Following Barclays' fine of $453 million by FERC for manipulating electric energy prices in California (and other other Western markets), it seems the price of infamy is weighing heavy on Blythe Masters' overlords at JPMorgan in yet another derivative debacle for the "I invented CDS" queen. As we discussed in great detail here, FERC's investigations into JPMorgan's actions saw them pursuing actions against the firm and Ms. Masters.
In recent weeks settlement rumors have been heard and now as the NYTimes reports, it appears - in light of last year's PR and P&L 'London Whale' disaster - the best-CEO-in-the-entire-world-so-there is preparing to settle to the tune of $500 million to keep Blythe out of jail. To settle Ms. Masters' alleged “manipulative schemes” that transformed “money-losing power plants into powerful profit centers,” and then her giving “false and misleading statements” under oath, must mean she has some serious dirt on Jamie (and his fortress balance sheet and best-in-class risk management).
And sadly, as always happens when a TBTF bank and its employees are involved, our cynicism two months ago was well-placed:
"JPM can only hope that its guy at the SEC, Andrew Ceresney, who happens to be in charge of the porn-addicted agency's "enforcement" division, has just enough clout to make that other regulator, the FERC forget all about its inquiry, and its factually-justified allegations." Since for JPM $500MM is lunch money, it is informative to see that once again, the blindfold covering the eyes of Lady Justice, has slipped just a bit.
Via NYTimes' Dealbook,
JPMorgan Chase is aiming to settle accusations it devised “manipulative schemes” that transformed “money-losing power plants into powerful profit centers,” a deal that is expected to cost the bank, the nation’s largest, about $500 million.
Investigators for FERC sent the document to the bank in March, a preliminary warning that they intended to recommend that the agency pursue an action against JPMorgan and the executive, Blythe Masters...
...outlined a pattern of illegal trading in California and Michigan electric markets. The document also claimed one of JPMorgan’s most senior executives gave “false and misleading statements” under oath.
...the people briefed on the matter said, ultimately leading to settlement talks in recent weeks.
A spokeswoman for the bank declined to comment. FERC also declined to comment.
Under “pressure to generate large profits,” FERC’s investigators said in the March document, traders in Houston devised a workaround. Adopting eight different “schemes” between September 2010 and June 2011, the traders offered the energy at prices “calculated to falsely appear attractive” to state energy authorities. The effort prompted authorities in California and Michigan to dole out about $83 million in “excessive” payments to JPMorgan, the investigators said.
“Any such improper payments to generators are ultimately borne by the households, businesses and government entities that are the end consumers of electricity,” FERC said.