U.S. regulators poised to fine Barclays for energy market manipulation

American regulators are prepared to fine Barclays approximately $470 million amidst allegations that the bank and several of its traders attempted to manipulate electricity markets in California.

The fine could be the largest penalty ever levied by the Federal Energy Regulatory Commission and could possibly exceed the fine paid by the bank to U.K. regulators in the wake of the emerging Libor scandal, 4-Traders reports.

Barclays has 30 days to respond to the allegations and demonstrate why it should not be penalized for the alleged scheme involving manipulation of physical electricity prices at a loss in order to profit from related positions, a strategy referred to as “loss-leader.”

Barclays indicated that it would fight the allegations, potentially setting the stage for a legal challenge that could set a precedent over whether the trading strategy is illegal or simply frowned upon, according to 4-Traders.

Additionally, Barclays traders involved in the allegations, including Daniel Brin, Scott Connelly, Karen Levine and Ryan Smith, have 30 days to demonstrate why they should not be assessed $18 million in civil damages.

The FERC said that the traders’ activity accounted for almost 25 percent of all next-day power market trading during the specified time period, during which the traders accrued estimated gains of $34.9 million. Bank documents revealed that the traders boasted about their plans to “crap on” certain markets in order to profit in other ones, 4-Traders reports.

Barclays said that the FERC order, “by nature a one-sided document,” does not accurately depict the facts.

“We believe that our trading was legitimate and in compliance with applicable law,” Mark Lane, a Barclays spokesman, said, according to 4-Traders. “We have cooperated fully with the FERC investigation, which relates to trading activity that occurred several years ago. We intend to vigorously defend this matter.”

The traders have left Barclays over the past five years for unrelated reasons and the bank has since closed its Portland office and exited the Western energy market.

The FERC order is the latest in a series of blows to the bank. Barclays was fined $450 million earlier this year by U.K. regulators for attempted manipulation of Libor.

The bank also announced on Wednesday that the U.S. Justice Department and the Securities and Exchange Commission were investigating whether it was in compliance with certain U.S. regulations related to its ties to third parties who assist the bank in winning and retaining business, 4-Traders reports.

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