JPMorgan Chase & Co. (JPM:US) manipulated power markets in California and the Midwest from September 2010 to June 2011, obtaining tens of millions of dollars in overpayments from grid operators, the U.S. Federal Energy Regulatory Commission alleged today.
The agency said in a Notice of Alleged Violations that it had preliminarily determined a JPMorgan trading unit had engaged in eight manipulative bidding strategies.
The New York-based bank has agreed to sanctions including a fine of about $400 million in a settlement that may be announced as early as tomorrow, according to a person familiar with the case who asked not to be identified because the terms aren’t yet public. Other sanctions may include forfeiting profits, this person said.
Brian Marchiony, a JPMorgan spokesman, declined to comment on the FERC action.
The case marks another setback for the biggest U.S.-based bank, which sailed through the 2008 financial crisis without a single quarterly loss. Last year JPMorgan lost more than $6.2 billion from wrong-way derivatives bets placed by traders in London. The incident prompted a U.S. Senate investigation, the departure of two senior executives and a debate over whether Chief Executive Officer Jamie Dimon should keep his chairman role. In May shareholders re-elected him as chairman.
JPMorgan said July 26 it may sell or spin off its physical commodities business including energy trading, three days after a congressional hearing examined whether banks are using their ownership of raw materials to manipulate markets.
Commodities chief Blythe Masters oversees the unit, J.P. Morgan Ventures Energy Corp. The wholly owned subsidiary trades and holds physical commodities, including agricultural products, metals and energy, as well as derivatives.
The FERC in November revoked a JPMorgan energy-trading unit’s right to trade power for six months after accusing the firm of providing misleading information to regulators. The suspension, which took effect in April, marked the first such sanction for an active market participant.