Barclays Bank Fined $453 Million for Rigging California and Western Energy Markets

Thursday, July 18, 2013

Next stop—federal court.

Barclays Bank didn’t wait long in announcing that it will contest the $453 million fine handed down Tuesday by the Federal Energy Regulatory Commission (FERC) for its manipulation of energy markets in California and western states between 2006 and 2008.

The British-owned financial institution, fresh from a $450 million fine for its role in rigging the London Interbank Offer Rate (LIBOR), said it and its traders did nothing wrong by placing complicated bets, in a derivative swaps market, against its own energy market investments.

Four traders for the bank were also fined a total of $18 million for their role in what is called a “loss-leader” scheme. The traders were quoted in bank documents as bragging that they would “crap on” some markets in order to make large profits in others, according to Reuters. FERC said that crapping constituted a “coordinated, fraudulent scheme” to manipulate prices on 655 days over 35 months. 

No criminal charges are being sought by the government against the bank or any of its employees. 

The fines are headed for the U.S. Treasury. But FERC ordered Barclays to pay an additional $34.9 million as repayment for its “unjust profits” and directed that the money go to the Low-Income Home Energy Assistance Program in Arizona, California, Oregon and Washington. California gets about two-thirds of the funds.

The fine levied by FERC dwarfs the previous record of $135 million against Constellation Energy last year, reflecting more aggressive actions by the agency since Congress increased its power in 2005, in the wake of the 2001 Enron-inspired energy crisis.

Shortly after the Barclays decision was announced, the Wall Street Journal wrote that JPMorgan Chase was going to reach a deal over similar allegations that could cost the bank up to $1 billion.

Barclays indicated in October, when FERC first made its accusations, that it intended to settle the matter in court and reiterated that intention after the ruling. The bank has 30 days to pay up or explain in U.S. District Court why it shouldn’t.

–Ken Broder  


To Learn More:

FERC Flexes Regulatory Muscle in Talks with JPMorgan (by Paul M. Barrett, Bloomberg Businessweek)

Barclays Vows to Fight Energy Trading Fine (by Mark Scott, New York Times)

Barclays Fined $453 Million for Manipulating California Energy Market (by Dale Kasler, Sacramento Bee)

Barclays to Fight $453 Million Power Fine in U.S. Court (by David Sheppard and Steve Slater, Reuters)

Fresh from Libor Scandal, Barclays May Have to Pay Millions in California Energy Market Rigging (by Ken Broder, AllGov California)

Commission Findings (Federal Energy Regulatory Commission) (pdf)

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