Millions of dollars in penalties slapped on some of the world’s biggest banks, including JPMorgan Chase & Co., by U.S. regulators are the result of policing powers established after the 2001 collapse of Enron Corp.
Within the past month, the Federal Energy Regulatory Commission, acting on recommendations from a 200-person enforcement unit assembled in the past three years, proposed fines on Barclays Plc and Deutsche Bank AG for manipulating energy trades. The agency this week revoked J.P. Morgan Ventures Energy Corp.’s right to trade power for six months next year -- the first such sanction for an active market participant.
“I wouldn’t say that we’re picking on the banks,” FERC Chairman Jon Wellinghoff said in an interview. “We’re going after anybody who’s involved in manipulative or fraudulent activity in these markets.”
FERC didn’t always wield such muscle. Its authority expanded after the California power crisis of 2000-2001, when Enron traders’ actions triggered rolling blackouts. In 2005 Congress enacted a sweeping energy law that gave the FERC the ability to go after fraud and manipulation. It also gave the agency the authority to impose fines as high as $1 million a day for those who tamper with electric-grid reliability.
The FERC enforcement unit is led by Norman Bay, a former U.S. attorney in New Mexico, and includes a former general counsel for the Federal Bureau of Investigation as well as about 40 analysts who focus on market-manipulation violations.
“A lot of people think you put a law in place and you’re ready to go the next day,” Wellinghoff said in a Nov. 7 interview. “Unfortunately it’s not quite like that. It takes a substantial period of time to build up a team and to build up the expertise and the resources necessary to utilize the tools that Congress gave us.”
Researching cases also takes time, and much of the office’s efforts in recent years are now coming to fruition. Since January 2011, the FERC announced 11 cases of alleged market manipulation in the electricity and natural gas markets, and this year settled with Constellation Energy Group Inc. for $245 million.
The cases have been developed over years. Barclays’ alleged violations, which drew a proposed record fine on Oct. 31, took place from 2006 to 2008. Barclays, which said its trading complied with the law, has vowed to fight the $469.9 million penalty.