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JP Morgan: A New Type of Dirty Energy

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By Jen Alic, a geopolitical analyst, co-founder of ISA Intel (www.isaintel.com) in Sarajevo and the former editor-in-chief of ISN Security Watch in Zurich. Cross posted from OilPrice

As US power plants lose money, a bit of market manipulation goes a long way … ask JPMorgan Chase.

The banking giant is accused of manipulating energy prices in Michigan and California to make money-losing power plants appear more profitable to investors—and now it faces penalties from the Federal Energy Regulatory Commission (FERC), which regulates the sale of electricity.

Detailed in a New York Times report, JPMorgan Chase is accused of selling electricity to authorities in California and Michigan between 2010 and 2011 at prices calculated to appear falsely attractive.

How much did these two US states pay for this manipulate on: $83 million—that’s in excess of what they would have paid normally.

The scandal heated up in November, when FERC imposed a temporary, 6-month ban on JPMorgan’s ability to trade physical power at market-based rates, beginning in April this year. The reason: The bank failed to disclose information to FERC and the California authorities during the market manipulation investigation. JPMorgan blew off the ban with a shrug.

Word on the street is that FERC is getting a bit more serious these days, and no longer willing to turn a blind eye to this brand of market manipulation. This time, it may not be just a slap on the wrist for this banking big boy. At least, the general consensus among analysts is that JPMorgan Chase could be hit with a pretty stiff fine.

After all, it’s not the first time this has happened to California: The state’s 2000-2001 energy crisis and ensuing blackouts were the result of market manipulation for which it is still attempting to get its money back. That crisis was on Enron Corp., which manipulated the energy market and hid the evidence in some convenient accounting loopholes. It filed for bankruptcy in December 2001, its CEO, Jeff Skilling , was convicted of fraud in 2006 and sentenced to 24 years in prison. It was this scandal that empowered FERC to take more serious action against market manipulators.

FERC’s target list has grown, and if the recent past is anything to go by, JPMorgan Chase won’t get out of this one unscathed. In December 2012, FERC slapped $488 million in fines (pending) on Barclays Plc for rigging energy markets, and in January 2013 it went after Deutsche Bank for $1.6 million for California market manipulation.

In 2006, trader Brian Hunter of Amaranth Advisors lost a whopping $6.4 billion after some rather bad gambles on natural gas prices, leading to the collapse the hedge fund group in September that year. In 2007, the Commodity Futures Trading Commission (CFTC) charged Amaranth with attempting to manipulate natural gas futures between February and April 2006. Hunter was fined $30 million by FERC, and it’s not over yet. In 2011, Amaranth settled in a class action suit with investors for $77 million, along with a $7.5 million fine by the CFTC. Where it gets interesting is a little power struggle between FERC and the CFTC over how has the mandate here to deal with Hunter. Earlier this year, a US appeals court gave that mandate to the CFTC, which means that Hunter’s $30 million fine is now void.

Back to JPMorgan … even some heavy fines will just be business as usual for JPMorgan—which his used to handing out millions (if not billions) in lawsuits. According to some accounts, the bank has spent $16 billion in litigation money since 2009. This is part of its general operating expenses.

It’s also still under investigation in relation to our favorite Ponzi schemer, Bernie Madoff, whose criminal dealings the bank might have known about and failed to alert the federal authorities.

JPMorgan has until mid-May to respond to the latest FERC accusations.

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33 comments

  1. psychohistorian

    I don’t mean to sound like a broken record but when is someone at the top going to be put in jail? Until that happens to multiple of these societal perverts, the rich who hire them to be antisocial will continue to have many on offer to destroy civilization for the rich.

    Fines for criminality are operating expense, nothing more……I suspect there is a derivative for that.

    1. Teejay

      Don’t apologize for “sounding like a broken record”. Apologize for preaching to the choir. The place to be singing is to your Senator and Congressman or Congresswoman and http://www.whitehouse.gov/contact/submit-questions-and-comments/old2. And when enough people play that song long enough and loud enough then we’ll see a change. Imagine 435 Representatives and 100 Senators each getting 10,000 emails, 10,000 phone calls and 10,000 letters, ceaslessly, every day saying the same thing:” Jail time for Wall Street Fraudsters”.

