JPMorgan to Pay $410 Million in Enron-Like Scheme, but Admits Nothing while Execs Go Free

Saturday, August 03, 2013
Blythe Masters

Another big bank has agreed to pay hundreds of millions of dollars to settle accusations that it manipulated California and Midwest energy markets, but, as usual, admitted no guilt while its executives dodged responsibility.


JPMorgan Chase will pony up $410 million after reaching an agreement with the Federal Energy Regulatory Commission (FERC) over claims the company pulled a few pages from the Enron playbook and ripped off residents of Michigan and California between 2010 and 2012. Most of the money, $285 million, will be paid to the U.S. Treasury as a civil penalty and $124 million will go to ratepayers in California via an electrical grid operator, the California Independent System Operator (ISO). Another $1 million will go to Michigan ratepayers.  


JPMorgan had $97 billion in revenue last year. That’s billion, with a “b.”


Not only does the settlement contain no admission of guilt by JPMorgan, it will have no “material impact” on JPMorgan earnings because the company had already set aside money in its reserves to cover the costs, according to the Los Angeles Times. There had been speculation that Blythe Masters, one of JPMorgan’s top executives and global head of commodities, would be sanctioned for her role in the affair.


But that didn’t happen, despite what the investigators originally termed her “false and misleading statements under oath.” Although Masters is considered a pioneer in the use of complex financial instruments called credit derivatives, she reportedly told investigators that she didn’t really understand how the scheme even worked.


This is how it worked, according to the New York Times. JPMorgan had inherited the rights to sell energy from a number of underperforming power plants when it bought troubled Bear Stearns after the 2007 financial crisis. Through a series of bidding schemes that manipulated the price of energy, the company induced California grid operators to pay roughly $83 million more than they should have.


According to federal regulatory documents reviewed by the New York Times, Masters viewed PowerPoint presentations about how the scheme worked and “personally participated in JPMorgan’s efforts to block” the state authorities “from understanding the reasons behind JPMorgan’s bidding schemes.”


When California regulators began to complain about what they suspected was being done to the state, JPMorgan tried to hide the trading by leaving out key profit and loss statements, investigators alleged. Three other JPMorgan employees were implicated in the manipulation, but none have been charged with a crime or had their activities in the commodities market curtailed.


Barclays Bank, faced with similar accusations, was fined $453 million two weeks ago by FERC after failing to cut a settlement deal. British-owned Barclays is going to fight the allegations in court that it manipulated California energy markets between 2006 and 2008. Four Barclays traders, who bragged in emails that they were going to “crap on” some markets to make money trading in others, were fined a total of $15 million.


Eric Hildebrandt, head of marketing for the California grid operator ISO, which got taken in the scheme, told the Sacramento Bee, “The cynical interpretation of this is that this is somehow the tip of the iceberg.” He assured the reporter that was not the case, and the JPMorgan manipulation was “the exception to the rule.” 

-Ken Broder


To Learn More:

JPMorgan Top Exec Blythe Masters Dodges Penalty as Bank Settles Energy Manipulation Charges for $410M (by Agustino Fontevecchia, Forbes)

JPMorgan to Pay $410 Million in U.S. FERC Settlement (by Brian Wingfield and Dawn Kopecki, Bloomberg)

JPMorgan Executive May Escape Penalty (by Jessica Silver-Greenberg, New York Times)

JPMorgan Settles Energy Market-Rigging Probe for $410 Million (by Andrew Tangel, Los Angeles Times)

California Officials Say They “Got Every Penny” Yhey Demanded from JPMorgan for Manipulative Energy Trades (by Dale Kasler, Sacramento Bee)

Barclays Bank Fined $453 Million for Rigging California and Western Energy Markets (by Ken Broder, AllGov California)


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