US regulators proposed a record $469.9 million in penalties against Barclays Plc, and an additional $18 million on four of its former traders, as part of stepped up enforcement against energy-market manipulation.
The Federal Energy Regulatory Commission issued an order yesterday directing the London-based bank to show why it shouldn’t have to pay a $435 million civil penalty and give up $34.9 million in profit for allegedly gaming markets in the western US from late 2006 to 2008. The FERC also proposed an individual penalty of $15 million for trader Scott Connelly and $1 million each for three colleagues.
“We are disappointed by the action that FERC took today and strongly disagree with the allegations made by FERC against Barclays and its former traders,” Mark Lane, a Barclays spokesman, said in an emailed statement. “We believe that our trading was legitimate and in compliance with applicable law.”
| ENERGY RIGGING The Federal Energy Regulatory Commission has proposed a record fine against Barclays and four of its former traders, accusing the bank of manipulation in the energy market |
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Barclays said yesterday that it is also the subject of separate probes by the US Justice Department and Securities and Exchange Commission. The agencies are trying to determine whether third parties who help the bank win business comply with the Foreign Corrupt Practices Act. In June, UK and US regulators fined Barclays for manipulating the London interbank offered rate.
The FERC order is part of a drive by the agency to combat manipulation in energy markets, where utilities and generators buy and sell electricity.
The agency, which also is probing trading by JPMorgan Chase & Co and Deutsche Bank AG, in February created a division in its enforcement office to police the markets.
“Staff concludes that Barclays’ conduct constitutes, at a minimum, recklessness,” according to the agency’s filing. The traders knew their actions were “likely unlawful,” and ignored warnings from Joseph Gold, a Barclays’ managing director, according to FERC.
The traders were willing to accept losses in next-day electricity markets in order benefit Barclays’ positions in the InterContinental Exchange Inc, the agency said.
The actions cost other buyers and sellers in energy and financial markets an estimated $139.3 million, according to the agency.
FERC staff in a notice issued April 5 said four Barclays energy traders — Connelly and Daniel Brin, Karen Levine and Ryan Smith — allegedly coordinated to manipulate electricity markets. Connelly warranted higher penalty “as the leader of the manipulative scheme,” FERC said, citing agency staff.
The company and former traders have 30 days to respond.
The order is a “one-sided document” and Barclays will “vigorously defend this matter,” Lane said in the company’s statement.
Barclays settled a case over its role in rigging global interest rates, agreeing to pay a record fine in June of £290 million to regulators who found traders and senior managers tried to manipulate the Libor and Euribor, its euro equivalent. The fine triggered the exit of Chairman Marcus Agius, Chief Executive Officer Robert Diamond and Chief Operating Officer Jerry Del Missier, the lender’s three most senior executives, as well as Alison Carnwath, head of the British bank’s remuneration committee.
“Going after individual traders with civil penalties is not common and represents a more serious and determined attempt by FERC to discipline market traders and bring them into compliance with FERC’s views of conduct in wholesale electric markets,” Alan Isemonger, founder of Energy Market Expertise LLC, a Sacramento, California-based consulting firm, said in an email.
Regulators “have been cracking down on market manipulation whereby companies essentially leverage one market to influence the outcome of another,” said Isemonger, a former market monitor for California’s power-grid operator.
Since January 2011, the FERC has announced more than 10 probes of alleged manipulation in electricity and natural-gas markets, and agency Chairman Jon Wellinghoff has vowed that “senior management will be held accountable” for violations.
The agency this year reached a record $245 million settlement with Constellation Energy Group Inc over allegations of market manipulation in the US northeast.
The FERC this year said it was investigating JP Morgan Ventures Energy Corp for allegedly gaming energy markets in California and the Midwest, resulting in at least $73 million in improper payments to generators.
The company on Octoner 18 apologised to regulators for making what it said were inadvertent mistakes in responding to investigators as it seeks to retain its energy-trading license.
The agency in December issued a preliminary determination that Deutsche Bank’s energy trading unit manipulated the California power market in 2010, which may result in a $1.5 million fine and the loss of $123,198 in profits.
The company has until November 5 to respond to the agency’s allegations.
Barclays yesterday posted a 29 per cent gain in third- quarter pretax profit. Excluding provisions and accounting losses from revaluing the bank’s own debt, the profit rose to £1.73 billion ($2.8 billion).
Its shares fell 4.7 per cent to 227.5 pence in London trading after rising 3.5 per cent October 30.
