JP Morgan Under FBI Investigation
JP Morgan continues to be under investigation for numerous offenses since 2008. Just recently settled a civil suit for energy manipulation. Now they face a new FBI criminal probe in the California energy market case. Are they being targeted?
J.P. Morgan last month agreed to pay $410 million to settle allegations raised by the Federal Energy Regulatory Commission that the bank manipulated markets in California and the Midwest. J.P. Morgan, the nation’s largest bank by assets, didn’t admit to wrongdoing as part of the settlement.
The Justice Department decided to examine J.P. Morgan’s energy practices in recent weeks as that settlement was being wrapped up, according to the people familiar with the probe. The people cautioned the investigation is still in its early stages and the outcome uncertain. J.P. Morgan declined to comment on the probe, but a spokesman said: “As we’ve said previously, we’re working hard to remediate controls issues, strengthen business practices and address regulatory concerns.”
The probe, according to the people, is being handled by U.S. Attorney Preet Bharara, who this month accused two former J.P. Morgan employees who worked alongside a former trader known as the “London whale” of hiding losses on runaway bets in 2012 that cost the bank more than $6 billion.
In the energy investigation, Mr. Bharara will examine some of the same issues at the center of the FERC case, these people said. It isn’t known whether the investigation is civil or criminal. The U.S. attorney’s office for the Southern District of New York declined to comment.
The new inquiry from the Justice Department shows how J.P. Morgan’s legal woes are mounting as regulators and government investigators work through a backlog of cases focused on banks’ activities during the housing downturn and financial crisis.
The Justice Department is investigating whether J.P. Morgan manipulated energy markets, marking the latest legal hurdle for a bank already facing a mountain of litigation and regulatory scrutiny. David Benoit has more on the News Hub. Photo: Getty Images.
The latest probe comes on top of at least six other investigations of J.P. Morgan already in the works. The Justice Department’s civil division in May informed the bank of its preliminary conclusion that civil securities laws were broken while J.P. Morgan sold mortgage-backed securities from 2005 to 2007. A parallel criminal investigation of those actions is under way.
The Justice Department also has decided to continue its probe of J.P. Morgan’s 2012 trading debacle despite the recent decision to bring charges against two former traders, Javier Martin-Artajo and Julien Grout. Last week, Mr. Bharara declined to say whether he expected to bring charges against additional employees.
Mr. Grout has declined to comment, and lawyers for Mr. Martin-Artajo have said their client was confident he would be exonerated.
The new look into J.P. Morgan’s energy practices is the latest federal scrutiny of banks’ participation in the world of physical commodities assets. The Federal Reserve and some members of Congress are questioning whether banks should be profiting from their ownership of power plants and other assets.
J.P. Morgan last month said that it would seek a sale of its physical commodities assets, everything from metals warehouses to trading desks that buy and sell oil, gas, power and coal. The bank is planning to kick off the sale in early September, according to people familiar with the sale process. It hopes to sell the assets as one package but might have to sell them piecemeal, the people said.
FERC said in its settlement with J.P. Morgan that the bank engaged in a series of “manipulative bidding strategies” from September 2010 to November 2012. The regulator said J.P. Morgan devised ways to turn money-losing power plants into profitable assets, focusing in part on maximizing payments designed to compensate power providers when prices fall.
One alleged scheme took advantage of the fact that system operators try to avoid making power plants ramp up and down quickly. J.P. Morgan would submit a low bid to ensure the system operator would schedule its plant to produce power on a given day, the regulator alleged. Then it would bid $999 a megawatt-hour for the first two hours of the next day, even though market prices at the time were at about $12.
The California system operator’s rules required it to pay J.P. Morgan the high prices because the plant was in “ramp-down” mode from the previous day, the regulator said.