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How JPMorgan Rushed To Hire Trader Because He Knew How To Rig The Electricity-Market
Submitted by Paul Martens via Wall Street on Parade blog,
On April 29, 2010 at 7:47 in the evening, Francis Dunleavy, the head of Principal Investing within the JPMorgan Commodities Group fired off a terse email to a colleague, Rob Cauthen. The email read: “Please get him in ASAP.”
The man that Dunleavy wanted to be interviewed “ASAP” was John Howard Bartholomew, a young man who had just obtained his law degree from George Washington University two years prior. But it wasn’t his law degree that Bartholomew decided to feature at the very top of the resume he sent to JPMorgan; it was the fact that while working at Southern California Edison in Power Procurement, he had “identified a flaw in the market mechanism Bid Cost Recovery that is causing the CAISO [the California grid operator] to misallocate millions of dollars.” Bartholomew goes on to brag in his resume that he had “showed how units in reliability areas can increase profits by 400%.”
The internal emails at JPMorgan and Bartholomew’s resume are now marked as Exhibit 76 in a two-year investigation conducted by the U.S. Senate’s Permanent Subcommittee on Investigations into Wall Street’s vast ownership of physical commodities and rigging of commodity markets. Senator Carl Levin, the Chair of the Subcommittee, had this to say about the resume at a hearing conducted on November 21:
“There’s two things that I find incredible about this. First, that anyone would advertise in a resume that they know about a flaw in the system — signaling that they’re ready and willing to exploit that flaw. And, second, that somebody would hire the person sending that signal.”
JPMorgan not only hired Bartholomew, according to the Senate’s findings, but within three months from the date of the email to Dunleavy, “Bartholomew began to develop manipulative bidding strategies focused on CAISO’s make-whole mechanism, called Bid Cost Recovery or BCR payments.” By early September, the strategy to game the system was put into play. By October, the JPMorgan unit was estimating that the strategy “could produce profits of between $1.5 and $2 billion through 2018.”
The strategy of gaming the Bid Cost Recovery payments, or BCR, was producing such windfall profits that another JPMorgan employee sent an email on October 22, 2010 to his colleagues, joking about the success by featuring a photograph of Oliver Twist holding out an empty bowl with the subject line: “Please sir! mor BCR!!!!”
During the Senate hearing, Senator Levin commented on the email and the reference to Oliver Twist, stating:
“Now the BCR refers to the make-whole payments that JPMorgan was using to unfairly profit from the system. And I gotta tell you it’s mighty offensive to me that JPMorgan portrays its actions as a joke, comparing itself to a poor orphan needing charity when it was ripping off consumers.”
The legal entity that carried out the strategy on behalf of the Commodities Group was JPMorgan Ventures Energy Corporation or JPMVEC. The voluminous report that was released simultaneously with the Senate hearings, explains the method JPMorgan used to rig the market as follows:
“As part of the strategy, in the Day Ahead market, JPMVEC submitted the lowest bid allowed under CAISO rate schedules. The bid was generally at the rate of -$30 per megawatt hour, which meant that JPMVEC was offering a negative bid and was willing to pay the buyer to take the electricity, despite the costs involved in producing it. Its bids were reviewed by electronic software, which did not grasp the intent behind JPMVEC’s below-cost bids. JPMVEC’s -$30 bids were well below where the Day Ahead Market actually settled, which was typically in the positive range of $30 – $35 per megawatt hour, so the bids routinely secured Day Ahead awards from CAISO. JPMVEC was then given a Day Ahead award at the prevailing market price regardless of its initial low bid price. In addition, its traders knew that if JPMVEC won a Day Ahead award, JPMVEC could also qualify for a BCR payment on its minimum load equal to twice its costs, resulting in a total payment well in excess of market prices.
“In essence, JP Morgan sold high priced electricity to CAISO, received a BCR payment equal to twice its costs, and also received a payment at the prevailing marketplace price for the electricity provided – in effect, it was paid three times for the same electricity.”
After CAISO and MISO, the Midwest grid operator, began to file complaints with the Federal Energy Regulatory Commission (FERC), an investigation commenced and was eventually settled on July 30, 2013 with JPMorgan agreeing to pay a total of $410 million in penalties and disgorgements, a small pittance for a Wall Street bank that had $18 billion in profits in 2013.
The FERC settlement document notes that: “During the relevant period, Dunleavy was one of eight direct reports to Blythe Masters, the head of JP Morgan’s Global Commodities Group. Starting in 2010, Dunleavy supervised Andrew Kittell and John Bartholomew, including with respect to bids developed by Principal Investments into CAISO and MISO.” To this day, none of the JPMorgan employees who engaged in the strategy have been charged by regulators or prosecutors. Dunleavy retired in 2013; Masters no longer works for JPMorgan. The status of Kittell and Bartholomew is unknown.
