Bar­clays’ en­ergy trad­ing in record $470 mil­lion US fine

The Pak Banker - - Front Page -

LON­DON

US reg­u­la­tors pro­posed a record $469.9 mil­lion in penal­ties against Bar­clays Plc, and an ad­di­tional $18 mil­lion on four of its for­mer traders, as part of stepped up en­force­ment against en­ergy-mar­ket ma­nip­u­la­tion.

The Fed­eral En­ergy Reg­u­la­tory Com­mis­sion is­sued an or­der yes­ter­day di­rect­ing the Lon­don-based bank to show why it shouldn’t have to pay a $435 mil­lion civil penalty and give up $34.9 mil­lion in profit for al­legedly gam­ing mar­kets in the western U.S. from late 2006 to 2008. The FERC also pro­posed an in­di­vid­ual penalty of $15 mil­lion for trader Scott Con­nelly and $1 mil­lion each for three col­leagues.

“We are dis­ap­pointed by the ac­tion that FERC took to­day and strongly dis- agree with the al­le­ga­tions made by FERC against Bar­clays and its for­mer traders,” Mark Lane, a Bar­clays spokesman, said in an e-mailed state­ment. “We be­lieve that our trad­ing was le­git­i­mate and in com­pli­ance with ap­pli­ca­ble law.”

Bar­clays said yes­ter­day that it is also the sub­ject of sep­a­rate probes by the U.S. Jus­tice Depart­ment and Se­cu­ri­ties and Ex­change Com­mis­sion. The agen­cies are try­ing to de­ter­mine whether third par­ties who help the bank win busi­ness com­ply with the For­eign Cor­rupt Prac­tices Act. In June, U.K. and U.S. reg­u­la­tors fined Bar­clays for ma­nip­u­lat­ing the Lon­don in­ter­bank of­fered rate.

The FERC or­der is part of a drive by the agency to com­bat ma­nip­u­la­tion in en­ergy mar­kets, where util­i­ties and gen­er­a­tors buy and sell elec­tric­ity. The agency, which also is prob­ing trad­ing by JPMor­gan Chase & Co. (JPM) and Deutsche Bank AG (DBK), in Fe­bru­ary cre­ated a division in its en­force­ment of­fice to po­lice the mar­kets.

“Staff con­cludes that Bar­clays’ con­duct con­sti­tutes, at a min­i­mum, reck­less­ness,” ac­cord­ing to the agency’s fil­ing. The traders knew their ac­tions were “likely un­law­ful,” and ig­nored warn­ings from Joseph Gold, a Bar­clays’ manag­ing di­rec­tor, ac­cord­ing to FERC.

The traders were will­ing to ac­cept losses in next-day elec­tric­ity mar­kets in or­der ben­e­fit Bar­clays’ po­si­tions in the In­ter­Con­ti­nen­tal Ex­change Inc., the agency said.

The ac­tions cost other buy­ers and sell­ers in en­ergy and fi­nan­cial mar­kets an es­ti­mated $139.3 mil­lion, ac­cord­ing to the agency.

FERC staff in a notice is­sued April 5 said four Bar­clays en­ergy traders — Con­nelly and Daniel Brin, Karen Levine and Ryan Smith — al­legedly co­or­di­nated to ma­nip­u­late elec­tric­ity mar­kets. Con­nelly war­ranted higher penalty “as the leader of the ma­nip­u­la­tive scheme,” FERC said, cit­ing agency staff.

The com­pany and for­mer traders have 30 days to re­spond. The or­der is a “one-sided doc­u­ment” and Bar­clays will “vig­or­ously de­fend this mat­ter,” Lane said in the com­pany’s state­ment.

Bar­clays set­tled a case over its role in rig­ging global in­ter­est rates, agree­ing to pay a record fine in June of 290 mil­lion pounds to reg­u­la­tors who found traders and se­nior man­agers tried to ma­nip­u­late the Li­bor and Euri­bor, its euro equiv­a­lent. The fine trig­gered the exit of Chair­man Marcus Agius, Chief Ex­ec­u­tive Of­fi­cer Robert Di­a­mond and Chief Oper­at­ing Of­fi­cer Jerry Del Missier, the lender’s three most se­nior ex­ec­u­tives, as well as Ali­son Carn­wath, head of the British bank’s re­mu­ner­a­tion com­mit­tee.

“Go­ing af­ter in­di­vid­ual traders with civil penal­ties is not com­mon and rep­re­sents a more se­ri­ous and de­ter­mined at­tempt by FERC to dis­ci­pline mar­ket traders and bring them into com­pli­ance with FERC’s views of con­duct in whole­sale elec­tric mar­kets,” Alan Ise­mon­ger, founder of En­ergy Mar­ket Ex­per­tise LLC, a Sacra­mento, Cal­i­for­nia-based con­sult­ing firm, said in an e-mail.

Reg­u­la­tors “have been crack­ing down on mar­ket ma­nip­u­la­tion whereby com­pa­nies es­sen­tially lever­age one mar­ket to influence the out­come of an­other,” said Ise­mon­ger, a for­mer mar­ket mon­i­tor for Cal­i­for­nia’s power-grid op­er­a­tor.

Since Jan­uary 2011, the FERC has an­nounced more than 10 probes of al­leged ma­nip­u­la­tion in elec­tric­ity and nat­u­ral-gas mar­kets, and agency Chair­man Jon Wellinghoff has vowed that “se­nior man­age­ment will be held ac­count­able” for vi­o­la­tions. The agency this year reached a record $245 mil­lion set­tle­ment with Con­stel­la­tion En­ergy Group Inc. over al­le­ga­tions of mar­ket ma­nip­u­la­tion in the U.S. north­east.

The FERC this year said it was in­ves­ti­gat­ing J. P. Mor­gan Ven­tures En­ergy Corp. for al­legedly gam­ing en­ergy mar­kets in Cal­i­for­nia and the Mid­west, re­sult­ing in at least $73 mil­lion in im­proper pay­ments to gen­er­a­tors. The com­pany on Oct. 18 apol­o­gized to reg­u­la­tors for mak­ing what it said were in­ad­ver­tent mis­takes in re­spond­ing to in­ves­ti­ga­tors as it seeks to re­tain its en­er­gy­trad­ing li­cense.

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