U.S. federal energy regulators threatened to fine Barclays roughly $470 million to settle allegations that the bank and four traders manipulated California energy markets from November 2006 to December 2008.
In a potentially record penalty that could eclipse fines over rigging the inter-bank lending rate known as Libor, the U.S. Federal Energy Regulatory Commission said Barclays has 30 days to show why it should not be penalized for an alleged scheme of manipulating physical electricity markets in order to benefit from related positions in the swaps market.
Barclays reiterated that it "strongly disagreed" with the findings and was ready to fight the order, which it said was "by nature a one-sided document, and does not reflect a balanced and full description of the facts."
"We believe that our trading was legitimate and in compliance with applicable law," Barclays spokesman Mark Lane said in an email. "We have cooperated fully with the FERC investigation, which relates to trading activity that occurred several years ago. We intend to vigorously defend this matter."
It is the latest blow for the British bank, which has fired staff, clawed back pay and taken other disciplinary action after being fined $450 million by U.S. and British regulators over Libor.
Earlier on Wednesday Barclays announced that the U.S. Department of Justice and the Securities and Exchange Commission were probing whether it was complying with U.S. laws in its relationships with third parties who help it win or retain business.
The FERC order suggests the agency was unable to reach a settlement with Barclays through negotiations, indicating the issue is likely to head toward an administrative court, says Craig Pirrong, an expert in energy trade regulation.
Wednesday's order is the boldest move yet from the FERC, which won expanded powers to tackle manipulation in 2005 after the California power trading scandal and Enron meltdown.
Just months after reaching a record $245 million settlement with power company Constellation Energy over similar allegations, the agency is pursuing advanced enquiries into several big energy firms and banks, including BP, JP Morgan and Deutsche Bank, according to notices.
"FERC is getting tougher," said Pirrong. He cautioned that there are "factual and conceptual challenges" in proving manipulation in court, but that isn't stopping the agency.
"It is going to town on this theory of manipulation, and I would wager that any firm that traded both physical and financial power is at risk of a similar FERC action."
The FERC Office of Enforcement staff alleged Barclays engaged in a coordinated scheme to manipulate trading at four electricity trading points in the Western United States.
Specifically, Office of Enforcement staff allege that "Barclays engaged in loss-generating trading of next-day fixed-price physical electricity on the IntercontinentalExchange at the locations of Mid-Columbia, Palo Verde, South Path 15 and North Path 15 to benefit Barclays' financial swap positions in those markets."
FERC also said four of the company's power traders - Daniel Brin, Scott Connelly, Karen Levine, and Ryan Smith - have 30 days to show why they should not be assessed a total of $18 million in civil penalties.
(Reporting by Scott DiSavino and Karey Wutkowski; Editing by Gary Hill and Andrew Hay and Claudia Parsons)