Senator Levin also brought out during the hearing that while JPMorgan was being investigated, it continued to engage in other manipulative electricity schemes, a total of 11 in all. The Senate report noted that FERC officials told the Subcommittee “that in the years since Congress gave FERC enhanced anti-manipulation authority in the Energy Policy Act of 2005, the CAISO and MISO regulators had never before witnessed the degree of blatant rule manipulation and gaming strategies that JPMorgan used to win electricity awards and elicit make-whole payments.”
The two-year Senate investigation was multi-faceted. It looked at the heretofore vast secret holdings of physical industrial commodities, power plants, pipelines, oil storage terminals and aluminum warehouses owned variously by JPMorgan Chase, Goldman Sachs or Morgan Stanley; at how related commodity markets have been rigged or could potentially be rigged by owning these assets while making massive trades in financial instruments related to them; and why the Federal Reserve, charged with ensuring the safety and soundness of banks, had not seen the potential for catastrophic bank losses from pipeline ruptures or tanker oil spills or power plant explosions.
Daniel Tarullo, a member of the Board of Governors of the Federal Reserve, testified at the second day of Senate hearings. Tarullo said the Federal Reserve has put the issue out for public comment. His written testimony said that the request for public comment has thus far elicited 16,900 form letters and 184 unique responses. Tarullo further indicated that the issue of the potential for catastrophic losses is being carefully looked at by the Federal Reserve.
According to the Senate report, at one point in 2010, JPMorgan “owned or had rights to the energy output of 31 power plants across the country.” The Senate report also found that when JPMorgan acquired its power plants, it did not have authority to own or operate them. The Federal Reserve eventually authorized JPMorgan “to enter into tolling agreements, energy management contracts, and long-term supply contracts with power plants,” but it did not authorize JPMorgan to outright own power plants. In response, JPMorgan asserted that it could retain direct ownership of three power plants under its merchant banking authority.
The Senate report quotes from a Federal Reserve examination document that criticizes JPMorgan’s position. It states: “JPM has pressed on the boundaries of permissible activities including integrating merchant banking investments into trading activities and pursuing activity that may appear ‘commercial in nature,’ as well as pushed regulatory limits and their interpretation.”
The Subcommittee also noted regarding the three power plants that JPMorgan continues to own that “U.S. federal law attaches liability for catastrophic environmental events to both owners and operators. By choosing to become the direct owner of the three power plants, instead of holding tolling agreements with them as permitted under its complementary authority, JPMorgan has increased the financial holding company’s liability for damages, should disaster strike. Even well–run power plants carry catastrophic event risks. If the worst case scenario should occur, JPMorgan should be prepared to cover the potential losses, without U.S. taxpayer assistance.”
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We h4x0r3d some f0ljk$.
Like when I clicked on this link 3 times...
This is the 2nd time in a mth this has happened..
The requested URL cannot be provided.
URL:
http://www.zerohedge.com/news/2014-12-03<...>Blocked by Web Anti-Virus
Reason: phishing URL
Click here if you believe that the web page was blocked in error.
Detection method: heuristic analysis
Phishing at the hedge, what a disappointment
"another JPMorgan employee sent an email on October 22, 2010 to his colleagues, joking about the success by featuring a photograph of Oliver Twist holding out an empty bowl with the subject line: “Please sir! mor BCR!!!!"
If that guy doesn't read ZH, I'll eat my hat.
I'd also like to know where the guys were at So Cal Edison procurement as BILLIONS of dollars were lost for YEARS and they never noticed. Those guys sound about as useful as SEC employees.
That's why Jamie is richer than you.
Absolutely correct.
"You" have been relentlessly programmed almost from birth to "behave", and "be respectful of your "betters" / Seniors / Officialdom". Be honest, work hard, and "you will surely do well".
"They" (the likes of Blankfein, Dimon, Geithner, and all the other alumni of "The Revolving Door Club") had a far, far different upbringing. your upbringing where "what you can do for Society and Humanity" was regarded as important being replaced by "How you can get far, far ahead with minimal effort, and minimal (effectively zero) risk, by being born to families with "connections", and by being placed in Universities where others will provide you with further connections."
Seen this before haven't we. In the so-called "Dark Ages"
My, haven't times changed (not) . . . . . .
It was funneled to Ken Lay's private island where he sits frustrated that he can't be fucking over old women and single moms any more and has to just sit on his yacht and wait for the human traffickers to bring him another boy...
I thought Kenny Lay was dead.
Wishful thinking?
Man, whatever. Fuck this system. If I knew of a flaw that I could use to pull millions of dollars out of this decaying carcass you bet I would exploit it. Everyone should take whatever the fuck isn't glued down while they can. It's Ferguson on a mass full spectrum global scale. Loot the shit out of this bitch because it's already on fire.
lol.
