On Tuesday, July 16, 2013, FERC ordered Barclays Bank and four of its traders to pay over $487 million for manipulation of electric energy markets in and around California from 2006 to 2008. Specifically, Barclays was directly assessed $435 million in civil penalties and ordered to disgorge $34.9 million in unjust profits. Three of the four traders were each assessed a penalty of $1 million, while Scott Connelly was assessed a $15 million penalty.
In an order issued in October 2012, FERC directed Barclays and the traders to show cause why they should not be required to disgorge profits and pay civil penalties for alleged market manipulation between November 2006 and December 2008 (see November 5, 2012 edition of the WER). According to a report issued by FERC’s Office of Enforcement (“OE”), Barclays intentionally made certain day-ahead physical transactions at a loss at Mid-Columbia, Palo Verde, South Path 15 and North Path 15. OE claimed that these losses were incurred in order to benefit Barclays’ IntercontinentalExchange fixed-for-floating financial swap positions at the same locations. In short, OE claimed that Barclays assumed a loss in the physical market in order to move the various indices for the financial swaps up or down to provide an overall gain for Barclays.
Barclays and its traders sought to rebut the allegations, claiming that they were seeking “legitimate business objectives based upon its expectation of market fundamentals.” However, rather than proceed at that point to a trial before a FERC Administrative Law Judge, Barclays and the traders elected to have the full Commission rule. Following this week’s order, the matter will now proceed to U.S. district court (likely in D.C.) where FERC will seek to have the penalties affirmed and payment enforced.
The interrelationship between actions in physical and financial markets has been the subject of a number of recent OE proceedings and is also believed to be the subject of certain ongoing OE investigations. FERC also prosecuted Brian Hunter for similar market manipulation of natural gas markets, but the U.S. Court of Appeals for the District of Columbia overturned that decision recently, holding that the Commodity Futures Trading Commission held exclusive jurisdiction over the matter. Here, FERC’s jurisdiction is not believed to be at issue because the alleged manipulation occurred in the markets clearly subject to FERC’s jurisdiction. Also outstanding is FERC’s confidential investigation of JPMorgan Chase for alleged manipulation in California and Michigan. It is unclear when any order in that proceeding will issue.
A copy of FERC’s Order is available here.