The U.S. Federal Energy Regulatory Commission has accused JPMorgan Chase & Co. for manipulation of the power market. The agency alleged in a ‘Notice of Alleged Violations’ that it has reached on to the conclusion after preliminarily analysis/inquisition that a JPMorgan trading unit was involved in at least eight manipulative bidding strategies.
The agency further alleged that manipulating activities of JPMorgan Chase & Co. (JPM) in California and the Midwest started from September 2010 and lasted till June 2011 wherein they obtained tens of millions of dollars in overpayments from grid operators. Thus, this formally coming from the U.S.’ top energy regulator does not auger well for JPMorgan Chase & Co.
The government agency’s allegation that JPMorgan Chase manipulated energy markets, according to several market observers is just a pretext for a multimillion-dollar settlement which is all set for execution in the next week. The market observers believe that the deal is expected to help JPMorgan ward off a clash with the agency.
The agency earlier accused JPMorgan Chase & Co. that the latter orchestrated trading strategies to turn inefficient power plants into profit centers. The bank however denies all allegations of any such activities and defending its professionals who were taking care of the business and envisaging the trading strategies.
How It All Started?
JPMorgan Chase & Co. purchased Bear Stearns in 2008 as the latter was failing in its global financial operations. Bear Stearns had some power plants in its assets which went to JPMorgan Chase via the sell and the latter got the rights to sell electricity from these. Now, the government agency accuses JPMorgan that to transform the power plants into profit generators, its traders adopted eight different ‘schemes.’
The agency alleges that JPMorgan’s ‘scheme’ from September 2010 to June 2011 drove the prices of electricity up. According to the agency the executives in the bank provided the prices that appeared attractive which prompted the authorities in California and Michigan to make excessive payments that drove the prices higher for electricity.
A Major Setback for JPMorgan
According to some sources the settlement with the government could cost the bank as much as $500 million. Thus, the bank which sailed through the 2008 financial crisis without a single quarterly loss may have to pay a hefty amount now to the government to avoid any clashes. For so many people, the entire episode reminds them of the Enron scandal.
To contact the reporter of this story: Jonathan Millet at firstname.lastname@example.org