I am Chumbawamba.
And, son, that was what ultimately brought down the system.
But didn't they know it, Daddy? Didn't they know that they were eating Soylent Green?
They didn't care, son. They just wanted theirs...
Poor chumba, his center couldn't hold...
bringing down the system is a good thing.
i'm happy to do what i can to help bring down the system even if it doesn't benefit me financially.
remember, remember, the 5th of november!
Chimp out dude!
A bullet isn't good enough for these fuckers. They need to suffer
How bout 2 bullets then and we shoot 'em in the knee caps first?
I'm going to dull up my guillotine's blade tomorrow.
An American, not US subject.
I got an axe that swings from the ceiling like a pendulum, dropping a quarter inch with each swing. Gonna rope those bastards down to my stone tabletop and watch 'em try to suck their lardy guts in until they can't hold 'em in any more...
I have some better silver bullets for them.
"JP Morgan...We make money the old fashioned way..We exploit loopholes and then legally cheat others and steal it."
When all you know is usury....it's just bizness as uzual
(and then we just pay the fine because the amount is nowhere near the amount of money we siphoned, in other words, great ROI)
Where's Yelptrade they should be in on this with their $70K a month part timer hookers..
"We make money the Zionist way...we steal it, and then steal it again, and again, and again..."
An American, not US subject.
hang them to the the tree
Hunger games...
Surely you don't believe that the retail price of electricity is directly related to where supply intersects with demand?
California is the one rigging the electricity market here. This guy just identified the best way to take advantage of CA's market rigging.
When government rigs markets, it's called 'regulation.'
In California's case (electricity market restructuring in the 1990's) it was called "deregulation" which of course really meant a boatload of new regulations isolating wholesale and retail markets from each other and price caps that effectively made cheap electricity, at all times under all conditions, a human right.
Add to that all kinds of enviromental pressures and regs resuting in the importation of power generated out-of-state and you're basically begging for interested parties with brains and resources to game the hell out of the system.
That was 2000-2001. Clearly California is still willing to shoot itself in the foot here.
Yes utility markets need sensible regulation and yes the Ken Lays/Bartholomews of the world are moustache-twirling villians but it's still not smart to leave your purse on top of your car in the big city even though it's illegal for some to steal it.
It was worse than that as the design of the Californian market was fundamentally flawed from the start. I was involved in the UK's electricity market and contributed to the development of the Australian energy market. Privatinsation and the so called 'markets' don't work - open to gaming, inefficient, cartels form, costly regulation, no private company will build a 2,000MW power station without public guarantees, etc.
you hit the nail on the head Nexus. Power should not have been deregualted, all that was needed was a mechanism for off grid generators to sell into the grid any excess power they had. typically cogen units at refineries
It might have been called 'deregulation' but in fact it was 'Enron' tearing a page out of the Economic Hitman, and bribing, cajoling, forcing the legislature to write these loopholes.
Why they never corrected the Enron mis-regulation, I don't know... Because California, maybe.
When competition is created, it’s called Sanctions against Terrorism Acts of Evil doers. The Monopoly is going to spiral south. Free market enterprise myth is a fart in the wind.
Free enterprise is not a myth.
You're twiddling your fingers on the fruit of one of its biggest bumper crops.
Capitalism is a fruit, not under this administration. Twiddle your fingers.
Little Obama Rascals
I just saw this on CNN! But it wasn't a racial issue, so they went to commercial.
You must of been channel surfing within the gallup poll of 20 veiwers outside airports and hotels.
Screamed in the best James T. Kirk "Wrath of Kahn" voice: "ENRON!"
Technology! You think gezers with green eye shades would have let this happen?
A corporate charter, by law, is granted in the public interest. JPMorgan Chase's charter would be revoked if ours were a nation of laws.
And this stuff is still going on with the grid contracts...look at this one..it's not JP Morgan but another group figured out how to rip the money out. Quants are doing it here out doing the quants at power companies on congestion contracts, so no savings to consumers.
Rigging electricity...
http://ducknetweb.blogspot.com/2014/08/quant-run-investment-companies-cashing.html
Tyler, please forwArd this post to Jamie's daughter ASAP !!
Burn baby, burn. Enron
Nikola Tesla
http://therev67.tripod.com/tesla/
what happen to ENRON they did the same?
Jamie Dimon wears the Presidential cufflinks, and Jon Corzine is still free and clear.
The same JP Morgan that made millions war profiteering during WWI?
The same JPMorgan fucks who profited off DC electricity (Thomas Edison) and stole AC technology (guess who). Westinghouse to General Electric shell company was formed. Are you beginning to see how the theft system works in today's environment?
Judas Iscariot, reap what you sow.
'
'
'
An-nn-nn-nn-nn-nnd what will happen?
