Reuters/New York
JPMorgan Chase & Co agreed yesterday to pay $410mn to settle allegations of power market manipulation in California and the Midwest, the latest in a series of high-profile inquiries by US federal energy regulators.
The settlement, announced by the Federal Energy Regulatory Commission (FERC), will allow chief executive Jamie Dimon to close the books on one of several costly run-ins with regulators over the past year. It came days after the bank said it was quitting the physical commodities business.
JPMorgan Ventures Energy Corp, the commodity trading unit that became one of the biggest US electricity traders with the 2008 acquisition of Bear Stearns, agreed to pay a civil penalty of $285mn and disgorge $125mn for “manipulative bidding strategies” from September 2010 through November 2012.
It is the second largest penalty in FERC history, and comes as the once-quiet government regulator steps up its pursuit of market malfeasance after gaining expanded powers from Congress in 2005, part of efforts to crack down on market manipulation after Enron Corp’s spectacular collapse.
JPMorgan spokesman Brian Marchiony said the settlement would “not have a material impact on our earnings” because the bank had previously set aside reserves.
FERC said JPMorgan admitted the facts in the agreement, but “did not admit or deny the violations.”
Dimon has moved this year to resolve multiple government investigations and correct problems regulators have found at the bank in an effort to take a more conciliatory stance as new rules are imposed more than five years after the start of the financial crisis.
The deal also came amid unprecedented political scrutiny of Wall Street’s involvement in the raw materials supply chain. Lawmakers have questioned whether banks should own metals warehouses and power plants, while the US Federal Reserve reviews a landmark 2003 decision that first let them trade commodities.
The FERC deal did not cite specific traders or JPMorgan’s commodities chief Blythe Masters for any wrongdoing. Masters spent billions of dollars over the past five years to build JPMorgan’s oil, power, gas and metals business into the biggest on Wall Street.
JPMorgan had vowed in May to fight the FERC charges and disputed allegations that employees lied or acted inappropriately during the investigation. After a court battle over the disclosure over documents, the bank entered settlement discussions.
Yesterday, FERC laid out Masters knowledge of the traders abusive bidding strategies, including spreadsheets given to her detailing a seven-year plan to churn up to $2bn in profits from potentially loss-making power plants.
FERC Commissioner Tony Clark heralded the settlement as “historic,” but said he was frustrated over the bank’s evasiveness during the investigation. FERC had accused JPMorgan on several occasions of being late in responding to data requests and alleged it sometimes submitted “misleading information.”