A federal court in California refused to stop a lawsuit by the Federal Energy Regulatory Commission against Barclays Bank PLC and four of its traders to affirm FERC’s July 2013 order requiring the defendants to pay US $453 million in civil penalties for their alleged manipulation of electricity prices in California and other western markets between November 2006 and December 2008. The defendants had requested a stay of FERC’s lawsuit after their motion for limited discovery was denied in December 2015 and they filed a notice of appeal. In ruling against the defendants’ stay request, the court said that nothing precluded the defendants from arguing during the affirmation hearing that FERC’s “motion to affirm must be denied because the submitted record is deficient.” Moreover, said the court, “[a]closer look at what evidence has been submitted to this Court, and what process was afforded Defendants during the investigation phase, will aid a determination as to whether discovery is required and its scope, and whether different fact-finding must take place in this Court.” In its July 2013 order, FERC found that Barclays, Daniel Brin, Scott Connelly, Karen Levine and Ryan Smith engaged in a manipulative scheme when, on numerous occasions during the relevant time period, they traded electricity to increase or decrease the value of an electricity index in order to benefit swap positions held by the bank based on the index. In addition to civil penalties, the FERC’s July 2013 order required Barclays to disgorge US $34.9 million in alleged profits and interest.
Legal Weeds: The current litigation by FERC follows a somewhat unique process in which FERC first required the defendants to answer allegations that they manipulated western electricity markets. The defendants exercised their right not to respond. This permitted FERC to assess a penalty on its own without a hearing before an administrative law judge. Once the penalty was assessed and the defendants did not pay, FERC was entitled to seek affirmation of the penalties from a federal district court. Effectively, this process grants defendants a right to challenge FERC’s allegations in a federal court as opposed to before an administrative tribunal. (Click here for a schematic of FERC’s penalty assessment process.)