The allegedly uneconomic nature of, and lack of legitimate explanation for, the pattern of trading at issue (which generally was at a loss) provided the basis for the investigation. But FERC cited communications between the traders that purportedly showed intent to move the index price as particularly important, both to FERC’s decision and to the assessment of the penalty. FERC rejected Barclays’s arguments that the trades were for a legitimate business purpose and stated that, even assuming there was a legitimate business purpose, that would be just one factor in determining whether Barclays intended to engage in manipulative trading.
The FPA authorizes civil penalties of up to $1 million per day per violation, which FERC notes would result in a penalty of at least $655 million based on the number of days on which questionable trading occurred, conservatively assuming only one violation per day. However, application of FERC’s penalty guidelines resulted in a range of potential penalties for Barclays less than the total permitted by the statutory cap, with the final penalty ($435 million) close to the midpoint of the range suggested by the guidelines. The disgorgement amounts were calculated based on the estimated price differences caused by Barclays’s alleged manipulation.
Examining the facts independent of the penalty guidelines, FERC found that the seriousness of the violation (and FERC’s belief that the traders knew the trades were unlawful) justified the scale of the penalties assessed against Barclays and the individual traders. FERC noted that the scheme was not only “serious,” but it was also complex and widespread in location and time, and involved large volumes of electricity, which ultimately affected the wholesale price paid by load-serving entities and retail consumers. Furthermore, FERC observed that there was apparently no attempt to remedy the violation and that the scheme seems to have ended only after FERC’s investigation began.
FERC’s order is not subject to rehearing. The civil penalties and disgorgement must be paid within 30 days, with 19 percent of the disgorgement going to Arizona, 63 percent to California, and 9 percent each to Oregon and Washington. Barclays and the traders opted to use a procedure under FPA Section 31 (16 U.S.C. § 823b(d)(3)), pursuant to which FERC assesses a penalty without a trial-type hearing. If Barclays and the traders do not pay the penalties and disgorgement within 60 days, then FERC is required to seek affirmation of the penalties from a federal district court. The court is authorized to review the penalties and disgorgement de novo, and may choose to enforce, modify, or set aside the penalty.
A copy of the enforcement order is available here.