The settlement comes as JPMorgan announced plans to get rid of its commodities unit, five years after Masters built it back up again, and also a few days after media reports suggested Goldman Sachs, JPMorgan, Morgan Stanley MS -0.88% and others were manipulation key commodity markets including aluminum and copper. After buying the failing Bear Stearns in the heat of the financial crisis in 2008, the bank run by Jamie Dimon inherited the rights to control the output of several antiquated power plants, some of them built in the 1950s and ‘60s which were inefficient to the point where they were out of the money, FERC explained. These came under the purview of Blythe Masters, JPMorgan’s global head of commodities and one of the bank’s top executives. The specific management of these landed in Francis Dunleavy’s lap, a former Bear Stearns employee, who supervised former Bear man Andrew Kittell and John Bartholomew who was familiar with the California market due to previous experience at SCE, a utility in the area. Saddled with loss producing assets, the team at the Houston-based principle investments unit developed several bidding strategies which turned out some juicy profits. Reporting directly to Masters, Dunleavy and his team showed how “asset optimization strateg[ies]” managed to turn out tens of millions of dollars in profits from units that lost millions at market rates. Said strategies were devised specifically to obtain above-market payments through bids that falsely appear economic to automated systems, sending low priced bids for wholesale energy and triggering compensation systems that resulted in higher electricity prices for rate payers and nice profits for JPMorgan. Many of the plants were operated by the California Independent System Operator Corporation (CAISO), the same types of units being manipulated by Enron in the early 2000s. JPMorgan has agreed to pay a civil penalty worth $285 million, and return $125 million in “unjust profits” which will go to ratepayers in California and Michigan, and to make annual reports to the commission for three years. The settlement follows a string of victories by FERC which extracted payments from Deutsche Bank DB -4.92% and Barclays recently. The bank also managed to avoid personal sanction to its employees, including Masters, who was reported to be in their scope.
Posted on: Wed, 31 Jul 2013 06:30:02 +0000
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