      1. JCC

        Good idea, I just sent this:

        “After reading about another JPMorgan Fraud perpetrated on the people (manipulating energy prices in MI and CA) and then reading that JPMorgan has also spent $16Bil in litigation costs over the last 4 years, I think I have come up with a good solution that could possibly help the Democrat Party, the Citizens of the U.S., and possibly even JPMorgan.

        Put the people that run this company, like J Dimon for example, in jail! Not only will it make you look good, for a change, but it will save both the U.S. Citizens and JPMorgan a tremendous amount of money during these Hard Times.

        Hope this helps.”

        Think anyone will listen?

        1. banger

          To paraphrase Stalin: how many divisions have we got to prosecute Dimon? He’s far more powerful than the President or anyone else in government. He, along with his connections, are too powerful to touch. If someone were to try and f!ck with them they would die in an airplane crash, have a heart-attack or be caught with a prostitute or whatever and everyone knows this that is close to power.

          Let me spell it out here: these guys are untouchable, end of story. There is no scenario that is remotely possible to get to these guys–and look how people easily turned away from the Occupy movement that was trying to focus attention on the very issues we are discussing.

          1. Nathanael

            These guys are not safe. They are not immune. They can be taken down.

            They merely *think* they are invincible. This is due to their mental illness (psychopathy most likely).

            Don’t believe them. They can be taken down and they *will* be taken down. Why? They’re arrogant and they’re stupid.

            If they knew when to stop screwing people over, they *would* be invincible, but they don’t know when to stop; eventually they will tick off one too many people. And of course they will discover that they have no friends to support them, when push comes to shove, because they’ve been such total jackasses.

            So just keep fighting on every front. They will be “nibbled to death by ducks”.

          2. banger

            @ Nathanael

            It would be impossible to take them down in a conventional way. They control the muscle and there is no organized opposition–so I just don’t get where they are vulnerable unless from members of their own family. You need a military operation to overthrow oligarchs unless they feud among themselves and the last people they will offend are the military and police.

          3. redleg

            My concern is that the lack of criminal charges (at minimum) will eventually lead to a France 1790′s outcome, where people take the law into their own hands and start applying punishment to those who deserve it and others that don’t.

    2. KnotRP

      The U.S. Department of Just Us is already contemplating letting Skilling out early.

  2. tulsatime

    Crooked bankers, jacking the numbers on a deal to enhance their return? It’s not a new thing, just that now its about the only thing. There is no honest market left, with free money hip deep and zirp to kill all small growth. A real collapse has to happen to break the social deadlock and the financial neverland that holds sway now.

  3. no_change

    Sociopaths and psychopaths will NEVER change, their condition arises due to a mind which is biologicaly different, it is hard wired, i.e. unchgangeable, even if some were to be executed the others would *STILL* continue with their sociopathy, just more cautiously.

    They know that they are cutting off their noses to spite their faces, yet continue, they have a insatiable apetite for power and money, lots of it. Humans are merely objects to be manipulated for money, humans are a commodity to these bastards. Do they care if the planet is destroyed in the process, HELL NO, pillage and plunder with no thought for the morrow.

    1. Nathanael

      It’s actually their inability to be “more cautious” (part of psychopathy) which is going to destroy them.

    1. Thisson

      Yeah, and McDonald’s also makes a profit on every hamburger they sell. I’m thinking a lot of this stuff called “trading” really isn’t.

  4. allcoppedout

    Here in the UK offshore hub one might write to one’s MP, give evidence to a select committee inquiry or start a petition to get the matter discussed – all futile. You seem more active in the USA, yet can look even less democratic than we Europeans. On most measures of access to justice the UK/US come way down the list of developed nations. Is it really worthwhile trying to boot your representatives into action? Hopeless here where we are peons of the Queen. It’s taken 23 years to out the truth on a soccer disaster and no one has been sent down (Chief Constable retired on mega-pension).
    We need the scaffolds and gibbets back and to make sure we don’t end up swinging. It’s quite obvious no deterrent acts on the banksters’ decisions. I’m afraid we need to hang some at the top and some who did little more than the obvious fraud of ppi. It’s obvious the counter clerks and telephone sales minions lack integrity and need their minds sharpened by threat of imprisonment – once we had a few of them under threat we’d get them to turn Queen’s evidence.

