FERC Power Limited, JPM Hearings, SAC Capital: Compliance

The Federal Energy Regulatory Commission lacks authority over futures contracts, a U.S. appeals court ruled, handing a victory to the Commodity Futures Trading Commission and an ex-Amaranth Advisors LLC trader fined $30 million by FERC.

Congress intended to centralize oversight of futures contracts in the CFTC, the U.S. Court of Appeals in Washington said March 15. It brushed aside FERC’s contention that the two agencies share jurisdiction over aspects of energy markets that allowed FERC to fine trader Brian Hunter for alleged market manipulation, ruling the Commodity Exchange Act gives the CFTC “exclusive jurisdiction.”

The case highlights a turf battle between the two agencies developing at least in part from expanded powers Congress granted to FERC in 2005 to regulate energy trading in the wake of blackouts in California triggered by Enron Corp. traders.

FERC had argued that the CFTC’s exclusive jurisdiction over regulating futures contracts and futures markets doesn’t extend to manipulation, because such activity can involve conduct in several markets.

Steve Adamske, a spokesman for the CFTC, and Tamara Young Allen, spokeswoman for FERC, declined to comment on the ruling.

Hunter’s attorney, Michael Kim, of Kobre & Kim LLP, said in a statement that “FERC unjustly vilified Mr. Hunter for years, but in fact it was the FERC which had acted outside the law.”

Hunter dumped large numbers of contracts within the last 30 minutes of trading in an effort to drive down the closing price of the futures, according to court documents. The move benefited Amaranth’s larger opposing positions in off-exchange derivatives, regulators said.

Amaranth lost $6.6 billion betting on the price of natural gas. The hedge fund collapsed in 2006. In August 2009, the company agreed to pay $7.5 million to end U.S. cases brought by FERC and the CFTC over price manipulation.

On April 11, a federal judge in Manhattan gave final approval to a $77.1 million settlement by Amaranth to resolve a class action brought by traders.

FERC filed an administrative case against Hunter the day after the CFTC brought a civil enforcement action against him in federal court in Manhattan over the same trading. The commission ordered him to pay $30 million in penalties, ruling he manipulated the price of contracts on the New York Mercantile Exchange in 2006 while boosting the value of financial derivatives.

The CFTC’s case against Hunter was put on hold in January 2012 after Hunter sued to challenge FERC’s authority in the matter, according to court records.

The case is Hunter v. Federal Energy Regulatory Commission, 11-1477, U.S. Court of Appeals for the District of Columbia (Washington).

Special Section: JPMorgan Hearings

Braunstein Repeats ‘I Don’t Recall’ at Senate Grilling on Dimon

JPMorgan Chase & Co.’s Douglas Braunstein was grilled March 15 by U.S. senators after saying he couldn’t remember how Chief Executive Officer Jamie Dimon reacted when the bank resumed sending reports to a regulator.

Democrat Carl Levin of Michigan, the head of the Permanent Subcommittee on Investigations, asked about Dimon’s reaction after a panel report March 14 saying the CEO told executives last year to stop sending the investment bank’s daily results to the Office of the Comptroller of the Currency. Dimon believed “it was too much information,” the report said, citing an interview with an OCC examiner.

Levin pressed about an account in the report that Dimon “reportedly raised his voice in anger” after learning that Braunstein, then the chief financial officer, began to provide the data again to the OCC.

“I don’t recall the specifics of his reaction,” answered Braunstein, who is now vice chairman. Braunstein told the senator at least two other times that he couldn’t remember specifics.

Braunstein and Dimon were named in the report as executives who misled investors in April of last year when they discussed a portfolio of credit derivatives at the chief investment office, or CIO, that eventually posted more than $6.2 billion in losses. The former CFO said March 15 that Dimon was concerned about the confidentiality of the reports when the bank stopped supplying information to the OCC.

U.S. Comptroller of the Currency Thomas Curry, in prepared testimony for hearing, said “there were red flags that we should have noticed and acted upon.” The OCC, the primary federal-bank regulator, has taken actions to bolster its supervision.

The failure of federal regulators to act sooner “can’t be excused,” Levin said during his opening remarks. The panel’s top Republican, Senator John McCain, said financial regulators were “asleep at the switch.”

