March 29, 2024

Federal Regulator Seeks $28 Million Fine From BP Over Market Manipulation Claim

The move likely sets up another major legal battle for the Federal Energy Regulatory Commission (FERC) as it steps up policing of power and natural gas markets.

In the order, FERC pointed to a two-minute recorded conversation between a BP trainee and a senior gas trader as evidence that BP bought and sold gas at a possible loss in the physical market in order to increase the value of BP’s derivatives position.

BP said the recorded call was “taken out of context.” The company will “vigorously defend against these allegations,” spokesman Geoff Morrell said in a statement. He said the charges were “without merit” and that BP stood by public statements issued in February 2011 that maintained that the gas traders did not engage in market manipulation.

The commission said BP has 30 days to pay the fine or contest the order.

FERC has another contentious legal case brewing with Barclays Plc, which last month vowed to fight a $470 million fine for allegedly manipulating California power markets.

JPMorgan Chase Co settled a separate case for $410 million last week.

FERC first notified BP that it was investigating the company’s trading in the Houston natural gas market about two years ago. FERC is seeking penalties of $28 million and the return of $800,000 in profits, plus interest, it said on Monday.

The proposed fine for BP is much smaller than others FERC has pursued over the 18 months of its crackdown on manipulative trading. Congress bolstered FERC’s enforcement power in 2005 following the California energy crisis and the Enron scandal.

BP paid $303 million to the U.S. Commodity Futures Trading Commission in 2007 to settle allegations the company tried to manipulate the propane market in 2003 and 2004. Since then, BP has clamped down on trader pay and oversight.

The FERC order said that the natural gas trading activity was reported to an internal BP compliance group established after the 2007 propane settlement. FERC said that while BP conducted an internal investigation, it had failed to take the probe “seriously” and had failed to collect “critical” trading data from the period.

Traders and executives have questioned whether FERC is focusing on trading practices that are less obviously manipulative than the Enron-era scandals of a decade ago, leading some to say it is unnerving many in the industry.

SUPPRESSED VALUE

FERC alleges that BP’s traders used the company’s transportation capacity between two natural gas hubs in Texas, Katy and the Houston Ship Channel, in a manner that suggested BP was trading to benefit another position.

Going into September 2008, FERC said BP had positions that would rise in value if prices at the Houston Ship Channel fell relative to those at Henry Hub in Louisiana, the delivery point for the benchmark U.S. natural gas futures contract.

When Hurricane Ike made landfall near Galveston, Texas, on September 13, 2008, Houston Ship Channel prices plummeted as many small intrastate pipelines were shut in, resulting in lower-than-normal flows of gas out of the Houston region.

FERC said this meant the company’s position was suddenly worth millions of dollars, but only if Houston Ship Channel prices stayed depressed until the end of the month.

FERC said senior BP gas trader Gradyn Comfort, with the cooperation of two colleagues, Nesha Barnhart and Clayton Luskie, began selling physical gas at loss-making prices in the Houston Ship Channel around September 18.

Because the alleged scheme appeared to be working, FERC said, the traders extended the trading strategy into November 2008.

To implement the plan, FERC said the traders “only had to expand their existing positions and exploit more of the (company’s) transport capacity, rather than justify an entirely new trading strategy to their supervisors.”

FERC’S CLAIMS

FERC said the “manipulative scheme” was discovered when Luskie was at a BP trader-training program in November 2008 and “tried to impress a senior BP trader by explaining the team’s scheme,” FERC said. Luskie had only worked for the firm since that August.

When the senior trader questioned the legality of their strategy, Luskie called Comfort, a trader with 17 years experience, on his number at the trading desk – a recorded line.

On the November 5, 2008, recorded call, FERC said Luskie repeatedly asked Comfort for a legitimate explanation of the team’s physical trading.

“So how would you explain our, um, our dealings on (Houston Pipeline) and with our paper position that don’t make it sound like we’re manipulating the index?” Luskie asked Comfort, according to the FERC order.

Comfort’s initial reaction was to cut off Luskie’s questioning, FERC said. When pressed further by Luskie, Comfort made a few short statements, interspersed by long pauses.

Luskie subsequently called back on an unrecorded cell phone circuit, FERC said.

BP denied its traders did anything wrong and said “FERC bases its allegations on a recorded two-minute phone conversation between a BP trainee and BP natural gas trader that the regulator has taken completely out of context.”

