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By Scott DiSavino
May 3 (Reuters) - The regulator of U.S. power marketsappears likely to pursue manipulation charges against JPMorganChase & Co, analysts said, after a New York Times reporton the agency's document that seemed to lay out its case.
The Times said on Friday it reviewed a confidential, 70-pagegovernment document that the U.S. Federal Energy RegulatoryCommission (FERC) sent to JPMorgan in March, which alleged thebank manipulated the power market in California and Michigan in2010 and 2011.
FERC investigators found JPMorgan devised "manipulativeschemes" that transformed "money-losing power plants intopowerful profit centers," the Times reported, citing thedocument. It said the bank has until mid-May to respond.
It has been clear since last summer that FERC was pursuing adeep enquiry on JPMorgan's trading activities, the latest in astring of FERC investigations that have rattled the U.S. powermarket and - in the case of rival bank Barclays Plc -concluded with $470 million in proposed penalties.
FERC has not moved to publicly charge JPMorgan, but expertssaid that now seemed likely.
"FERC staff would not have gone to the trouble of puttingtogether a 70-page document without a case. If they have gottenthis far they will likely pursue it," said Susan Court, a formersenior lawyer at FERC who is principal of SJC Energy ConsultantsLLC in Arlington, Virginia.
The document also criticized Blythe Masters, JPMorgan's headof global commodities and former chief financial officer, sayingshe "falsely" denied under oath that she was aware of schemescarried out by a group of energy traders in Houston, accordingto the Times.
"We strongly dispute that Blythe Masters or any employeelied or acted inappropriately in this matter," JPMorganspokeswoman Jennifer Zuccarelli said. "We intend to vigorouslydefend the firm and the employees in this matter."
YEAR-LONG SAGA
The document cited by the Times came after a months-longinquiry into the bank's trading in power markets, one of severalhigh-profile investigations since FERC's enforcement powers wereexpanded in 2005 following the Enron scandal a decade ago.
"We cannot, and do not, speculate as to any investigations,as they are all non-public. We do not speculate as to whetherinvestigations are taking place, nor do we speculate as towhether or when the Commission will take any action," FERCspokeswoman Mary O'Driscoll said.
FERC last summer subpoenaed JPMorgan to produce 25 internalemails - some between Blythe Masters and the bank's head ofprincipal commodity investments Francis Dunleavy - as part anongoing investigation focused on bidding practices that may haveraised electricity prices by about $73 million in California andthe Midwest power markets.
FERC normally does not disclose investigations but chose tosubpoena JPMorgan after the bank claimed the emails wereprotected by attorney client privilege. A federal magistrate inNovember sided with JPMorgan and ruled that FERC could not seethe emails. FERC appealed that decision in January.
TRADING BAN 'NO BIG DEAL'
In November, FERC imposed a temporary ban on JPMorgan'sability to trade physical power at market-based rates for sixmonths, starting in April, for failing to disclose informationto the FERC and the California ISO in a market manipulationinvestigation.
In December, JPMorgan Chief Executive Jamie Dimon said thetrading ban is "not that big a deal" for the bank.
FERC Commissioner Cheryl LaFleur dissented in that Novembervote, saying the agency should include penalties for any failureto disclose information as part of the market manipulation caseif the agency decided to pursue it.
In order to pursue a penalty or disgorgement of profits,FERC staff typically issues a public show-cause order, which hasnot yet occurred in the JPMorgan case.
"A lot of the letters that FERC sends out are trying to getat facts. And the tone of this (letter) sounds a littledifferent ... a little bit more sharp," said Marc Spitzer, apartner at the law firm of Steptoe & Johnson in Washington, anda former FERC Commissioner.
HUNTER IMPLICATIONS?
One open question at this point is to what extent FERC'scases may be weakened by a ruling in March on a case related toBrian Hunter, a natural gas trader for the now closed AmaranthAdvisors hedge fund, who was fined $30 million by FERC foralleged manipulation of gas prices in 2006.
A federal appeals court ruled that FERC acted outside of itsmandate in imposing the fine because the U.S. CommoditiesFutures Trading Commission (CFTC) has jurisdiction overfinancial derivatives trading.
FERC has jurisdiction over physical power and natural gastrading, but several of its recent cases - including the oneagainst Barclays - hinge on demonstrating that traders may havemanipulated physical prices in order to profit on derivatives.
Barclays has disputed the FERC allegations and said it willdefend itself in court if FERC issues a final order seeking toimpose the fine. To date, FERC has not issued a final order.
"We need more information about the JPMorgan and Barclayscases to know whether there are Hunter questions. I am confidentlaw firms with manipulation cases at FERC are pursuing thatquestion," Court, of SJC Energy Consultants, said.
