FERC Flexes Regulatory Muscle in Talks With JPMorgan

Pedestrians pass in front of the JP Morgan Chase & Co. headquarters in New York Photograph by Scott Eells/Bloomberg

Well, that was quick.

Just this morning, we noted that “Barclay’s energy-trading troubles could be a warning to rival J.P. Morgan.” That prediction came in light of the Federal Energy Regulatory Commission saying that Barclays and four former traders must pay a combined $487.9 million in fines and penalties related to alleged manipulation of U.S. energy markets.

Now comes word from the Wall Street Journal that JPMorgan Chase and the FERC “are close to a settlement” of similar energy-trading charges against the bank—and that the amount involved could be “close to $1 billion.” The Journal attributed its scoop to “people familiar with the conversations” between JPMorgan and the FERC. Jennifer Zuccarelli, a spokeswoman for the U.S. bank, declined to comment.

Here’s some background from our post this morning:

“Employing new authority that Congress granted the FERC in the wake of the 2001 Enron scandal, the agency has stepped up its policing of energy trading. Since 2011, the FERC has publicized at least 13 probes of energy-market gaming, including one that resulted in a settlement with Deutsche Bank.

“Barclays denied wrongdoing and said it will fight the FERC punishment in court. ‘We believe that our trading was legitimate and in compliance with applicable law,’ spokesman Marc Hazelton said in a statement. ‘We intend to vigorously defend this matter.”’ He said the bank believes the penalty is without basis and that the FERC order is a ‘one-sided document, and does not reflect a balanced and full description of the facts or the applicable legal standard.’”

One reason the JPMorgan investigation has drawn extra dollops of public notice is that it has focused on Blythe Masters, the global head of commodities for the bank and one of the most powerful women on Wall Street. Like Barclays, JPMorgan has denied any misconduct by Masters or her subordinates. Asked this morning about the Barclays fine and any relationship to the JPMorgan probe, Zuccarelli, the JPMorgan spokeswoman, declined to comment.

Bloomberg News provides additional information about the Barclays case:

“The FERC determined that the Barclays traders manipulated markets in the Western U.S. from November 2006 to December 2008. The employees made transactions in fixed-price products—often at a loss—with the intent of moving an index to benefit the bank’s other bets on swaps, according to the FERC. The evidence ‘demonstrates that the intentional amassing of the positions and trading to influence price were not based on normal supply and demand fundamentals, but rather on the intent to effect a scheme to manipulate the physical markets in order to benefit the financial swaps,’ the agency wrote in its order. Swaps are derivative instruments used to hedge risks or for speculation.”

Not that we’re saying we told you so, but it appears that the FERC is determined to put its new regulatory muscle to use.

    Before it's here, it's on the Bloomberg Terminal.