JPMorgan Chase & Co. (JPM:US), the biggest U.S. bank, was warned by federal energy-market regulators that its personnel and two subsidiaries may face claims stemming from a probe into bidding practices.
Federal Energy Regulatory Commission staff told JPMorgan in March they may recommend the agency bring an enforcement case, the New York-based company said yesterday in a regulatory filing. Claims may include “alleged violations of FERC rules and the rules of certain independent system operators,” the lender said, without elaborating on the allegations.
The FERC has stepped up scrutiny of corporations as it wields policing powers that were expanded in the wake of Enron Corp.’s 2001 collapse. Agency investigators may seek to hold JPMorgan traders and commodities-unit chief Blythe Masters “individually liable,” the New York Times reported last week, citing a 70-page document the watchdog sent the bank in March.
The case focuses on eight “schemes” adopted by traders in Houston between September 2010 and June 2011, according to the newspaper. Traders offered energy at prices “calculated to falsely appear attractive,” prompting state authorities in California and Michigan to make about $83 million in “excessive” payments to JPMorgan, the Times cited investigators as saying.
While Masters, 44, was less involved with daily decisions, investigators said she got e-mails and presentations outlining the strategies, the publication reported, citing the document. JPMorgan has said it intends to defend itself and the employees, and that it disputes that people including Masters acted inappropriately.
The FERC revoked a JPMorgan unit’s right to trade power for six months in November after accusing the firm of providing misleading information to a California energy authority. The suspension, which took effect in April, marked the first such sanction for an active market participant.
The bank reduced its estimate of “reasonably possible” legal costs beyond reserves yesterday. The additional costs could amount to as much $6 billion as of the end of March, compared with $6.1 billion at the end of 2012, it said.
The bank has been fighting claims it abetted Bernard L. Madoff’s Ponzi scheme, including a 2010 lawsuit filed by Irving Picard, the trustee liquidating Madoff’s firm. Picard is currently appealing a dismissal of that case.
JPMorgan yesterday broadened its description of related probes to say it’s responding to investigations conducted by the Justice Department and other regulators. An annual filing in February referred to “various governmental inquiries.”
Since the start of 2011, the FERC has disclosed 13 probes of alleged manipulation in electricity and natural gas markets.
The agency is seeking a record $488 million in penalties from Barclays Plc and four former traders for allegedly gaming energy markets in the Western U.S. from late 2006 to 2008. The London-based bank has maintained that the traders did nothing wrong and has vowed to fight penalties in court if necessary.
Deutsche Bank AG is among companies that have chosen to settle. The Frankfurt-based lender agreed on Jan. 22 to pay $1.6 million to resolve FERC claims that an energy-trading unit manipulated markets in 2010. The bank didn’t admit nor deny wrongdoing.
FERC Chairman Jon Wellinghoff has said the agency isn’t taking aim at Wall Street banks and instead is trying to ensure the markets operate fairly. It has an enforcement staff of about 200 employees devoted to policing the markets.
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