REGULATORY: FERC: Barclays and JP Morgan Subject to Penalties and Disgorgement of Profits for Market Manipulation

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Two recent Federal Energy Regulatory Commission ("FERC") orders will result in the imposition of civil penalties totaling nearly three quarters of a billion dollars on Barclays Bank PLC ("Barclays") and JP Morgan Ventures Energy Corporation ("JP Morgan"), as well as additional requirements to disgorge unjust profits totaling nearly $160 million, for alleged market manipulation in violation of Section 222 of the Federal Power Act and FERC's regulations. In Barclays' case, the order involved formal findings by FERC. The JP Morgan order approved a stipulation and consent agreement between the company and FERC's Office of Enforcement ("Enforcement").

First, in an order issued on July 16, 2013, FERC found that Barclays and four of its traders – Daniel Brin, Scott Connelly, Karen Levine and Ryan Smith – had manipulated energy markets in and around California in the period from November 2006 to December 2008. According to FERC, Barclays' traders built substantial positions in physical products and used such positions to benefit Barclays' financial swaps. FERC found that "Respondents traded fixed price products not in an attempt to profit from the relationship between the market fundamentals of supply and demand, but instead for the fraudulent purpose of moving the Index price at a particular point so that Barclays' financial swap positions at that same trading point would benefit." FERC concluded that Barclays should be assessed $435 million in civil penalties and be required to disgorge $34.9 million in unjust profits, Connelly should be assessed $15 million in civil penalties, and Brin, Levine and Smith should each be assessed $1 million in civil penalties.

As noted in the order, Barclays elected to follow the procedures set forth in Section 31(d)(3) of the Federal Power Act. Under these procedures, FERC assesses the penalty, and, unless it is paid within 60 days, FERC then institutes a federal district court action seeking an order affirming the penalty. The federal district court may review both the underlying law and facts de novo and elect to enforce, modify, or set aside the FERC penalty assessment.

Second, in an order issued on July 30, 2013, FERC approved a Stipulation and Consent Agreement between JP Morgan and Enforcement. Enforcement found that JP Morgan had engaged in fraudulent bidding behavior that resulted in JP Morgan receiving above-market rates through "make whole" payments under the tariffs of the California Independent System Operator Corporation and Midcontinent Independent System Operator, Inc. (f/k/a Midwest Independent Transmission System Operator, Inc.). Enforcement concluded that JP Morgan had engaged in fraud by, among other things, making bids that were "not grounded in the normal forces of supply and demand," and that were made at a loss, in order to obtain out-of-market payments. JP Morgan agreed to pay a civil penalty of $285 million, and to disgorge $125 million of unjust profits.

  Neil L. Levy
  Washington D.C,
 +1 202 626 5452
 nlevy@kslaw.com

 View Profile »

 Stephanie S. Lim
 Washington D.C.
 +1 202 626 8991
 slim@kslaw.com

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 David G.Tewksbury
 Washington D.C.
 +1 202 626 5454
 dtewksbury@kslaw.com

 View Profile »

 

Topics:  Barclays, Civil Monetary Penalty, Disgorgement, Enforcement, FERC, Fraud-on-the-Market, JPMorgan Chase, Penalties, Unjust Enrichment

Published In: Business Torts Updates, Finance & Banking Updates, Securities Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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