Deutsche Bank Rejects FERC Penalty for Market Rigging

Deutsche Bank AG’s energy trading unit denied manipulating power markets and told the U.S. Federal Energy Regulatory Commission it should drop a proposal that the bank pay a $1.5 million fine and give up $123,198 in profit.

FERC’s enforcement staff, in a Sept. 5 order, said Deutsche Bank Energy Trading LLC submitted false information related to its energy trading in California in early 2010.

“The legal position enforcement has taken here is radical,” the unit of the Frankfurt-based bank said in a filing posted today on FERC’s website. “If the commission does not abandon these deeply flawed allegations now, they will be overturned by a federal district court.”

Agency spokesman Craig Cano said FERC had no comment on the filing. “The commission will consider the response,” he said in an e-mail.

FERC also is investigating alleged manipulation by traders from JPMorgan Chase & Co. and Barclays Plc as part of an increased effort to monitor markets where electricity is bought and sold. Since January 2011 the agency has announced 11 market-manipulation probes, and in March it reached a record $245 million settlement with Constellation Energy Group Inc. over one of those cases.

Deutsche Bank said in its filing that the energy-trading unit “did not intentionally trade against its interests,” as the regulatory’s enforcement unit concluded after an investigation.

‘Arbitrage Opportunities’

“Traders saw arbitrage opportunities -- the chance to ‘buy low and sell high’ -- because prices” at one power-delivery point were “significantly” lower than at another location, according to the filing.

The agency’s enforcement office took the position that “knowingly trading in two related markets is per se unlawful market manipulation, even if the trading is profit-seeking in both markets,” Deutsche Bank said in its filing. “Accepting that mistaken contention would mark a sea change in commission precedent.”

FERC on Oct. 31 proposed a record $469.9 million in penalties against London-based Barclays and an additional $18 million on four of the company’s former traders who allegedly gamed markets in the Western U.S. It gave Barclays and the individuals 30 days to respond.

The agency is investigating a unit of New York-based JPMorgan for allegedly gaming energy markets in California and the Midwest, resulting in at least $73 million in improper payments to generators.

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