By Scott DiSavino and David Sheppard
Jan 22 (Reuters) - German bank Deutsche Bank AG will pay nearly $1.7 million to settle allegations itmanipulated electricity markets in California in 2010, federalregulators said on Tuesday.
The settlement is the latest victory for the U.S. FederalEnergy Regulatory Commission (FERC) in its crackdown on allegedtrading schemes reminiscent of the Enron scandal that led to theCalifornia energy crisis more than a decade ago.
FERC has also proposed imposing a record $470 million onBarclays Plc for allegedly manipulating power marketsin California and banning JPMorgan Chase & Co's energytrading arm from some U.S. power markets for six months.
"Deutsche Bank violated the Commission's anti-manipulationrule by engaging in a scheme in which Deutsche Bank entered intophysical transactions to benefit its financial position," FERCsaid in a statement.
FERC said in the order that Deutsche Bank also agreed todisgorge "unjust profits" of $172,645 for manipulating theCalifornia power market between January and March in 2010.
While Deutsche neither admits nor denies the violations,according to the order, the bank did not succeed in getting thefine reduced in settlement talks with FERC. The regulatororiginally proposed the fine in September.
Susan Court, a former director of FERC's Office ofEnforcement and founder of SJC Energy Consultants LLC inArlington, Virginia, said that the market manipulation casesbrought against financial institutions generally all involvedusing physical positions to benefit derivative positions infinancial markets.
"Lawyers will be sitting down and comparing the DeutscheBank and Barclays cases," Court said. "Barclays has a lot moreat stake."
The proposed fine for Barclays is even larger than therecord $450 million the bank paid for allowing traders tomanipulate key interest rates during the 2007/08 credit crunch.
FERC has until Jan. 28 to reply to Barclay's response to theproposed fine, which argued the British bank did nothing wrong.
JPMorgan's six-month ban on market based trading of physicalpower is due to start in April. FERC has requested more time todecide whether pre-existing contracts will be included in theban.
FERC also has a $30 million market manipulation case pendingagainst Brian Hunter, the former trader at hedge fund Amaranththat collapsed in 2006 after placing multibillion dollarwrong-way bets in natural gas markets.
SETTLEMENT
Deutsche Bank originally said in September it would fightthe proposed fine, despite the fact it would likely cost thebank more in legal fees than they were being asked to pay by theregulator.
Since then, however, the bank has pulled back from commoditytrading, including closing its California power trading desk.
"We are pleased to have reached a settlement and put thismatter behind us," Deutsche Bank said in a statement.
In U.S. power markets, Deutsche Bank's physical electricitysales fell from a peak of about $1.6 billion in 2010 to $1billion in 2011, according to sales data submitted to the FERC.
During the first half of 2012, the bank sold just about $200million of electricity, according to the FERC data.
As of 2010, Deutsche Bank Energy Trading LLC was listed ashaving about 155 employees, according to a FERC filing.
Barclays (BARC)
