A Justice Department probe of JPMorgan Chase & Co. (JPM:US)’s energy-trading practices is examining whether criminal laws were violated by individuals, a person briefed on the matter said.
The Federal Bureau of Investigation is working with U.S. Attorney Preet Bharara, said the person, who asked not to be named because the review isn’t public. Bharara’s inquiry, reported by the Wall Street Journal and Bloomberg News earlier this week, focuses on conduct outlined last month in the bank’s $410 million civil settlement with the Federal Energy Regulatory Commission. The FERC had accused the bank of manipulating power markets in California and the Midwest.
It’s the second criminal probe of the bank to emerge this month, after the lender disclosed (JPM:US) Aug. 7 that the U.S. Attorney’s Office in Sacramento, California, opened a separate criminal inquiry into the firm’s mortgage-bond practices. Investigators in that case told the bank in May that they have preliminarily concluded the company violated civil laws, JPMorgan said in the disclosure.
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 that resulted in tens of millions of dollars in overpayments from grid operators, the FERC said while announcing the settlement on July 29.
It didn’t bring claims against any individuals. The bank publicly defended individual employees during that inquiry.
The person briefed on the FBI’s probe didn’t specify which people agents may examine. Investigators sent JPMorgan a subpoena earlier this month, according to another person with knowledge of the situation.
Jennifer Queliz, a spokeswoman for Bharara, and Kelly Langmesser, a spokeswoman for the FBI’s New York office, declined to comment on the bureau’s probe. Brian Marchiony at JPMorgan declined to comment on behalf of the bank and Masters.
While the FERC deal last month 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 inquiries. FERC Chairman Jon Wellinghoff said in an interview at the time that 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.
JPMorgan accepted the facts in the FERC settlement without admitting or denying wrongdoing, the agency said. The firm announced last month that it was looking for ways to exit the physical commodities business, which includes energy trading.
The bidding strategies at issue were developed by a Houston-based unit run by Francis Dunleavy, who was one of eight people who reported directly to Masters, according to the FERC’s settlement order last month. Dunleavy and two subordinates involved in the bids, Andrew Kittell and John Bartholomew, are still employed with the bank, the FERC said.
The regulator decided not to pursue claims against the employees after they explained that their conduct was lawful and that they wouldn’t agree to any settlement that suggested otherwise, their lawyers wrote in a statement last month.
The agency’s decision to settle with JPMorgan and not bring claims against individuals “can only be read as the commission correctly concluding that no case or findings against the individuals could be sustained in a court of law,” one of their attorneys, William Scherman at Gibson Dunn & Crutcher LLP, said in the statement.
He declined to comment yesterday on the FBI investigation.
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