“Do we live in a world, Mr. Braunstein, that government regulations of our businesses and our lives, we just decide, well, because we’re concerned about something, we’re not going to comply with the regulations,” asked McCain. “Is that how JPMorgan works?”

“No sir, it does not,” Braunstein replied. Dimon wasn’t a witness at the March 15 hearing after being questioned last year by panels in the Senate and House of Representatives.

Separately, Ina Drew, former head of JPMorgan Chase & Co.’s chief investment officer, Ashley Bacon, JPMorgan’s acting chief risk officer, and Peter Weiland, former head of market risk in the CIO, also testified before the Subcommittee about the “London Whale” loss last year.

For the video, click here, and click here.

Michael Cavanagh, co-chief executive officer of JPMorgan Chase & Co.’s corporate and investment bank, also testified before the Subcommittee. Cavanagh led JPMorgan’s internal review of the “London Whale” loss.

For the video, click here.

Markets ‘Too Complex’ for Bank Risk Control, Trone Says

David Trone, an analyst at JMP Securities LLC, talked about the Senate Permanent Subcommittee on Investigations hearing March 15 on the trading loss at JPMorgan Chase & Co.’s chief investment office last year.

He spoke with Erik Schatzker, Christine Harper and Stephanie Ruhle on Bloomberg Television’s “Market Makers.” Stanley Crouch, chief investment officer at Aegis Capital Corp., also spoke.

For the video, click here.

Compliance Policy

High-Frequency Equities Trading Worry Overstated, ASIC Says

Concern about high-frequency trading in Australian equity markets is “overstated,” the country’s securities regulator said after concluding a study that found no systematic manipulation of markets by traders using these strategies.

The Australian Securities and Investments Commission saw a “marked change” in the behavior of traders using high-frequency trading strategies during the course of its study, which began last year, the regulator said in a statement on its website. A separate study examining so-called dark pools showed there are now more systems that account for 25 percent to 30 percent of the Australian equity market volume. Dark pools are private trading venues that don’t display prices until after trades take place.

Australia, Hong Kong and Singapore have considered the extent to which trading strategies that rely on speedy placement of bids and offers should be regulated amid concern that they can be used to manipulate prices. ASIC proposed a new rule for minimum resting periods for “small and fleeting” orders and another for the guidance on trading practices that may illustrate manipulative activity. The regulator said it will consult with market participants following today’s release. Comments need to be submitted by May 10 and a guide on rules is scheduled to be released in July or August.

For more, click here.

EU Parliament to Seek Views on Financial Regulation Priorities

European Union lawmakers said they are seeking views on “future priorities” for financial regulation.

The European Parliament’s economic and monetary affairs committee said it would seek written comments from industry and other interested parties on the “coherence” of EU legislation, and on work plans for the remainder of this parliamentary term. The deadline for submissions is June 14.

IMF Urges More Forceful Action to Repair EU Banking System

The European Union needs to take “more forceful action” to shore up its damaged financial sector, including targeted asset-quality reviews to make sure banks aren’t hiding further problems, International Monetary Fund staff said in a report March 15.

From French banks with big cross-border exposures to vulnerable German savings banks, Europe’s banking industry faces risks that mean it should press ahead with efforts to build a banking union, the Washington-based IMF said in its first assessment of financial regulation across the 27-nation bloc.

EU leaders decided last year to create a common euro-area bank supervisor at the European Central Bank as part of efforts to contain the sovereign debt crisis. The IMF urged the EU to meet June targets for designing rules for the ECB supervisor and on how banks can apply for direct aid. EU leaders also have set a June deadline for governments and the European Parliament to agree on legislation that sets out how authorities should handle bank failures.

For more, click here.

Compliance Action

Lamprell Fined $3.6 Million for Not Alerting Market to Finances

Lamprell Plc, an oil-rig manufacturer, was fined 2.4 million pounds ($3.6 million) for not telling the market quickly enough about its faltering finances in early 2012.

Failures in Lamprell’s systems and controls caused it to omit negative information about its financial performance in statements to the market, the U.K. Financial Services Authority, which levied the fine, said in a statement today.

When it made the situation clear to the market in May, Lamprell’s share price fell 57 percent, the FSA said.

The fine is the first under the FSA’s new penalty policy, based on a company’s market capitalization, which the regulator said will lead to “significantly higher penalties than in the past.”

