JPMorgan Accused Of Power Rigging Charge

JPMorgan Accused Of Power Rigging Charge
Joe Mabel [CC BY-SA 3.0], via Wikimedia Commons

FERC, the U.S. power regulator, charged JPMorgan Chase & Co. (NYSE:JPM) with gaming electricity prices through eight manipulative bidding strategies. The U.S. Federal Energy Regulatory Commission found JPMorgan’s affiliate using manipulative trading schemes between 2008 and 2011.

JPMorgan Accused Of Power Rigging Charge

JPMorgan Chase’s final settlement by Tuesday

After extensive investigation, the power regulator found JPMorgan Chase & Co. (NYSE:JPM)’s traders used improper bidding tactics in California and the Midwest to enhance profits. According to Reuters report, the final settlement on the issue could be reached by Tuesday.

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The “notice of alleged violations,” outlining the bidding tactics is an intermediate step by the FERC, bringing the details of investigations into public view.

Regulatory focus on energy market

As reported earlier, the Senate Banking Committee’s Subcommittee on Financial Institutions and Consumer Protection, led by Ohio Democrat Sherrod Brown questioned whether commercial banks should control oil pipelines, power plants and metals warehouses.

In 2003, Citigroup Inc. (NYSE:C) obtained permission from the Federal Reserve to allow Citi’s Philbro unit to continue trading in physical energy markets. After Citigroup obtained clearance from the Federal Reserve, over a dozen other banks sought similar permission.

In an apparent reaction to the Senate inquiry, last week, JPMorgan Chase & Co. (NYSE:JPM) announced its plans to exit the business of owning and trading physical commodities after a U.S. Senate panel questioned whether banks are abusing their ownership of raw materials to manipulate markets.

Interestingly, Goldman Sachs Group, Inc. (NYSE:GS) has already disposed of many of its physical trading assets it owned in 2008, including last year’s sale of its power plant business Cogentrix to Carlyle Group LP (NASDAQ:CG).

FERC’s recent moves

Earlier this month, FERC upheld a fine of $453 million on Barclays PLC (NYSE:BCS) (LON:BARC) for alleged manipulation of electricity prices.

The FERC’s board of commissioners has upheld the fine proposed by its staff on Barclays PLC (NYSE:BCS) (LON:BARC) over alleged manipulation of Californian and other Western power markets by Barclays during the last decade. However, Barclays said it would fight the fine in court.

FERC’s enforcement powers were expanded by the Congress in 2005, following the Enron electricity manipulation scandals in the Western United States earlier in the decade.

If JPMorgan Chase & Co. (NYSE:JPM) reaches a settlement with the FERC, this would signify closing the book on a probe that dates back over two years when California’s power grid operator observed JPMorgan was using an ‘abusive’ trading strategy that effectively forced the grid to pay for plants to sit idle.

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