In 2006, a giant hedge fund called Amaranth Advisors accumulated massive natural gas holdings on the New York Mercantile Exchange (NYMEX) and was dominating the natural gas market. It held up to 70 percent of natural gas commodities on the exchange and, consequently, was able to manipulate prices by buying or selling large chunks of its holdings. (Amaranth’s energy and commodities trading desk had been set up by a former Enron trader who had gone to work for the hedge fund.) According to a subsequent Senate investigation, Amaranth’s moves “constituted excessive speculation” and “had a direct effect on U.S. natural gas prices and increased price volatility in the natural gas market.”

In August of that year, NYMEX, concerned about Amaranth’s trading, directed the fund to reduce its natural gas positions. Amaranth did so on NYMEX, but it increased its natural gas holdings on an unregulated energy exchange run by ICE—Sprecher and Loeffler’s firm. “NYMEX’s instructions to Amaranth did nothing to reduce Amaranth’s size, but simply caused Amaranth’s trading to move from a regulated market to an unregulated one,” according to the Senate report. And the hedge fund kept on trading its natural gas holdings.

Amaranth was able to resort to this maneuver because of the so-called “Enron loophole” in the Commodity Futures Modernization Act of 2000. This loophole, which had been inserted into the law at the request of Enron (the energy giant that would collapse spectacularly in 2001) and other energy-trading firms, exempted electronic energy exchanges, such as the one owned by ICE, from the oversight and regulation conducted by the Commodity Futures Trading Commission (CFTC). There were no trading limits on ICE’s exchange, and no routine government oversight. The Senate report pointed out that this loophole and the ability of an investor to shift to the market run by ICE impeded regulators’ “authority to detect, prevent, and punish market manipulation and excessive speculation.”

But operating an unregulated exchange was good business for ICE. As CFTC commissioner Bart Chilton noted in 2007, the Enron loophole “helped foster the incredible growth of the Intercontinental Exchange.”