J.P. Morgan will be forced to pay $410 million after the banking giant settled a lawsuit with the Federal Energy Regulatory Commission (FERC) today.
The agreement settles allegations that J.P. Morgan manipulated electricity markets in California and the Midwest. The accusations stem from J.P. Morgan’s 2008 acquiring of several power plants from power company Bear Sterns. The acquired plants were dated and inefficient. But through several profit schemes, J.P. Morgan was able to make falsely attractive energy offers to state energy departments in California and Michigan. Eventually, however, the state departments were forced to start making higher payments to J.P. Morgan, which ultimately drove up energy prices for residents of the states.
As part of the settlement, J.P. Morgan must pay a civil penalty of $285 million to the FERC. The bank will also pay $125 million in unjust profits to ratepayers in California and Michigan.
“We are pleased to put this matter behind us,” said Brian Marchiony, a spokesman for J.P. Morgan. “Due to reserves previously set aside, this settlement will not have a material impact on earnings.” The bank “neither admits nor denies the violations.”
A notable outcome of the settlement is the FERC’s decision not to prosecute individual J.P. Morgan executives. Earlier in the investigation, the department said it planned to hold three of the bank’s employees “individually liable” for the situation.
But FERC Commissioner Tony Clark is still calling the settlement, which is the largest in the FERC’s history, a success. After calling the case “eye opening”, Clark says the agreement “sends a strong signal that market manipulation is being taken seriously.”
“While in a settlement no one gets everything he or she may have wanted, this one meets the test of transparency, timeliness, significance and prudency,” Clark added.
The settlement is the latest against a major bank for the FERC, which recently vowed to ramp up its monitoring of Wall Street trading. In January, the FERC reached a 1.6 million settlement with the Deutsche Bank for market manipulation in California. More recently, the commission ordered Barclays to pay $470 million for market manipulation in California as well. Unlike J.P. Morgan, Barclays is appealing the FERC’s fine.