This week’s enforcement update covers:
- Barclays and FERC Enforcement reach agreement in principle to settle manipulation lawsuit for a total of $105 million;
- HSBC executive convicted of foreign currency exchange fraud;
- FERC Chairman Chatterjee calls for FERC to reexamine proper scope of de novo review;
- Senator Blumenthal calls on FERC to investigate price manipulation allegations;
- CFTC finds that Arab Global Commodities DMCC engaged in spoofing of copper futures contracts; and
- FERC files response to Silkman and CES objection to magistrate’s discovery rulings in district court.
Barclays and FERC Enforcement reach agreement in principle to settle manipulation lawsuit. On October 26, Barclays announced that it reached an agreement in principle with FERC Enforcement to settle the civil action brought by FERC for alleged manipulation of the Western power markets from 2006 to 2008. The proposed settlement—which must be approved by FERC—is for a total of $105 million, comprised of a civil penalty of $70 million and disgorgement of $35 million.
In its Order Assessing Civil Penalties in 2013, FERC imposed a $435 million civil penalty and $34.9 million disgorgement against Barclays; a $15 million civil penalty against Scott Connelly; and a $1 million civil penalty each for Daniel Brin, Karen Levine, and Ryan Smith. As we previously reported, on September 29, Judge Nunley granted Ryan Smith’s motion for judgment on the pleadings and dismissed Smith from the case based on the stature of limitations. Under the reasoning applied in Judge Nunley’s order dismissing Ryan Smith, the statute of limitations would bar FERC’s claims related to conduct prior to about June 2007. Based on that ruling, FERC’s claims against Barclays and the three other individuals related to 16 of the alleged 35 manipulation months (i.e., the alleged manipulation months prior to June 2007) would have been precluded under statute of limitations.
Earlier this month, on October 11 and 12, counsel for FERC and Barclays held a settlement conference before Magistrate Judge Kendall J. Newman in the U.S. District Court for the Eastern District of California. According to a minute entry in the docket, the parties made substantial progress towards a settlement. The court vacated all pending dates, and required the parties to file status report/dismissal documents within 45 days. On October 23, the Defendants filed a notice to withdraw without prejudice their Request to Seal Documents and their Motion for Reconsideration of the Court’s Order Denying Defendants’ Motion to Dismiss, “in light of the substantial progress the parties made towards a settlement at the settlement conference before Magistrate Judge Kendall J. Newman on October 11 and 12, 2017.”
HSBC executive convicted of foreign currency exchange fraud. On October 23, a federal jury in the U.S. District Court for the Eastern District of New York convicted former HSBC foreign currency exchange executive Mark Johnson of scheming to defraud Scottish oil and gas developer Cairn Energy PLC by ramping up the price of British pounds sterling ahead of a $3.5 billion forex deal. According to prosecutors, Johnson caused the HSBC’s forex traders in London and New York to front-run a $3.5 billion sterling deal by aggressively trading ahead of the transaction in a way that caused the price to spike. During the trial, prosecutors played a number of recorded telephone calls, including a call with Johnson saying “I think we got away with it.”
FERC Chairman Chatterjee calls for FERC to reexamine proper scope of de novo review. On October 17 at the Energy Bar Association Mid-Year Energy Forum, FERC Chairman Neil Chatterjee called for FERC to examine its position on de novo review for entities seeking federal district court review of civil penalties under the Federal Power Act. Chairman Chatterjee remarked, “I believe that FERC’s enforcement responsibilities are a critical part of our mission and that the electricity markets work best when investors, operators and the public have confidence that everyone is playing by the rules. However, this new enforcement authority has not come without some controversy. One of the main points of contention has been over the scope of de novo review under the Federal Power Act.” According to Chairman Chatterjee, “the courts have rejected FERC’s interpretation of de novo review five times under the Federal Power Act. The courts have spoken, and I, for one, am listening.” Chairman Chatterjee continued, “I believe that the proper score of de novo review is a matter my colleagues and I need to examine so we can chart a new court that is fair and legally defensible.” Chatterjee repeated this assessment in his podcast for FERC.
Senator Blumenthal calls on FERC to investigate price manipulation allegations. On October 17, U.S. Senator Richard Blumenthal (D-Conn.) sent a letter to FERC calling for an investigation into allegations that Eversource and Avangrid may have withheld and underutilized gas pipeline capacity, costing New England consumers $3.6 billion in higher electricity prices. Senator Blumenthal’s letter follows a report by the Environmental Defense Fund containing allegations that gas distribution utilities owned by Avangrid and Eversource artificially reduced available natural gas on the Algonquin Gas Transmission Pipeline. According to Senator Blumenthal, “While the motive remains unclear, I urge FERC to immediately investigate allegations of over withholding of natural gas by these companies in Connecticut, and if it is found that market manipulation has occurred, FERC should expeditiously order a ban or other appropriate restriction on this practice and ensure that affected consumers are swiftly and fully compensated. Additionally, I request that you examine any specific pricing policies that may have encouraged such market behavior and recommend policy changes that can be enacted to prevent this occurrence from continuing in the future.”
CFTC finds that Arab Global Commodities DMCC engaged in spoofing of copper futures contracts. On October 10, the CFTC issued an order filing and settling charges against Arab Global Commodities DMCC (AGC), a proprietary trading firm headquartered in Dubai with several trading offices in India, for engaging in the disruptive trading practice of spoofing in the copper futures contract traded on the Commodity Exchange, Inc. (COMEX) between March and August 2016. The CFTC’s order finds that AGC engaged in this activity through one of its employees (Trader A), who generally spoofed after business hours when Trader A traded from home. According to the CFTC’s order, over the course of several months, Trader A repeatedly traded using the same spoofing pattern: Trader A placed one or more large orders (typically more than 100 contracts) on one side of the book, while he had a small resting order (typically fewer than 10 contracts) on the opposite side of the book, and he immediately cancelled the large order(s) when his small order got filled. The CFTC’s order requires AGC to pay a $300,000 civil monetary penalty.
FERC files response to Silkman and CES objection to magistrate’s discovery rulings in district court. On October 6, FERC responded to the partial objection filed by Richard Silkman and Competitive Energy Services, LLC (CES) to the magistrate’s ruling on discovery issues in the U.S. District Court for the District of Maine. As we previously reported, Silkman and CES objected to the denial of their request for documents regarding FERC’s decision not to pursue an enforcement action against other individuals or entities. FERC argues that the magistrate’s decision was correct because Silkman and CES are not similarly situated to the other entities, so the reasons that FERC closed its investigation of those other entities is irrelevant. Moreover, accordingly to FERC, even if Silkman and CES were similarly situated, they would not be entitled to the evidence they seek absent some evidence showing that FERC acted with illegal discriminatory intent and in a fashion that had discriminatory impact. Therefore, FERC argues that Silkman and CES failed to establish that the magistrate’s decision was clearly erroneous or contrary to law.