The Federal Energy Regulatory Commission has been in the headlines lately, but one case received less attention than it might have. On July 23, 2013, the DC Circuit strictly interpreted a FERC regulation requiring truthful communications with the Commission and other FERC-approved entities. The decision affirmed the Commission’s assessment of a civil penalty against an energy trader for the submission of false statements to the Commission and PJM Interconnection LLC.1
In early 2009, to prevent his then-current employer from discovering that he was violating a non-compete clause, Moussa Kourouma incorporated his new trading business under his daughter’s name and filed applications with FERC and PJM to conduct trading activities using his daughter’s and friend’s names.
After investigation, FERC issued an order finding that Kourouma submitted false and misleading information with both FERC and PJM in violation of Section 35.41(b) and directing Kourouma to show cause why a $50,000 civil penalty would not be appropriate.2 Section 35.41(b) requires “sellers” such as energy traders to “provide accurate and factual information and not submit false or misleading information, or omit material information, in any communication with the Commission, [ ] market monitors, [ ] regional transmission organizations, [ ] [or] independent system operators,… unless [the] [s]eller exercises due diligence to prevent such occurrences.”3
The order provided Kourouma with two procedural options: either elect to have FERC assess a civil penalty after a determination of a violation in an administrative hearing4 or elect to have FERC assess a civil penalty for a violation without an administrative hearing, refuse to pay such penalty, and challenge any effort to impose such penalty in federal court.5
Kourouma filed an affidavit admitting that he used other people’s names instead of his own to mislead his then-current employer. He requested that FERC summarily dismiss the case in his favor or, in the alternative, set the case for administrative hearing. The Commission found that Kourouma violated Section 35.41(b) and that the $50,000 civil penalty was appropriate, and dismissed the case without granting Kourouma a hearing on grounds that no issues of material fact were in dispute. 6
DC Circuit Decision:
The DC Circuit addressed whether Section 35.41(b) requires FERC to show that Kourouma “intended” to deceive FERC and PJM. The Circuit held that “intent to deceive is not an element” and that the “plain text lacks any reference to intent and forgives false or misleading submissions only if they are made inadvertently despite the filer’s due diligence to avoid such errors.” 7 The Circuit went on to hold that recklessness “without ill will” also violates the rule.8 While the Circuit stated that Section 35.41(b) does not subject parties to strict liability, it is hard to imagine many false statements that are made inadvertently after due diligence.9