The Department of Justice (DOJ) reportedly is investigating whether JPMorgan Chase & Co. has manipulated U.S. energy markets, but neither the department nor the company will comment on the reports.
“It’s DOJ policy to neither confirm nor deny” that an investigation is underway, said spokeswoman Jerika Richardson of the U.S. attorney’s office for the Southern District of New York. The probe apparently is being handled by U.S. Attorney Preet Bharara, who has a history of bringing legal action against JPMorgan employees. JPMorgan did not respond to requests for a comment.
JPMorgan was in ninth place on NGI‘s most recent ranking of natural gas marketers.
The DOJ opted to review JPMorgan’s energy practices in the weeks immediately after the Federal Energy Regulatory Commission ordered affiliate JP Morgan Ventures Energy Corp. (JPMVEC) to pay $410 million in penalties and disgorge profits for allegedly manipulating the power markets in California and the Midwest (see Daily GPI, July 31).
FERC investigators alleged that the JPMorgan subsidiary engaged in 12 illegal manipulative bidding strategies designed to make profits from power plants.
The black-box settlement between FERC and JPMVEC came just days after JPMorgan announced it would be joining some other large marketers in exiting the physical commodities business, disposing of its holdings of commodities assets and its physical trading operations (see Daily GPI, July 29). While the company said at the time it would consider a sale of its assets, a spin-off, or taking on a partner for its physical commodities business, reports are circulating it will opt to sell the assets.
The move by JPMorgan comes amid heightened scrutiny by federal and state regulators of commodities trading and the possibility that a large bank traders might use their physical trades to set up a favorable position for futures market moves. Regulators and Congress also are looking at the growing practice of banks in the business of trading that also own physical commodity assets such as storage which can be used to influence trading.
One analyst has likened big banks’ involvement in the commodities market and ownership of assets to their disastrous foray into the mortgage market, in which the banks went from making loans to taking over the entire mortgage complex.
JPMorgan, Goldman Sachs and Morgan Stanley have been the top “merchants of physical commodities and energy, notwithstanding the legal wall designed to keep them out of any nonfinancial business,” said University of North Carolina’s Saule Omarova, associate professor of law. He recently testified before the Senate Banking, Housing and Urban Affairs subcommittee.
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