Tag Archives: JP Morgan

The Unrepentant Banker: How Banks Rig the Markets

Many of the big market-manipulation scandals over the past decade have much in common: huge fines for the investment banks, criminal charges for the traders and an embarrassing paper trail revealing precisely what bank employees got up to. Interest-rate traders who manipulated the London Interbank Offered Rate (LIBOR)… infamously called a chat room in which they discussed rigging exchange rates “the cartel”.

The case against JPMorgan Chase for manipulating precious-metals and Treasury markets has many of the usual features. On September 29th, 2020 it admitted to wrongdoing in relation to the actions of employees who, authorities claim, fraudulently rigged markets tens of thousands of times in 2008-16. The bank agreed to pay $920m to settle various probes by regulators and law enforcement… Some of the traders involved face criminal charges. If convicted, they are likely to spend time in jail.

The traders are alleged to have used “spoofing”, a ruse where a market-maker seeking to buy or sell an asset, like gold or a bond, places a series of phony orders on the opposite side of the market in order to confuse other market participants and move the price in his favor. A trader trying to sell gold, for instance, might place a series of buy orders, creating the illusion of demand. This dupes others into pushing prices higher, permitting the trader to sell at an elevated price. Once accomplished, the trader cancels his fake orders… According to prosecutors one JPMorgan trader described the tactic as “a little razzle-dazzle to juke the algos”. In the past two years Deutsche Bank, HSBC, Merrill Lynch and UBS have all paid penalties on spoofing charges…

Excerpt from Spoof proof: JPMorgan Chase faces a fine of $920m for market manipulation, Economist, Oct. 3, 2020

Wall Street Manipulation of Energy Markets

The U.S. Federal Energy Regulatory Commission (FERC) is taking on big banks for their questionable energy trade.  The Federal Energy Regulatory Commission has slammed Barclays (pdf) with a demand to pay $470 million in fines for allegedly manipulating electricity markets in the western US to benefit the bank’s financial swap positions from 2006 to 2008.  Messages and email exchanges between Barclays energy traders released earlier this month reflect their efforts to manipulate and cheat their way to profits. What’s more disturbing is the glee the Barclay’s traders took in manipulating the energy markets with a total disregard for the costs to consumers.

The Barclays traders’ own words are damning:

“I totally f**kked with the Palo mrkt today. . . . Was fun. Need to do that more often.”

The attitude expressed doesn’t get much clearer than that.

In another instant message, the same Barclays trader wrote, “I’m gonna try to crap on the NP light and it should drive the SP light lower.”

The response from his colleague: “That is fine.”

Enron’s energy traders could have written the Barclays’ traders’ scripts. Remember Enron traders gloating, “He just f—s California,” and “He steals money from California to the tune of about a million” a day?  Only the traders’ attitudes are more obscene than their language. So saturated in arrogance, the traders had no concern they might get caught — which makes it even better that they did.

Though FERC hasn’t historically had much to do with regulating Wall Street, that is changing. FERC now also is going after JPMorgan Chase (pdf) and Deutsche Bank  (pdf) on similar charges.  The Los Angeles Times reports that JP Morgan’s questionable trades in the power market in 2010 and 2011 may have cost California residents and businesses more than $200 million. The no-holds-barred pursuit of profiteering no matter what laws and regulations are violated or what the cost is to the public has become a hallmark of Wall Street from Enron to Barclays.

While Wall Street may not have gotten the message that Enron-esque conduct is wrong, it’s gratifying to see FERC step up to hold banks accountable using the power from a post-Enron law. The 2005 Energy Policy Act gave FERC the authority to prevent market manipulation in the energy markets.  Not only does FERC have the power to fine companies as much as $1 million a day per violation, but it also has the ultimate weapon: the ability to suspend authorization to sell. JP Morgan knows that FERC is not afraid to flex this muscle.

Just last week, FERC suspended the authorization for a JPMorgan unit, J.P. Morgan Ventures Energy Corp., to sell electricity at market-based rates for six months beginning next April. FERC took this step because it found that JPMorgan had filed “factual misrepresentations” and omitted material information in filing with FERC and in communications with the California Independent System Operator. JPMorgan will be able to offer electricity for sale only at prices based on specified factors, so that utilities can continue to be able to meet demand.  FERC is relatively new to dealing with Wall Street, but it is quickly learning that a strong jolt is necessary to get banks to comply.

The Commodity Futures Trading Commission, which often works side-by-side with FERC, is expected to see similar cases of energy market manipulation as a result of whistleblower information provided to the CFTC’s new whistleblower reward program created under Dodd-Frank. The outcome of the FERC cases against Wall Street could provide a useful roadmap for future whistleblowers.

Excerpt from, Erika Kelton, Barclays’ Traders Show How Much Fun Wall Street Has Manipulating Markets, Forbes, Nov. 20, 2012