JPMorgan Chase & Co. (JPM:US) faces a Justice Department probe of its energy-trading practices after the bank settled a regulator’s market-manipulation complaint last month, a person with direct knowledge of the matter said.
U.S. Attorney Preet Bharara in Manhattan is scrutinizing the conduct at issue in JPMorgan’s settlement with the Federal Energy Regulatory Commission, said the person, who asked not to be named because the investigation isn’t public. The inquiry is in an early stage, the Wall Street Journal reported late yesterday. Jerika Richardson, a spokeswoman for Bharara, and Mark Kornblau at JPMorgan declined to comment on the probe.
J.P. Morgan Ventures Energy Corp. agreed last month to pay $410 million in penalties and forfeited gains, and gave up its claims to $262 million of disputed payments, to settle the FERC’s allegations that the bank manipulated power markets to enrich itself at the expense of consumers in California and the Midwest from 2010 to 2012. While the deal released the New York-based company and its employees from future enforcement actions by the regulator, it didn’t preclude other U.S. authorities from pursuing their own investigations.
The FERC said JPMorgan’s energy-trading unit, which is overseen by commodities chief Blythe Masters, engaged in 12 bidding strategies in wholesale energy markets from September 2010 to November 2012, resulting in tens of millions of dollars in overpayments from grid operators. The agency announced the violations July 29 after investigating for more than a year.
JPMorgan used strategies such as offering below-market rates for some hours of energy production, then charging exorbitantly high rates for hours that state bidders agreed to pay for the plants to “ramp” production, the FERC said.
Masters, 44, was told in an October 2010 document that the firm’s bidding strategies would enable it to produce $1.5 billion to $2 billion in gains through 2018, according to the FERC. The FERC didn’t take action against any individuals.
JPMorgan accepted the facts in the settlement agreement without admitting or denying wrongdoing, the FERC said at the time. The firm announced last month that it’s looking for ways to exit the physical commodities business, which includes energy trading.
FERC Chairman Jon Wellinghoff has stepped up scrutiny of corporations as the agency wields policing powers that were expanded in the wake of Enron Corp.’s 2001 collapse. Since 2011, the regulator has revealed at least 13 probes of energy-market gaming.
Wellinghoff said in an interview last month that other government entities are free to pursue penalties against JPMorgan’s employees and that the FERC would cooperate with them. He said he wasn’t aware of any separate investigations.
“We have had some discussions with some agencies that I can’t disclose at this time,” he said.
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