Judge Begrudgingly OKs Morgan Stanley Derivatives Price-Fixing Settlement

Thursday, August 09, 2012
Morgan Stanley got off easy, according to consumer advocates, when a federal judge reluctantly approved a $4.8 million settlement involving price fixing in the electricity market.
The agreement resolved accusations that Morgan Stanley had gotten into a complex swap arrangement with KeySpan Corp. through which it gained a stake in the profits of its competitor Astoria Generating Company Acquisitions. The scheme allowed KeySpan to bump up the cost of electricity in New York, taking approximately $300 million out of consumers’ pockets.
Other than paying just under $5 million, which represented less than a quarter of its earnings from the scheme, Morgan Stanley did not have to admit any wrongdoing.
Judge William H. Pauley III said he had “misgivings” about the size of the penalty, saying, “$4.8 million is a relatively mild sanction.”
“There is a risk that a large financial services firm like Morgan Stanley could view such a modest penalty as merely the cost of doing business,” Pauley added.
Peter Vallone, a councilman who represents the Queens district that hosts KeySpan’s facilities, was irate over news of the settlement. “Here, they’re allowed to keep what they stole,” Vallone told Courthouse News. “That is ridiculous….This is pocket change for them.”
The AARP and New York’s Public Service Commission objected to the settlement. They said Morgan Stanley should have been forced to admit what they did was wrong and pay $21.6 million, the amount it made off the deal with KeySpan Corp.
-Noel Brinkerhoff
To Learn More:
Morgan Stanley Derivative Accord Wins Approval in First Case (by David Glovin, Bloomberg BusinessWeek)



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