They'll pay a big fine, which will amount to a license fee, nobody will go to jail, the media eye will move on, and it's business as usual.
Why haven't we just stormed these big banks' head office, dragged'em out and shot the dirtbags?
•?•
V-V
whack the bankster/pols.
CHAIN THEM TO THE CONSTITUTION, SO THAT THEY BE CHATTEL ONCE AGAIN! TO THE DEPTHS FROM WHENCE THEY WERE BORN... THE FOUL PITS OF HELL !
JiPMorgan should be prepared to cover the potential losses, without U.S. taxpayer assistance.
If I were in this position I'd do it without any US taxpayer assistance by cornering the energy market through numerous shell companies and associations, screw the US taxpayer to the hilt and keep tipping all the appropirate gatekeepers. The ones who have signs on their desk that say "Don't steal. We don't like competition."
JiPMorgan, well said. Might use that phase in future.
A few bad apples...Jamie Dimon (Blythe's tits?)
And WTF ever happened to the Blythe perjury investigation?
Pay attention, take a step back and observe, don't participate.
well I've come to conclusion the only way to remedy these problems is basically go off grid. Go Gault. Self-sufficiency. Whatever you want to call it. develop your local community buy local, grow local sell local. Don't even think about Walmart or McDonald's. Bring back capitalism on a small scale and let the rest burn.
Edit : i'm a mom with 4 young kids so I'm not perfect with the plan but we are much better off than we were five years ago.
"well I've come to conclusion the only way to remedy these problems is basically go off grid."
You can, but then they might just come and show you who REALLY owns your home:
A woman from Cape Coral, Florida is being forced out of her home after local code enforcement teams found out she was “living off the grid.”
The women, Robin Speronis, told her story to WFTX-TV who featured her lifestyle on the local news. The day after her story aired, where they talked about her “Off Grid” lifestyle, the City of Cape Coral sent code enforcement officers to post “notice to vacate” signs on her property.
http://offgridsurvival.com/evicted-for-living-off-the-grid/
---
CAPE CORAL, FL -
A Cape Coral woman refuses to use city power and water. But now, she has a month to "plug in" or face the consequences.
We met with the woman in a legal battle with the city to protect her way of life.
It's a lifestyle some can only afford to dream of living.
"If I could figure out how to do it, I would probably do it too," said Cape Coral resident Slyvia Lavandier.
Robin Speronis figured out how to do it more than a year and a half ago.
"I'm choosing to live without being dependent on the system," said Speronis.
Speronis is living "off the grid" as she describes it.
"I never have to worry about that bill coming in," said Speronis.
No city power or water running through her house walls. Instead, she uses solar panels and treated rain water for survival.
It's a way of life that's she says is being challenged by city code enforcement.
"When this was brought to my attention I felt like I had to act. I felt like Cape Coral was intruding in the woman's lifestyle," said Todd Allen, Speronis' Attorney.
Allen took Speronis' case on for free.
On Thursday during a special hearing, the two sides met to discuss the legality of her living arrangements.
http://www.nbc-2.com/story/24790572/cape-woman-living-of-the-grid-challe...
An American, not US subject.
JP Moregone Press Release: We find any unscrupulous or illegal business practices deplorable and believe in a fair and open marketplace. The company denies any wrongdoing and has begun an intensive internal investigation to determine any involvement of our staff. We are working closely with our partners in the appropriate government agencies to determine a course of action. And we will have no further comment on the subject. Any fines or payments to any government agencies in relation to this investigation is not an admission of wrongdoing. And any associated employee separations related to individuals working in any investigated departments are purely coincidental.
Would it be wrong of me to inquire as to the TRUE nationality of Mr. John Howard Bartholomew?!
Clue: No loyalty. Lawyer. Finance.
An American, not US subject.
http://youtu.be/E2NETSIzFr8
Like fucking ver Tesla wasn't nough.
So turn-of-the-century. They've moved on to gold and S&P futures, funded by the NY fed Chicago office, which will be "investigated" after they've made a few $$$.
Nothing illegal about it.
It was in fact a stupid market construct.
Bid cost recovery. Think about it.
Blank check that ISO allows the utility to just name their costs. This type of shit is in every power market. It's not rigged so much as they baby the utilities and generators.
Bank rigging like you can't imagine
http://newworldorderg20.wordpress.com/
http://bit.ly/1FILGzM
http://bit.ly/1vYvlWu
http://bit.ly/11YWDhJ
goys' doing their zionist masters work
Here at JT Marlin, we hold ourselves to a very high ethical standard. Let me explain: If the ethics help us make money that day, we'll use 'em. Now, would you please leave your gold fillings in the drawers before stepping into the showers. . .
What else is going on and yet to surface is only not clear to those who wear shades when they see porns.