JPMorgan to pay $410 million to settle U.S. energy probe

JPMorgan Released

The settlement released JPMorgan, all subsidiaries and employees, including Masters, from any future enforcement actions by FERC in this case.

Francis Dunleavy, Andrew Kittell and John Bartholomew, who the FERC said devised the bidding strategy, are still employed by the company, according to the FERC settlement. Marchiony declined to comment on their current roles or whether the company would cut their bonuses or Masters’ compensation.

The three no longer have a role in bidding for energy in California’s power market, according to the FERC. JPMorgan, which controlled power plants owned by AES Corp., has effectively sold its interest in those generators, according to the FERC.

Lawful Conduct

The three traders didn’t agree to a settlement with the FERC, Gibson, Dunn & Crutcher LLP, the law firm representing Dunleavy, Kittell and Bartholomew, said in a statement. The agency decided not to pursue sanctions against them after they explained to the FERC that their conduct was lawful, it said.

“The commission’s decision to voluntarily settle with JPMorgan and not proceed against the individuals can only be read as the commission correctly concluding that no case or findings against the individuals could be sustained in a court of law,” William Scherman, their lawyer, said in the statement.

JPMorgan said July 26 it was considering the sale or spin off of its physical commodities business, including energy trading, three days after a congressional hearing examined whether banks are using their ownership of raw materials to manipulate markets.

The FERC in November revoked the unit’s right to trade power for six months after accusing the firm of providing misleading information to regulators. The suspension, which took effect in April, marked the first such sanction for an active market participant.

‘Picked Pockets’

“JPMorgan picked the pockets of California households and businesses, and their manipulation increased the electric bills that people pay,” Tyson Slocum, director of the energy program at Public Citizen, a Washington-based consumer advocacy group, said in an interview yesterday.

FERC investigators focused in part on “make whole” payments that grid operators pay to generators if the sale of electricity doesn’t yield enough revenue for the company to recover its startup costs.

The agency’s investigation of JPMorgan covered two periods, September 2010 to June 2011 and March to November 2012. The company’s energy energy-trading unit was engaged in 12 strategies to manipulate markets in California and the Midwest, 10 of which began while the investigation was underway, according to the agency.

In one scheme, JPMorgan traders made low end-of-day bids to attract large orders from buyers to provide power the next day, the FERC said. In the first two hours the next day, the bank demanded higher rates for making the power available, a maneuver that led the grid operator to pay it millions of dollars for a period in which demand is typically low.

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