Barclays Plc, the U.K.’s second-largest bank by assets, lost a bid to dismiss a lawsuit by U.S. regulators seeking to force it to pay $488 million in fines for manipulating trades on electricity contracts.
U.S. District Judge Troy Nunley in Sacramento, California, said in a ruling that “FERC has alleged both a sufficient factual and legal basis to support its claim of manipulation.”
Barclays said the Federal Energy Regulatory Commission, which issued the fines in July 2013, doesn’t have regulatory authority over commodity futures contracts and has no case because the bank didn’t receive or deliver electricity under the contracts in question.
FERC began investigating Barclays’ western U.S. power desk in 2007 and alleged that from 2006 to 2008 four of its traders manipulated trades on contracts to deliver physical electricity with the intent of moving an index to benefit the bank’s other bets on financial swaps.
Swaps allow investors to hedge or speculate on changes in underlying assets such as interest rates, currencies or the ability of a borrower to repay debt.
Barclays made $34.9 million in profit from the manipulated trades while causing other market participants to lose at least $139.3 million, FERC alleged.
Enforcement powers granted by Congress in 2005 allow FERC to assess fines without an agency hearing and to ask a federal judge to affirm the penalties.
The agency sued in October 2013 after London-based Barclays failed to pay the fine within 60 days. Barclays denied wrongdoing and says it must be allowed to defend itself by putting on evidence before a judge can approve the fine.
Kerrie Cohen, a spokeswoman for Barclays, declined to comment on Tuesday’s ruling.
The case is Federal Energy Regulatory Commission v. Barclays Bank Plc, 13-cv-02093, U.S. District Court, Eastern District of California (Sacramento).