The NYTimes Dealbook reports tonight that the Federal Energy Regulatory Commission (FERC) intends to take action against JP Morgan and Blythe Masters over manipulative trading schemes in the Michigan and California energy markets.
FERC’s 70 page filing reportedly singles out JPM Head of Commodities Blythe Masters for her role in the scheme, and alleges that Blythe personally participated in JPMorgan’s efforts to block the state authorities from understanding the reasons behind JPMorgan’s bidding schemes, and that Blythe made scores of false and misleading statements and material omissions to authorities and that enforcement officials plan to recommend Masters be held “individually liable.”
Surely Blythe will quickly be exonerated for the fact that JPM’s alleged energy market manipulation was not a directional position, but was merely hedging on behalf of a client…
Dealbook reports that Masters is one of the key targets in the probe:
In the energy market investigation, the enforcement staff of the Federal Energy Regulatory Commission, or FERC, intends to recommend that the agency pursue an action against JPMorgan over its trading in California and Michigan electric markets.
The 70-page document also took aim at a top bank executive, Blythe Masters. A seminal Wall Street figure, Ms. Masters is known for helping expand the boundaries of finance, including the development of credit default swaps, a derivative that played a role in the financial crisis.
The regulatory document cites her supposed “knowledge and approval of schemes” carried out by a group of energy traders in Houston. The agency’s investigators claimed that Ms. Masters had “falsely” denied under oath her awareness of the problems and said that JPMorgan had made “scores of false and misleading statements and material omissions” to authorities, the document shows.
It is unclear whether the agency will file an action against JPMorgan based on the investigators’ findings. A majority of the five-member commission must first endorse the case. If the regulator does proceed, it could fine the bank and Ms. Masters.
“We intend to vigorously defend the firm and the employees in this matter,” said Kristin Lemkau, a spokeswoman for the bank. “We strongly dispute that Blythe Masters or any employee lied or acted inappropriately in this matter.”
Enforcement officials reportedly are alleging that Blythe obstructed justice by planning and executing a systematic cover-up of the manipulation, and that Masters should be held individually liable:
For now, according to the document, the enforcement officials plan to recommend that the commission hold the traders and Ms. Masters “individually liable.” While Ms. Masters was “less involved in the day-to-day decisions,” investigators nonetheless noted that she received PowerPoint presentations and e-mails outlining the energy trading strategies.
The bank, investigators said, then “planned and executed a systematic cover-up” of documents that exposed the strategy, including profit and loss statements.
In the March document, the government investigators also complained about what they said was obstruction by Ms. Masters. After the state authorities began to object to the strategy, Ms. Masters “personally participated in JPMorgan’s efforts to block” the state authorities “from understanding the reasons behind JPMorgan’s bidding schemes,” the document said.
The investigators also referenced an April 2011 e-mail in which Ms. Masters ordered a “rewrite” of an internal document that raised questions about whether the bank had run afoul of the law. The new wording stated that “JPMorgan does not believe that it violated FERC’s policies.”
So Blythe Masters allegedly lied under oath to investigators over her role, knowledge, and involvement in energy trading schemes at JPMorgan, but yet we are expected to believe that JP Morgan does not hold a directional position in silver or manipulate the metal due to Blythe testimony on CNBC?
While we would like to believe we will see justice dealt out (and the enforcement officials recommending Blythe be held individually liable causes us to hold out ever-so-faint a hope), in reality both JPM and Blythe will likely be dealt a hand-slap fine (which will be merely a drop-in-the-bucket-cost-of-doing-business compared to the profits generated by the alleged scheme), and it will be back to business as usual for our friends at The Morgue.