The U.S. Federal Energy Regulatory Commission, or FERC, on Tuesday, upheld a record fine of $487.9 million on Barclays PLC (NYSE:BCS) and four of its former traders for allegedly manipulating energy markets.
The British bank was ordered to pay a penalty of $453 million to the U.S. Treasury within 30 days, and it must also relinquish $34.9 million in “unjust profits, plus interest,” to the Low Income Home Energy Assistance Programs of Arizona, California, Oregon, and Washington. The FERC's commissioners agreed with the fine, originally proposed in October 2012, on the basis of an assessment that the bank deliberately lost money in physical trading of electricity to boost its financial positions between 2006 and 2008.
Barclays “not only engaged in this manipulative scheme at four trading nodes in the western United States during the Manipulation Months, but that they did so with the intent to commit fraud,” the regulator said in the order, adding: “Barclays’ own compliance materials recognized that uneconomic trading engaged in to benefit another transaction would be manipulative.”
The FERC said evidence supports the conclusion that Scott Connelly, the managing director of Barclays’ North American power-trading operation at the time of the violations, and other Barclays traders -- Daniel Brin, Karen Levine and Ryan Smith -- “knowingly or recklessly executed a manipulative scheme involving the uneconomical trading of physical power for the purpose of enhancing its Financial Swap positions. Neither Barclays nor any of the other Respondents advance any argument that provides a legal basis for not imputing the Individual Traders’ intent to Barclays itself.”
Barclays was ordered to pay $435 million in penalties, while Connelly will have to pay $15 million. The other traders were fined $1 million each.
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Barclays said it was “disappointed” by the FERC’s decision, adding: “We believe the penalty assessed by the FERC is without basis … We believe our trading was legitimate and in compliance with applicable law,” the Guardian reported
“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,” Barclays said.
The FERC used electronic communications between Barclays' traders to support the findings from its investigation, which began in July 2007. In June 2011, FERC said its preliminary findings concluded Barclays and the traders had engaged in unlawful manipulative activity, and proposed the penalties in October 2012.
The case is expected to become a testing ground for FERC’s powers, which received a boost through a piece of legislation in 2005, following the Enron scandal, which rocked the U.S. and world markets earlier in the decade.
If Barclays and the traders fail to pay the fines, FERC said it would seek affirmation of the penalties from a federal district court.