By Scott DiSavino and David Sheppard
Jan 22 German bank Deutsche Bank AG
will pay nearly $1.7 million to settle allegations it
manipulated electricity markets in California in 2010, federal
regulators said on Tuesday.
The settlement is the latest victory for the U.S. Federal
Energy Regulatory Commission (FERC) in its crackdown on alleged
trading schemes reminiscent of the Enron scandal that led to the
California energy crisis more than a decade ago.
FERC has also proposed imposing a record $470 million on
Barclays Plc for allegedly manipulating power markets
in California and banning JPMorgan Chase & Co's energy
trading arm from some U.S. power markets for six months.
"Deutsche Bank violated the Commission's anti-manipulation
rule by engaging in a scheme in which Deutsche Bank entered into
physical transactions to benefit its financial position," FERC
said in a statement.
FERC said in the order that Deutsche Bank also agreed to
disgorge "unjust profits" of $172,645 for manipulating the
California 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 the
fine reduced in settlement talks with FERC. The regulator
originally proposed the fine in September.
Susan Court, a former director of FERC's Office of
Enforcement and founder of SJC Energy Consultants LLC in
Arlington, Virginia, said that the market manipulation cases
brought against financial institutions generally all involved
using physical positions to benefit derivative positions in
"Lawyers will be sitting down and comparing the Deutsche
Bank and Barclays cases," Court said. "Barclays has a lot more
The proposed fine for Barclays is even larger than the
record $450 million the bank paid for allowing traders to
manipulate key interest rates during the 2007/08 credit crunch.
FERC has until Jan. 28 to reply to Barclay's response to the
proposed fine, which argued the British bank did nothing wrong.
JPMorgan's six-month ban on market based trading of physical
power is due to start in April. FERC has requested more time to
decide whether pre-existing contracts will be included in the
FERC also has a $30 million market manipulation case pending
against Brian Hunter, the former trader at hedge fund Amaranth
that collapsed in 2006 after placing multibillion dollar
wrong-way bets in natural gas markets.
Deutsche Bank originally said in September it would fight
the proposed fine, despite the fact it would likely cost the
bank more in legal fees than they were being asked to pay by the
Since then, however, the bank has pulled back from commodity
trading, including closing its California power trading desk.
"We are pleased to have reached a settlement and put this
matter behind us," Deutsche Bank said in a statement.
In U.S. power markets, Deutsche Bank's physical electricity
sales fell from a peak of about $1.6 billion in 2010 to $1
billion in 2011, according to sales data submitted to the FERC.
During the first half of 2012, the bank sold just about $200
million of electricity, according to the FERC data.
As of 2010, Deutsche Bank Energy Trading LLC was listed as
having about 155 employees, according to a FERC filing.