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May 04, 2013 – Comments (2) | RELATED TICKERS: JPM

The regulator of U.S. power markets appears likely to pursue manipulation charges against JPMorgan Chase & Co , analysts said, after a New York Times report on the agency's document that seemed to lay out its case.

The Times said on Friday it reviewed a confidential, 70-page government document that the U.S. Federal Energy Regulatory Commission (FERC) sent to JPMorgan in March, which alleged the bank manipulated the power market in California and Michigan in 2010 and 2011.

 FERC investigators found JPMorgan devised "manipulative schemes" that transformed "money-losing power plants into powerful profit centers," the Times reported, citing the document. It said the bank has until mid-May to respond.

It has been clear since last summer that FERC was pursuing a deep enquiry on JPMorgan's trading activities, the latest in a string of FERC investigations that have rattled the U.S. power market and - in the case of rival bank Barclays Plc - concluded with $470 million in proposed penalties.

FERC has not moved to publicly charge JPMorgan, but experts said that now seemed likely.

"FERC staff would not have gone to the trouble of putting together a 70-page document without a case. If they have gotten this far they will likely pursue it," said Susan Court, a former senior lawyer at FERC who is principal of SJC Energy Consultants LLC in Arlington, Virginia.

The document also criticized Blythe Masters, JPMorgan's head of global commodities and former chief financial officer, saying she "falsely" denied under oath that she was aware of schemes carried out by a group of energy traders in Houston, according to the Times.

"We strongly dispute that Blythe Masters or any employee lied or acted inappropriately in this matter," JPMorgan spokeswoman Jennifer Zuccarelli said. "We intend to vigorously defend the firm and the employees in this matter."



The document cited by the Times came after a months-long inquiry into the bank's trading in power markets, one of several high-profile investigations since FERC's enforcement powers were expanded in 2005 following the Enron scandal a decade ago.

"We cannot, and do not, speculate as to any investigations, as they are all non-public. We do not speculate as to whether investigations are taking place, nor do we speculate as to whether or when the Commission will take any action," FERC spokeswoman Mary O'Driscoll said.

FERC last summer subpoenaed JPMorgan to produce 25 internal emails - some between Blythe Masters and the bank's head of principal commodity investments Francis Dunleavy - as part an ongoing investigation focused on bidding practices that may have raised electricity prices by about $73 million in California and the Midwest power markets.

FERC normally does not disclose investigations but chose to subpoena JPMorgan after the bank claimed the emails were protected by attorney client privilege. A federal magistrate in November sided with JPMorgan and ruled that FERC could not see the emails. FERC appealed that decision in January.


In November, FERC imposed a temporary ban on JPMorgan's ability to trade physical power at market-based rates for six months, starting in April, for failing to disclose information to the FERC and the California ISO in a market manipulation investigation.

In December, JPMorgan Chief Executive Jamie Dimon said the trading ban is "not that big a deal" for the bank.

FERC Commissioner Cheryl LaFleur dissented in that November vote, saying the agency should include penalties for any failure to disclose information as part of the market manipulation case if the agency decided to pursue it.

In order to pursue a penalty or disgorgement of profits, FERC staff typically issues a public show-cause order, which has not yet occurred in the JPMorgan case.

"A lot of the letters that FERC sends out are trying to get at facts. And the tone of this (letter) sounds a little different ... a little bit more sharp," said Marc Spitzer, a partner at the law firm of Steptoe & Johnson in Washington, and a former FERC Commissioner.


2 Comments – Post Your Own

#1) On May 05, 2013 at 12:34 AM, Starfirenv (< 20) wrote:

The fact that JP Morgan is in hot water isn’t news. Josh Rosner revealed in an extensive report released in early March that the bank had paid out over $8.5 billion in fines since 2009, nearly 12% of its net income, for violations across virtually all of its operations.

….as you read the report, it’s hard to see the bank as anything but a criminal racket just days away from imploding, were it not propped up by implicit bailout guarantees and light-touch regulators.

 It’s hard to summarize all of the documented instances in this report of JPM has been breaking the law, but here’s my best shot…. Bank Secrecy Act violations;
Money laundering for drug cartels;
Violations of sanction orders against Cuba, Iran, Sudan, and former Liberian strongman Charles Taylor;
Violations related to the Vatican Bank scandal (get on this, Pope Francis!);
Violations of the Commodities Exchange Act;
Failure to segregate customer funds (including one CFTC case where the bank failed to segregate $725 million of its own money from a $9.6 billion account) in the US and UK;
Knowingly executing fictitious trades where the customer, with full knowledge of the bank, was on both sides of the deal;
Various SEC enforcement actions for misrepresentations of CDOs and mortgage-backed securities;
The AG settlement on foreclosure fraud;
The OCC settlement on foreclosure fraud;
Violations of the Servicemembers Civil Relief Act;
Illegal flood insurance commissions;
Fraudulent sale of unregistered securities;
Auto-finance ripoffs;
Illegal increases of overdraft penalties;
Violations of federal ERISA laws as well as those of the state of New York;
Municipal bond market manipulations and acts of bid-rigging, including violations of the Sherman Anti-Trust Act;
Filing of unverified affidavits for credit card debt collections (“as a result of internal control failures that sound eerily similar to the industry’s mortgage servicing failures and foreclosure abuses”);
Energy market manipulation that triggered FERC lawsuits;
“Artificial market making” at Japanese affiliates;
Shifting trading losses on a currency trade to a customer account;
Fraudulent sales of derivatives to the city of Milan, Italy;
Obstruction of justice (including refusing the release of documents in the Bernie Madoff case as well as the case of Peregrine Financial).

In other words, the New York Times account is a pale rendition of the rap sheet against the bank."

H/T Yves Smith and more of the story here-

 Meh,  lemme guess, another fine?


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#2) On May 08, 2013 at 11:54 PM, stockmktdouble (54.10) wrote:

I'd say you been following JP MORGAN and the boys for a while

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