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Barclay Traders Facing Heat from FERC

Energy markets have become an important area of governmental regulation.  The Federal Energy Regulatory Commission (the FERC) is an agency that regulates, monitors and investigates energy markets in the United States.  It was created by the Department of Energy Organization Act of 1977, and strengthened with the Energy Policy Act of 2005 signed into law by President George W. Bush.1 This Act, created in response to the Enron scandal, gave the FERC an investigatory unit and the ability to levy significant fines for infractions.  Further, this unit has received a 50% increase in funding under the Obama Administration.  Because many of the large banks and investment firms have expanded into the energy markets, they have put themselves under the watch of the FERC.2

Previously, the FERC has taken action against both JPMorgan Chase and Deutsche Bank, and recently filed a claim against the British multinational banking company, Barclays.3 On October 31, the FERC threatened Barclays with its largest fines for a bank thus far, seeking a $435 million civil penalty and $34.9 million in ill-gotten gains for manipulation of energy markets in the western United States.4 Further, the FERC is seeking $18 million from four traders who have all since left Barclays.5 The bank is still recovering from punishments assessed by American and British authorities related to its actions in rigging the London Interbank Offered Rate, or Libor.  Those actions cost the bank $450 million in penalties and led to Barclays firing its CEO, Robert Diamond.

According to the FERC, the alleged manipulations occurred between late 2006 and 2008.  The Commission says that traders for Barclays intentionally took losses on trades in the physical markets to make gains in the financial markets.  Certain bets made by Barclays were tied to energy prices in the physical markets, and by artificially suppressing prices there, Barclays would see significantly higher gains in the other areas.  Though the mechanisms are complex, the FERC believes that certain emails among traders may prove especially detrimental to any potential defense Barclays tries to make.

During this period the commission claims Barclays lost $4 million in the physical markets, which were offset by $35 million in gains on financial contracts.6 Barclays, in a November 1st statement, said that it strongly disagrees with the allegations and that is has fully cooperated with the FERC investigation.  Barclays stated that its trading was completely legal and legitimate.  Barclays “intend[s] to vigorously defend this matter.”7

Though Barclays is facing the most significant penalties, both JPMorgan Chase and Deutsche Bank are planning on fighting the FERC’s allegations.  These two banks are facing smaller punishments – Deutsche Bank is facing only a $1.5 million fine – both are willing to fight the FERC.  Typically firms will seek settlements with regulators to quickly resolve scandals.  However, the banks fear that this could be the beginning of a regulatory battle with a new agency; if the FERC’s threats are not challenged, they may set a precedent that could plague them and their bottom lines for years to come.3 If the banks do not defend themselves against these early threats, they may open the floodgates to much more litigation and punishment in the future.

Should the banks choose to fight the FERC, they are not facing a quick solution.  Experts have said that it could be a few years before Barclays would pay any fines.  Barclays will have until the end of November to respond to the FERC, and then Barclays will wait up to 60 days for the FERC to decide if they will impose fines.  From there it would likely go to an administrative law judge or federal court.  If it goes to an administrative law judge the hearing would likely take a year, with re-hearings potentially dragging the case another year before it would be appealable in a federal court.4 Given the financial institutions’ incentives to defend themselves and the FERC’s goals to eliminate or reduce these forms of fraudulent trading, it appears both sides will likely be in it for the long haul, each facing many months of litigation before the issue is settled.

— Matt Evans is a General Member of MJEAL.

The views and opinions expressed in this blog are those of the authors only and do not reflect the official policy or position of the Michigan Journal of Environmental and Administrative Law or the University of Michigan.


1. ENERGY POLICY ACT OF 2005, PL 109–58, 119 Stat. 594 (2005).

2. Overview of the FERC, About FERC (Nov. 11, 4:11 PM), available at; Ben Protess & Michael J. De La Merced, FERC Takes Aim At Wall Street, The New York Times Deal Book (Nov. 11, 2011, 3:34 PM), available at

3. Ben Protess & Michael J. De La Merced, FERC Takes Aim At Wall Street, The New York Times Deal Book (Nov. 11, 2011, 3:34 PM), available at

4. Cezary Podkul & Jonathan Leff, Analysis: Barclays Set to Fight FERC Over Branking, Not Rigging, Reuters (Nov. 11, 2011, 3:56 PM), available at

5. David Entrich, Barclays Faces $435 Million Fine, Another Probe, Wall Street Journal (Nov. 11, 3:45 PM), available at

6. Peater Eavis, How Barclays Allegedly Took Losses to Make Bigger Gains, The New York Times Deal Book (Nov. 11, 2011, 3:35 PM), available at

7. FERC Notice – Barclays Statement, Press Releases (Nov. 11, 2011, 3:56 PM), available at

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