Barclays was insistent last night that it would defend itself against a potential $470m (£290m) fine for allegations it attempted to rig electricity prices even as the US regulator making the accusations published embarrassing emails sent by four former traders of the bank.
The US Federal Energy Regulatory Commission, which has given Barclays and the four traders 30 days to respond to its allegations, supported its claims with emails and instant messages, written in trader jargon, in which traders boasted they would "crap on" prices and how they "totally fuckked" (sic) with markets.
The allegations shed some light on the complexities of energy trading and single out four locations – Columbia, Palo Verde, South Path 15 and North Path 15 – that were said to have been used by the traders to benefit the bank's positions on the IntercontinentalExchange (ICE).
In one instant message sent to a colleague, Ryan Smith, wrote "I totally fuckked (sic) with the Palo mrkt today … look at my deals on ICE". As the series of instant messages continued, Smith concluded: "I just started lifting the piss out of the palo."
The alleged offences, which the regulator claims caused losses of $139m for rivals and allowed Barclays to make $35m of profit, are said to have taken place between 2006 and 2008 by a team of traders led by Scott Connelly, hired in May 2006, whom the Ferc wants to fine $15m.
Smith has been warned of a $1m fine, along with Daniel Brin and Karen Levine who are also facing similar fines. The so-called show-cause document published by the Ferc shows that the four insist they did nothing wrong.
Ferc accuses the four traders, who sat on the so-called west power desk, and Barclays of being involved in a "co-ordinated scheme" for 655 days which involved taking losses in one part of the electricity market known as the "physical" to move prices in financial contracts linked to the prices of electricity. The Ferc used another message from Brin, in which he explained he is "doing phys[ical] so i (sic) am trying to drive price in fin[ancial} direction", to support its claim.
Barclays, which was fined a record £290m for attempting to manipulate the Libor benchmark interest rate, said it "strongly" disagreed with allegations. "We believe that our trading was legitimate and in compliance with applicable law. The [Ferc order] is by its very nature a one-sided document, and does not reflect a balanced and full description of the facts or the applicable legal standard," Barclays said.
Stressing it had co-operated with the investigation, which began in 2007, the bank's spokesman said: "We intend to vigorously defend this matter".
Unlike Libor where the penalty was agreed by Barclays in a settlement with three regulators, including the Financial Services Authority in the UK, Barclays may need to take proceedings to court if it is to fend off the penalty proposed by Ferc.
The energy regulator included remarks by Joseph Gold, head of commodities for Barclays in the US, who in his evidence to Ferc insisted he had made clear that traders deliberating making losses was unacceptable. "The golden rule was always, under no circumstances, lose money on a transaction for the intention of making money on another transaction," Gold said.
The $490m penalty is based on a $435m fine and the disgorgement of the $35m profit the bank is alleged to have made. The investigation began after Ferc received calls from market participants to its hotline.
The Californian electricity market was the subject of scrutiny after the collapse of Enron when regulators produced documents showing that strategies named Fat Boy and Get Shorty were used to try to increase profits from trading power in the western US state,
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