  5. McWatt

    There should be no speculation in utilities or commodities.

    “Catch-22 says they can do anything we can’t stop them from doing.”

    1. Susan the other

      You’re right. Commodities are the loophole. The loophole for utilities, or any other enterprise, to get around regulations. Manipulate prices and create accounting that proves you are only creating liquidity. Why don’t they look into the whole Bear Stearns-JPM debacle? The MBS fiasco. I mean as long as they are investigating “commodities” they should investigate the commoditization connection of housing. Wherein JPM “agreed” to buy Bear. Right. JPM agreed to absorb Bear only because it gave them immunity like a fecal transplant. Dependent on collusion of the system, of course.

  6. steelhead23

    While Jeffrey Skilling went to jail – along with Andy Fastow and Tim Belden barely escaped (after testifying against the other two), the entirety of the crime involved in the 2001 West Coast energy crisis was epic. Many, myself included, were stunned by the level of collusion involved. This collusion went further than trading desks and powerplant operations rooms. Natural gas availability and price were also manipulated. http://www.nytimes.com/2001/05/09/business/09GAS.html?ex=994046400&en=1809786a77861861&ei=5039

    Looking coldly at the facts, the breadth of the action, one cannot help but conclude that somewhere, probably in Houston, some very large players – the likes of Ken Lay and Jamie Dimon, drew up plans for just how to rob California blind. Adding to this successful strategy were incompetent government officials and agencies – Patrick Wood III, the FERC Chair who stonewalled panicked requests for price controls at the height of the gouging – Judi Johansen who as BPA’s Administrator inked fixed price contracts for over 3,000 MegaWatts more than BPA could produce, just before the price gouging began – eliminating the potential for federally produced power to dampen the market. Not to mention that she extended contracts to direct service industries (aluminum smelters) that, by law, were no longer eligible for subsidized electricity. Alcoa and others made a bloody fortune, laying off workers and selling that electricity into California’s lucrative market. Sorry, this is old news – but what remains germane is the phenomenal scale of collusion that occurred. Many of us, myself included, tend to believe that large-scale conspiracies simply don’t happen. Its too hard for so many folks to keep mum. I now believe that large conspiracies are possible if all players are sufficiently motivated for it to succeed ($$$) and only those at the very top know the whole story.

    1. banger

      I think the whole meme that conspiracies are impossible because it is “impossible” for people to keep quiet is nonsense. First of all, people in conspiracies are vetted and have skin in the game and everyone knows what happens if they rat, including death. Also, most operations are strictly compartamentalized–this true even of con games–you do what you do, collect your money go home and shut-up. Then when the next operation is on cool you’re in. Finally, people often do speak about conspiracies and they tend to die or are ignored by the mainstream media and law-enforcement–whether FBI, regulators or regular cops. People have a bizarre idea the understand crime in this country because they watch police shows where the authorities always get their man no matter how clever. Well, in the real world, it is not that hard to get away with murder or anything else if you’re reasonably smart and work with professionals.

      The California energy crisis was a partial conspiracy and a virtual conspiracy at the same time. Some people knew “something” was going on and were given nudges and winks to participate (the way Wall Street does real insider trading) and the rest is history. Look at the 2008 crash–many people on Wall Street (so I was told before the crash) knew specifically what was going and why it WOULD crash they just didn’t know the exact date–they were just riding the bubble for as long as possible.

      There are three reasons for this atmosphere of fraud that dominated the financial world: 1) the repeal of Glass-Steagal and other “reforms”; 2) 9/11 caused law-enforcement to concentrate on a phony terrorist threat; and 3) the California energy crisis was not properly reported on in the mainstream media and little was done to get to the bottom of it by law enforcement meaning that big-operators, if they weren’t too obviously criminal as Enron was (and always was) that they could get away with anything somewhere near the borderline of legal.

