction suggested by Dyer's email message that indicated whether the "up" or "down" price movement would be "good" or "bad." Dr. Ronn found that the inaccurate data consistently skewed in Coral's favor showed bias. In addition, Dr. Ronn testified that the volume of natural gas reported was higher than the volume actually traded. Dr. Ronn determined that the "excess [trading volume] reported was anywhere from 80 to several hundred percent."¹ On cross examination, Dr. Ronn clarified that his "report was for the West Trading Desk as a whole. The numbers that I reported this afternoon were specific to the locations of the defendant." The delivery locations Dr. Ronn examined were the locations at which Dizona traded.

Additionally, the Commission submitted two audiotapes of phone calls in which Dizona was discussing trade data that he would report to the index compilers. On one audiotape, Dizona spoke of reporting trade data to IFERC, responding, "I'm reporting the indexes." On another audiotape, Dizona talked to Carol Taylor, a trader in Canada, asking where she wants the price, and she responded "low." Dizona then laughed and asked if "a dollar fifty would be great for you?" He further stated, "Let me test our book and if, if, if I can report it low for you I will." Taylor responded, "That would be great because we don't have enough to even report this month unfortunately." To which Dizona responded, "You can make it up, can't you?" Taylor said, "We can, but we don't feel right about that." Dizona then said, "Oh, you crazy Canadians." At one point, Dizona said he would help her and be her "immoral person," apparently by reporting a low trade. He also referred to "Houston," which was where he was located, as doing the "dirty work for [her]."

Dizona did not testify or call any fact witnesses. He did call Professor Joseph Kalt, an economic consultant and expert in natural gas and oil. Professor Kalt testified that he looked for bias between what Coral reported and the actual prices in the market. He testified that any difference between the West Desk reporting and the index compiler's average was "less than a penny of the average in the market." His opinion was that the prices reported on the Coral spreadsheet were "all right in the range of everybody else" in the market.

During the jury's deliberations, it sent out a note to the court inquiring: "In question no. 1 does `knowingly delivered for transmission' mean that he [Dizona] provided information to be transmitted or that he made the actual transmittal?" In response, the court directed the jury to return to the pertinent part of the instructions. The jury subsequently found that Dizona had not knowingly delivered a false report pursuant to question one. The jury did, however, find that Dizona had attempted to manipulate the market price of natural gas on eight occasions.

Both parties f...