News that the US Dept of Justice is investigating JPMorgan‘s energy trading business comes after the recent Federal Energcy Regulatory Commission (FERC) settlement with JPMorgan, and means the company and key executives might not be off the hook. Remember that, in the biggest market manipulation case since Enron, FERC only fined JPMorgan $285 million, or 1.3% of the company’s 2012 profit, and ignored its Enforcement Staff request to sanction Blythe Masters and other key JPMorgan execs for giving “false and misleading statements” under oath. FERC’s failure to hold JPMorgan accountable for manipulating energy markets allowed the company’s reps to boast to the Wall Street Journal that the FERC settlement was a “victory” for the company. We suspect that FERC may have gone easy on JPMorgan in exchange for the company making an announcement days before the settlement that it would exit the commodity business.
If true, this sets a dangerous precedent. Reducing penalties & sanctions against JPMorgan in exchange for its selling its business provides the company with a valuable windfall: they are free to sell, at a profit, a business involved in market manipulation. In contrast, a FERC action revoking the subsidiary’s market-based rate authority would punish the company and reduce the value of its holdings – a fitting action for manipulating markets and harming consumers. And allowing key executives – such as Blythe Masters, JPMorgan’s head of Global Commodities, whom investigators earlier accused of making “false and misleading statements” under oath – to escape sanction enables her and others to trade commodities and potentially manipulate markets at another firm.
The weak settlement is particularly troubling because FERC’s enforcement staff recommended a civil fine and profit disgorgement totaling $1 billion. So it’s welcome news that DOJ may agree that FERC’s enforcement is inadequate. It’s reminiscent of the 2010 and 2011 DOJ anti-trust actions against Morgan Stanley and Keyspan for electricity manipulation, resulting in a $12 million fine for Keyspan and a payment of $4.8 million by Morgan Stanley.
But the DOJ must also examine whether Blythe Masters violated criminal laws against making false statements and committing perjury. And if it turns out that Ms. Masters committed perjury and made false statements, then JPMorgan violated the terms of its recent deferred prosecution agreement in which the company pledged it would respond “truthfully and completely” to subpoenas or investigative demands by other government agencies. The deferred prosecution agreement, by the way, was to settle anti-trust violations related to JPMorgan’s “bid-rigging” of municipal bonds.
FERC failed in its enforcement action to protect consumers and send a message to corporate wrongdoers. Let’s hope the Dept of Justice makes it right.
Tyson Slocum is Director of Public Citizen’s Energy Program. Follow him on Twitter @TysonSlocum