Barclays Fine Slashed in U.S. Settlement on Power Manipulation

(Bloomberg) -- A U.S. regulator agreed to let Barclays Plc pay $105 million to resolve claims that the bank manipulated western U.S. electricity markets, avoiding a trial over a proposed record penalty more than four times as high.

The deal ends a court battle over a $470 million fine by the Federal Energy Regulatory Commission tied to an alleged scheme in 2006 through 2008 for making money-losing physical bets to reap profits in financial positions. Under the terms of the agreement disclosed Tuesday by the agency, Barclays will pay a $70 million civil penalty and forfeit $35 million in proceeds from its conduct. The bank isn’t admitting or denying wrongdoing.

The London-based bank’s challenge to the fine has been closely watched by the industry because it was the first such case filed since the energy regulator’s authority to fight manipulation was strengthened in 2005. The oversight push came in the wake of the western U.S. crisis that culminated in blackouts for millions of people and Enron Corp.’s bankruptcy.

While the settlement will deprive the industry of a precedent-setting ruling by a judge on what constitutes manipulation, the five-year fight between Barclays and the regulator has made some traders more cautious.

“It seems to be a pretty successful reduction from Barclays’s point of view, but it’s still a sizable recovery for FERC,” said Ken Irvin, a lawyer with Sidley Austin LLP in Washington who isn’t involved in the case. “It definitely informs behavior and it changes behavior. Even the traders’ economics are impacted by the investigation.”

In 2012, when FERC initially disclosed its allegations against Barclays, the commission proposed a stunning punishment totaling $487.9 million for the bank and four traders. In September, ex-trader Ryan Smith, who allegedly boasted of disrupting the market in a 2006 expletive-laced email, won dismissal of the $1 million fine he faced when a judge agreed that FERC waited too long to bring its case against him.

“I think once the Smith decision came out, it was inevitable that FERC would have to reduce its damages and civil penalties significantly,” David Applebaum, partner at Akin Gump Strauss Hauer & Field LLP who previously served as director of investigations with the commission’s office of enforcement team.

As part of the deal, $20 million of the bank’s payment will go to a low-income residential energy assistance program in Arizona, California, Oregon and Washington. 

To contact the reporter on this story: Naureen S. Malik in New York at nmalik28@bloomberg.net.

To contact the editors responsible for this story: Lynn Doan at ldoan6@bloomberg.net, Peter Blumberg, Elizabeth Wollman

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