UPDATE 1-Dreyfus to pay $4.1 mln fine in U.S. market manipulation settlement

Fri Feb 7, 2014 1:06pm EST

Feb 7 (Reuters) - Louis Dreyfus Energy Services LP on Friday agreed to pay a civil penalty of $4.1 million and disgorge another $3.3 million plus interest to settle U.S. allegations of power market manipulation.

This is the latest instance of the crackdown by the Federal Energy Regulatory Commission, the U.S. energy regulator, on power market players accused of manipulating prices.

FERC said the settlement resolves its investigation into whether Louis Dreyfus Energy manipulated the power market in the Midcontinent Independent System Operator (MISO) system from November 2009 through February 2010.

The MISO operates the power grid in 15 U.S. Midwest and Gulf Coast states and the Canadian province of Manitoba.

At the time, Louis Dreyfus Energy was part of a joint venture between privately held trader Louis Dreyfus and JPMorgan Chase & Co hedge fund Highbridge Capital Management LLC.

Highbridge and Dreyfus sold the energy trading firm in 2012 to a group of investors who renamed it Castleton Commodities International.

Specifically, FERC's enforcement office questioned some of Louis Dreyfus Energy's virtual trading activities.

Virtual trades are a form of financial transaction in the cash electricity market that do not involve any actual supply or purchase of power.

Louis Dreyfus Energy did not admit nor deny the violations, FERC said.

In addition, one of Louis Dreyfus Energy's traders, Xu Cheng, will pay a civil penalty of $310,000, FERC said.

Over the past two years, FERC has rattled the U.S. power industry with a series of allegations and charges related to market manipulation. Experts say several of these cases represent a significantly tougher approach on gray-area trading activities such as physical versus financial deals.

FERC has issued more than $1 billion in fines since the Energy Policy Act of 2005 significantly increased the penalty the commission can impose, hiking it to $1 million per day per violation from the prior cap of $10,000 a day.

Over the summer, the agency approved a record $410 million penalty against JPMorgan in combined civil penalties as well as the disgorgement of unjust profits for alleged power market manipulation.

FERC is also poised for a legal battle with Barclays Plc amid other charges that the UK-based bank denies.

Its enforcement office staff opened 24 investigations in the 2013 fiscal year, up sharply from 16 in fiscal 2012, FERC said in November. Of the investigations opened in fiscal 2013, the commission said 11 involve market manipulation or false statements.

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