Federal Energy Regulatory Commission v. Barclays Bank PLC
105 F. Supp. 3d 1121 (2015)
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Rule of Law:
The Federal Power Act's (FPA) anti-manipulation provision grants the Federal Energy Regulatory Commission (FERC) jurisdiction over schemes affecting wholesale electricity markets, and venue for an enforcement action is proper where the market effects occurred, not just where the traders were physically located. This jurisdiction extends to individual traders as 'entities' and includes schemes where financial instruments are used to profit from the manipulation of physical energy markets.
Facts:
- From November 2006 to December 2008, Barclays Bank PLC traders, including Scott Connelly, Daniel Brin, Karen Levine, and Ryan Smith, operated from a trading desk in New York City.
- The traders established large financial swap positions in western U.S. electricity markets whose value was tied to a published daily price index (the ICE daily index).
- The traders then took large physical electricity positions that were opposite to their financial swap positions.
- To benefit their financial positions, the traders engaged in high-volume, uneconomic trading in the physical day-ahead ('dailies') market with the intent to manipulate the ICE daily index.
- This physical trading consistently lost money on a standalone basis but generated substantial profits on the related financial swap positions by artificially moving the index price.
- The trading activity targeted and affected wholesale electricity prices at hubs in California, Arizona, and Washington, including the North Path 15 hub located in the Eastern District of California.
- As part of the scheme, Barclays sold electricity to and scheduled delivery with utilities and other market participants located within the Eastern District of California.
Procedural Posture:
- In 2007, market participants reported Barclays' trading to FERC's Enforcement Hotline, prompting a multi-year investigation.
- On June 22, 2011, Barclays and the individual defendant traders entered into tolling agreements with FERC to pause the running of the statute of limitations.
- On October 31, 2012, FERC issued an Order to Show Cause, ordering the defendants to explain why they should not be found in violation and assessed civil penalties.
- The defendants elected to forgo an administrative hearing and opted for an immediate penalty assessment by FERC, preserving their right to a de novo review in federal district court.
- On July 16, 2013, FERC issued an Order Assessing Civil Penalties against Barclays and the individual traders.
- After the defendants did not pay the penalties, FERC filed a Petition in the U.S. District Court for the Eastern District of California on October 9, 2013, seeking a court order to affirm and enforce the civil penalties.
- The defendants (Barclays and the individual traders) filed a Motion to Dismiss or, in the Alternative, to Transfer the case to the Southern District of New York.
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Issue:
Does the Federal Power Act grant the Federal Energy Regulatory Commission jurisdiction to bring a market manipulation enforcement action against a bank and its individual traders in a federal district where the effects of the alleged manipulation were felt, even if the traders were physically located in another state and the scheme involved financial swaps?
Opinions:
Majority - Troy L. Nunley
Yes. The Federal Power Act grants FERC jurisdiction to pursue this enforcement action in this district. The court denied the motion to dismiss and transfer, holding that venue is proper, FERC has jurisdiction over the conduct and the individual defendants, and the petition sufficiently alleges manipulative conduct. The FPA's venue provision allows for suit where 'any act or transaction constituting the violation occurred,' which includes the location of the affected market and the scheduling of electricity, not merely the physical location of the traders. FERC, not the CFTC, has jurisdiction because the alleged manipulation occurred in the physical electricity market, a FERC-jurisdictional market, even if financial swaps (which were traded on an exempt commercial market at the time) were used to profit from the scheme. The term 'entity' in FPA § 222 is broad enough to include natural persons, consistent with the statutory scheme and its model, Section 10(b) of the Securities Exchange Act. Finally, open-market trades can be manipulative if they are combined with an improper intent to artificially affect market prices.
Analysis:
This decision affirms FERC's broad enforcement authority against complex, cross-market manipulation schemes, clarifying that its jurisdiction is not defeated by traders using financial instruments or operating from a remote location. By establishing that venue is proper where the market impact is felt, the ruling prevents market manipulators from insulating themselves from liability by physically locating their trading desks in distant financial centers. Furthermore, the court's interpretation of 'entity' to include individuals ensures that traders, not just their corporate employers, can be held personally accountable for manipulative conduct, strengthening the FPA's deterrent effect.
