“We believe that our trading was legitimate and in compliance with applicable law,” Marc Hazelton, a Barclays spokesman, said yesterday in a statement. “We intend to vigorously defend this matter.”
He said the bank believes the penalty is without basis and that the FERC order is a “one-sided document, and does not reflect a balanced and full description of the facts or the applicable legal standard.”
The FERC determined that the Barclays traders manipulated markets in the Western U.S. from November 2006 to December 2008. The employees made transactions in fixed-price products -- often at a loss -- with the intent of moving an index to benefit the bank’s other bets on swaps, according to the FERC.
The evidence “demonstrates that the intentional amassing of the positions and trading to influence price were not based on normal supply and demand fundamentals, but rather on the intent to effect a scheme to manipulate the physical markets in order to benefit the financial swaps,” the agency wrote in its order. Swaps are derivative instruments used to hedge risks or for speculation.
The watchdog’s staff estimated that the misconduct caused $139 million “in harm to the market.” Their actions “demonstrate an affirmative, coordinated and intentional effort to carry out a manipulative scheme,” violating U.S. law and FERC rules, the agency said in the statement.
The FERC directed Barclays to pay $435 million in penalties and Scott Connelly, former head of its North American power- trading desk, to pay $15 million, for allegedly directing the manipulation of electric energy prices.
“We recognize that Connelly contends that his personal financial circumstances may make payment of these penalties difficult, but Connelly’s participation in a serious scheme to manipulate the nation’s wholesale power markets warrants the imposition of significant penalties,” the FERC said in its order. The penalty, “while severe, is well short of what the statute allows,” it said.