Published September 06, 2013
WASHINGTON – A $410 million settlement by JPMorgan Chase & Co of alleged manipulation in the power market served the public interest more than an uncertain legal fight to punish individual bank executives, a U.S. regulator has said.
In a reply to lawmakers' questions late last month, the chairman of the Federal Energy Regulatory Commission wrote that it had to weigh a certain settlement with JPMorgan against the costs and risks of taking the company to court.
And while FERC has sharpened its enforcement tools to curb manipulation in the market, both the regulator and lawmakers have said loopholes remain.
FERC and its sister agency, the Commodity Futures Trading Commission, have not yet agreed how to share information, something that is required by the 2010 Dodd Frank law, it said in a separate letter to lawmakers.
FERC blamed the CFTC - the derivatives markets supervisor - for being unwilling to share certain data that is "critical" to fight market manipulation, FERC said in the letter in response to a request from three senators.
The senators had asked the two agencies for an update on how they had improved their cooperation, after the FERC lost a court battle against the CFTC in March over who had jurisdiction to fine a futures trader.
The CFTC said it was still reviewing the letter and would withhold comment for now.
Defending its decision on JPMorgan, FERC Chairman Jon Wellinghoff said the immediate cash penalty and costs to the bank's reputation were a valuable message to the market that the regulator will not tolerate abuses.
"The Commission concluded that, on balance, acceptance of the settlement containing these substantial, immediate benefits for ratepayers and the public was preferable to jeopardizing those benefits through the considerable delay and uncertainty posed by pursuing actions against individual JP Morgan employees," he said in a letter dated August 26.
FERC alleged that JPMorgan used its position to exploit loopholes in the California and Michigan power markets. Specifically, according to the settlement, JPMorgan would quickly move in and out of the market to make sure that it got payed high rates for operating its power plants at low levels.
In late July, a day after FERC announced its settlement, two Democratic Senators asked whether the regulator could not have gotten more concessions from the Wall Street giant.
"We are concerned about whether the settlement includes adequate refunds to defrauded ratepayers and also concerned that the individual executives who sought to impede the Commission's investigation will not be punished," Massachusetts senators Elizabeth Warren and Ed Markey wrote.
In the settlement paperwork, FERC and the bank acknowledge that JPMorgan's commodities chief Blythe Masters and other executives were briefed on aspects of the power plants that were losing money in operations but earning millions of dollars in profits as parts of energy trades.
U.S. authorities are conducting a criminal investigation into whether JPMorgan employees tried to impede the FERC investigation, according to multiple sources familiar with the matter.
(Reporting By Patrick Rucker and Douwe Miedema; Editing by Tim Dobbyn)