Lamprell received the regulator’s standard 30 percent discount for settling early. The company “provided significant and extensive cooperation” with the FSA and didn’t act deliberately or recklessly in its failings, the company said in a separate statement.

It agreed to settle “to avoid incurring significant additional expenses and expending the further time that would be required to pursue the matter,” said John Kennedy, Lamprell’s non-executive chairman.

Goldman, JPMorgan Ordered to Fix Capital Planning in Stress Test

Goldman Sachs Group Inc. and JPMorgan Chase & Co., the world’s biggest trading firms, must submit new capital plans to regulators to address weaknesses the Federal Reserve found in their planning processes.

The central bank didn’t object to the capital plans of the two New York-based companies, and approved proposals from 14 other banks, the Fed said March 14 in a report. Capital plans submitted by Ally Financial Inc. and BB&T Corp. were rejected, while American Express Co., the biggest U.S. credit-card issuer by customer spending, revised its submission to win approval.

The deficiencies found at Goldman Sachs and JPMorgan related to projections of losses and revenue, according to a Fed official. While the two firms can immediately implement dividend and buyback plans, they must fix the weaknesses and resubmit their proposals by the end of the third quarter, the official said. Regulators, intent on preventing a repeat of the 2008 financial crisis, have run annual stress tests to see how the largest lenders would fare in a recession or economic shock to ensure that banks don’t jeopardize the financial system.

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SAC Capital to Pay Record $614 Million Over Insider Trading

SAC Capital Advisors LP, the hedge fund run by billionaire Steven A. Cohen, will pay a record $614 million to settle U.S. regulatory claims that two of its affiliates made illegal trades using nonpublic information.

CR Intrinsic Investors agreed to pay more than $600 million -- the most ever in an insider-trading case -- and Sigma Capital will forfeit about $14 million, the Securities and Exchange Commission said in a statement March 15. Cohen hasn’t been accused of wrongdoing.

Cohen’s SAC Capital will pay the entire settlement expenses, according to a person familiar with the firm who asked not to be named because the information is private. SAC has said before that it would indemnify clients against disgorgement of illegal profits and legal fees.

“This settlement is a substantial step toward resolving all outstanding regulatory matters and allows the firm to move forward with confidence,” Jonathan Gasthalter, a spokesman for SAC Capital, said in an e-mailed statement. “We are committed to continuing to maintain a first-rate compliance effort woven into the fabric of the firm.”

The SAC affiliates settled the SEC’s claims without admitting or denying wrongdoing. The settlement doesn’t preclude a case against Cohen, according to a person familiar with the matter who asked not to be identified because the matter isn’t public.

“Steve Cohen has not been charged with any wrongdoing and has done nothing wrong,” Gasthalter said.

The SEC said its investigation is continuing.


Ex-Altium Banker to Be Charged in FSA Insider-Trading Probe

A former managing director at Altium Capital Ltd. will be charged in an insider-trading investigation and face trial next year along with a former Deutsche Bank AG broker and four others.

Grant Harrison was sent a summons March 14 and told to appear in court in April to be charged, a lawyer for the U.K. Financial Services Authority, Neil Saunders, said at a London court hearing March 15. Harrison will be added as a defendant in the case against Martyn Dodgson, a former managing director at Deutsche Bank, Saunders said.

The case is scheduled to go to trial in September 2014 and last as long as three months, according to information from the March 15 hearing. Contact information for Harrison couldn’t immediately be found.

“The FSA has informed us that the allegations relate entirely to this individual’s personal actions while with a previous employer,” Altium said in a statement. Harrison no longer works for the firm and his actions haven’t had any impact on Altium’s clients, it said.

Harrison, who is listed as “inactive” on the FSA’s register of people approved to work in the industry, joined Altium as a managing director and the head of public company business development in September 2011, according to a statement on the firm’s website. He previously worked for Lloyds Banking Group Plc in its equity capital markets business, and for a Panmure Gordon & Co. unit, according to Altium. immediately be found.

The charges stem from the FSA’s biggest insider-trading investigation, known as Operation Tabernula, Latin for little tavern. The agency alleges the men made more than 3 million pounds ($4.5 million) on improper trades. Another defendant, Richard Baldwin, was charged in December.