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British Bank Slammed for Allegedly Gaming California Power Market

By Chris Clarke
November 5, 2012
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Barclays stands accused of gaming the California grid Enron-style | Photo: Blue387/Flickr/Creative Commons License

The U.S. Federal Energy Regulatory Commission (FERC) last week gave Barclays, the British-based banking and financial services firm, 30 days to show cause why it shouldn't be forced to pay $470 million in damages and fines over the company's alleged gaming of the California electrical power market. The market tampering is alleged to have taken place over a 35-month period between 2006-2008, and is said to have cost other market participants upwards of $130 million, while enriching Barclays to the tune of about $35 million.

FERC also ordered four former Barclays traders -- Daniel Brin, Scott Connelly, Karen Levine, and Ryan Smith -- to show cause within 30 days why they should not be required to pay an additional $18 million in fines.

The allegations involve the four traders making money-losing deals to sell power so that their firm would profit in a related derivatives market. Barclays documents quote the traders as boasting that the four would "crap on" the first market so as to drive up gains in the second.

For Barclays' part the bank says it intends to fight the fines, claiming that its traders -- all of whom have since left the bank -- were merely engaging in braggadocio. Barclays left the California power trading market in 2011.

This isn't the first scandal in which Barclays has been embroiled in recent months: the firm came under worldwide criticism for its role in the Libor scandal, in which Barclays was fined hundreds of millions of dollars by U.K. and U.S. agencies for manipulating worldwide interest rates by submitting false information to the U.K.'s leading interest rate database. The manipulations affected financial costs worldwide, including U.S. mortgages and student loans.

FERC's action against Barclays comes just weeks after the Commission slapped a similar show-cause order at the U.S. financial services giant JP Morgan Chase for allegedly abusing the California Independent System Operator's bid cost recovery program in order to generate over $50 million in revenue per month. Also in September, FERC issued another order targeted at Deutsche Bank Energy Trading LLC for a smaller alleged manipulation of the California market.

The proposed Barclays fine may be the largest the Commission has ever levied on a power marketing firm. Whether that turns out to be the case, the allegations are certainly more support for criticism that the Pete Wilson-era partial deregulation of the California power market, which has been plagued by scandal and manipulation since the Enron days, is overdue for a major restructuring.

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