      1. steelhead23

        Thanks for your comment Banger. I made a bit of a hobby of this event and have been accused of sporting an aluminum foil chapeau for reciting the facts above. Good to see I am not alone.

        1. banger

          I just re-read my comment and it seemed incoherent. I had to go out so I wrote it very quickly. But I find this fear of conspiracy to be, perhaps, the most toxic idea that the American intellectual elite hold.

          Normally Americans, like every other population, accepted the notion of conspiracy but it wasn’t until people started criticizing the Warren Commission Report in 1964 that it became fairly normal to describe all who questioned it as “kooks” and paranoiacs.

          Look, there’s a lot to say on the subject but I’ve said many times before that unless the left embraces the facts about what Peter Dale Scott called “deep politics” they are little better than the Stasi Opposition in East Germany. For me, this self-castration of the left is the single most important cause of the rise of the right and the complete take over of Washington by the financial elite.

      2. Nathanael

        Banger: all of the conspiracies I know about are ones where, at one time or another, people involved were really pretty open and blatant about what they were planning and who they were conspiring with.

        So I agree with you. Conspiracies simply don’t require secrecy. All they require is bloviation — making such large clouds of fog that people don’t pay attention to the whistleblowers.

        In the case of Enron, there were LOTS of people pointing out that there was something extremely fishy going on.

  7. banger

    This is the problem with current laws. When corporations break laws they pay fines–you cannot jail a corporation. Two things need to change: 1) corporations who are scofflaws should be prosecuted under racketeering laws and their assets liquidated by the Court; 2) corporate officers should be convicted and jailed for advocating fraud and criminality and not hide behind the corporate shiel, i.e., the corporation would not be allowed to cover any legal expenses and so on.

    Our problem today is that we no longer have what we once prided ourselves in “rule-of-law.” Now the law has always punished the poor and rewarded the rich–but not to this extent where, in my view, the law, as applied to the powerful, has ceased to matter and it has also largely ceased to matter for civil liberties and international treaties.

    1. McMike

      I’d be happy if they lost their ability to get government contracts or take subsidies.

      And they should lose their right to “vote”, just like other felons. i.e. no more contributions.

      As a side note, it is interesting to me that conservatives are largely silent on states rights/federalism when it comes to corporations; they are laregly unequivocal advocates for a single federal level standard and set of rules.

      1. banger

        I don’t quite agree. I would say that the libertarian right is largely incoherent about the whole issue of corporations and corporate excesses other to say that the government at any level should stay out of the market. They believe that monopolies are caused by government imposing structure and limitation on the market and they oppose all anti-monopoly acts passed by Congress. I actually don’t believe they’ve thought it out beyond that. Of course, as a practical matter, what we will have if the libertarians win (which I think is likely) is some kind of neo-feudal society.

    2. Nathanael

      Legally, corporations can have their charters revoked for criminal activity. For some reason, judges have failed to do this.

  8. McMike

    Lessee, the banks get free cash from the Fed and they get carte blanche from the feds, they directly own critical pieces of the energy physical infrastructure, they sell wholesale electricity to government agencies for retail distribution, they control exchanges and handle electronic traffic, they broker commodity hedges and energy investments for clients, and they speculate on commodities (on margin) for their own book, and their principles and agents speculate on energy for their own personal accounts….

    Geepers, what could possibly go wrong with that?

  9. charger01

    Nice to hear that FERC has the cajones to poke the TBTF energy speculators. I’m still shocked that Goldman (j. Aron) and others still have the broad ability to speculate in commodities such as electricity markets. The little utility companies (and big ones, Puget Sound Energy, Duke, NV energy) are getting killed on their long term contracts and hedges. If Matt Taibbi hadn’t covered the rampant manipulation in the commodity markets last year, I would still be scratching my head. We, the ratepayers, desperately need to have FERC and the CFTC (cough cough Bart Chilton) actively observe the market and submit trial balloons to catch the manipulation in the market. It’s making liveincreasing more expensive without providing any net benefit except for those on the skim.

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