Many developments on the enforcement front:
- New NAV for UTC traders.
- FERC complaint against Maxim challenged by motion to dismiss.
- New DOJ Guidance Puts Emphasis on Identifying Culpable Individuals in Corporate Internal Investigations.
New NAV for UTC traders. FERC today released a Notice of Alleged Violation against Coaltrain and individuals. The NAV alleges respondents violated FERC anti-manipulation rule by “devising and executing a scheme involving manipulative Up-To Congestion trading in PJM Regional Transmission Organization between June and September 2010.”
FERC files complaint against City Power and Tsingas. Following its order on civil penalty, FERC filed a complaint against City Power and K. Stephen Tsingas in the U.S. District Court for the District of Columbia. The complaint seeks an order affirming FERC’s Order Assessing Civil Penalties against City Power and Tsingas, which imposed a $14 million civil penalty against City Power and a $1 million civil penalty against Tsingas, plus disgorgement of $1,278,358 in unjust profits.
FERC alleges City Power and Tsingas violated FERC’s anti-manipulation rule by placing large volumes of Up To Congestion (UTC) trades in PJM that were intended solely to collect certain credit payments associated with UTC trades (called MLSA). FERC also claims that City Power violated FERC’s rule requiring truthfulness in communications, 18 C.F.R. § 35.41(b), by making false and misleading statements and omitting material information to conceal the existence of relevant instant messages during the investigation. This is the second district court case on UTC trades – after FERC’s complaint against Powhatan, et al. filed in late July in the U.S. District Court for the Eastern District of Virginia.
FERC complaint against Maxim challenged by motion to dismiss. On September 4, Maxim Power Corp. filed a motion to dismiss FERC’s complaint in the U.S. District Court for the District of Massachusetts. FERC’s complaint requests an order affirming FERC’s Order Assessing Civil Penalties, which directed Maxim to pay a civil penalty of $5 million and Maxim employee Kyle Mitton to pay a civil penalty of $50,000. FERC alleged that Maxim and Mitton violated FERC’s anti-manipulation rule through a scheme to defraud ISO-NE of nearly $3 million by obtaining payments for reliability dispatches based on the price of expensive fuel oil when Maxim in fact burned much less costly natural gas at its plant. FERC also claims that Maxim violated FERC’s rule concerning truthfulness in communications, 18 C.F.R. § 35.41(b), by making false and misleading statements and omitting material information in communications with ISO-NE’s Internal Market Monitor.
In its motion to dismiss, Maxim argues FERC’s complaint fails to adequately plead a misrepresentation or omission of material fact. In particular, Maxim claims that it disclosed accurately to ISO-NE’s Internal Market Monitor the very information that was allegedly concealed. Moreover, Maxim did not violate any applicable ISO-NE tariff provision, rule, or regulation. Maxim also argues that FERC does not have authority to bring a claim against an individual under the anti-manipulation rule.
New DOJ Guidance Puts Emphasis on Identifying Culpable Individuals in Corporate Internal Investigations. On September 9, followed by a major policy address on Thursday, September 10, 2015, by Deputy Attorney General (DAG) Sally Q. Yates, the Department of Justice (DOJ) issued new guidance regarding individual accountability for corporate wrongdoing. As our colleagues report, the memo articulates several changes to DOJ policy. The updated “Yates memo” sets out six principles to guide DOJ enforcement actions:
- To be eligible for any cooperation credit, corporations must provide to the DOJ all relevant facts about the individuals involved in corporate misconduct.
- Both criminal and civil corporate investigations should focus on individuals from the inception of the investigation.
- Criminal and civil attorneys handling corporate investigations should be in routine communication with one another.
- Absent extraordinary circumstances, no corporate resolution will provide protection from criminal or civil liability for any individuals.
- Corporate cases should not be resolved without a clear plan to resolve related individual cases before the statute of limitations expires and declinations as to individuals in such cases must be memorialized.
- Civil attorneys should consistently focus on individuals as well as the company and evaluate whether to bring suit against an individual based on considerations beyond that individual’s ability to pay.
The principal thrust of the new guidance—the requirement that a self-reporting company seeking cooperation credit make a full disclosure to the DOJ, particularly by identifying culpable individuals—expands on the already-existing DOJ practices in criminal cases.