Barclays Plc failed to show that four former traders didn’t manipulate U.S. energy markets, the Federal Energy Regulatory Commission’s staff said, backing $488 million in penalties on the bank and the individuals.
The traders engaged in a “three-part manipulative scheme” to game the markets, FERC staff said in a filing yesterday, which was posted to the agency’s website today. “Neither Barclays nor its individual traders are able to offer any credible explanation to show their conduct was proper,” it said, adding that the proposed penalties are “reasonable and appropriate.”
London-based Barclays and the traders have denied any wrongdoing and have vowed to challenge the accusations in court.
The combined penalties are the largest ever proposed by FERC for alleged market violations, and the outcome of the dispute may help clarify what constitutes market manipulation. Barclays said in a Dec. 14 regulatory filing that the FERC staff interpretation is too broad and may chill trading in power markets, where electricity supply is bought and sold.
FERC on Oct. 31 proposed that the bank pay a $435 million civil penalty and refund $34.9 million in profits after workers in an energy-trading unit allegedly gamed markets in the Western U.S. from late 2006 to 2008. The agency also said four former traders should pay a total of $18 million, with one individual responsible for a $15 million fine.
“We believe that our trading was legitimate and in compliance with applicable law,” Mark Lane, a bank spokesman, said today in an e-mailed statement. The FERC should throw out the proposed penalties and end the investigation, he said.
“If the FERC proceeds, we intend to vigorously defend this matter in federal court,” Lane said.
The traders “knew their activity was unlawful,” FERC staff said in their filing yesterday. Barclays’ traders took losses of about $4.1 million in energy markets while making gains of $34.9 million in financial markets, according to the filing.
“Barclays’ manipulative trading scheme cost other market participants at least $139.3 million,” the staff said.
Congress granted the commission additional enforcement authority in 2005, partially in response to trading by Enron Corp. employees that disrupted California’s energy markets earlier in that decade. Within the past two years, FERC has made public 13 investigations of alleged market manipulation, including probes of trading units at Deutsche Bank AG and JPMorgan Chase & Co.
Deutsche Bank on Jan. 22 agreed to pay $1.6 million in penalties in a settlement, backing away from from a previous assertion that it was prepared to challenge the fine in court. The bank’s unit neither admitted nor denied wrongdoing, according to the commission.