“The recording does not support any allegation of wrongdoing,” BP’s Morrell said. “In fact, the trainee involved in the conversation states that his characterization was incorrect and the trader never agrees with nor condones the trainee’s statements.”

Despite Comfort’s repeated interruptions, FERC said Luskie’s statements on the recorded call were sufficient to provide staff with an outline of the traders’ scheme, which the underlying trade data confirmed.

(Reporting by Scott DiSavino; Editing by Gerald E. McCormick, Sofina Mirza-Reid, David Gregorio and Jim Marshall)

Article source: http://www.nytimes.com/reuters/2013/08/05/business/05reuters-bp-ferc.html?partner=rss&emc=rss

DealBook: Goldman Receives Subpoena Over Financial Crisis

Goldman Sachs has received a subpoena from the office of the Manhattan District Attorney, which is investigating the investment bank’s role in the financial crisis, according to people with knowledge of the matter.

The inquiry stems from a 650-page Senate report from the Permanent Subcommittee on Investigations that indicated Goldman had misled clients and Congress about its practices related mortgage-linked securities.

Senator Carl Levin, the Democrat of Michigan, who headed up the Congressional inquiry, had sent his findings to the Justice Department to figure out whether executives broke the law. The agency said it is reviewing the report.

The subpoena come two weeks after lawyers for Goldman met with the Manhattan District Attorney’s office for an “exploratory” meeting about the Senate report, the people said.

“We don’t comment on specific regulatory or legal issues, but subpoenas are a normal part of the information request process and, of course, when we receive them we cooperate fully,” said a Goldman spokesperson.

The investment bank has not been accused of any wrongdoing. A subpoena is a request for information.

Bloomberg earlier reported news of the subpoena.

The subpoena is the latest blow to Goldman, which since the crisis has faced criticism that is shorted the mortgage before the collapse, making billions of dollars at the expense of its clients.

In early April, the Senate subcommittee published a scathing report, which took specific aim at Goldman. It notably highlighted testimony by the financial firm’s chief executive Lloyd Blankfein, who denied the firm was making large bets against residential mortgages while selling securities based on the home loans.

“We didn’t have a massive short against the housing market,” Mr. Blankfein testified at a Congressional hearing in 2010. It was a sentiment echoed in various public statements that year.

The Senate committee took a different view. The congressional report noted the phrase “net short” appeared more than 3,400 times in Goldman documents related to the mortgage market. It also quoted a letter from Goldman to the Securities and Exchange Commission, in which the firm said “we maintained a net short sub-prime position and therefore stood to benefit from declining prices in the mortgage market.”

Shares of Goldman slipped more than 2 percent on Thursday. The stock, which closed Wednesday at $136.17, was trading above $170 in early January.

Article source: http://dealbook.nytimes.com/2011/06/02/goldman-receives-subpoena-over-financial-crisis/?partner=rss&emc=rss

I.M.F.’s Emerging Market Directors Criticize Selection Process for Top Post

Ms. Lagarde has been focusing intently on her candidacy in recent days, a French government official, who spoke on condition of anonymity, said Tuesday. Late Tuesday, she scheduled a news conference to start just before noon on Wednesday in Paris, without confirming the topic.

Respected internationally, Ms. Lagarde has won support from Chancellor Angela Merkel of Germany, the British chancellor of the exchequer, George Osborne, and most of Europe’s political establishment.

This has made her front-runner to succeed Dominique Strauss-Kahn, who resigned from the helm of the I.M.F. last week to fight charges that he sexually assaulted a maid in a New York hotel.

Still, the selection process for the job — which has always been held by a European — has drawn increasing criticism from leaders of emerging markets and other countries, which have sought to promote strong candidates of their own in recent days.

On Tuesday, the I.M.F.’s executive directors representing Brazil, Russia, India, China and South Africa — the emerging economies commonly known as the BRICS — issued a firmly worded statement condemning the custom of appointing Europeans to lead the fund.

A transparent, merit-based and competitive process for the selection “requires abandoning the obsolete unwritten convention that requires that the head of the I.M.F. be necessarily from Europe,” they said in the statement.

“We are concerned with public statements made recently by high-level European officials to the effect that the position of managing director should continue to be occupied by a European,” they said, adding that these comments contradicted announcements, made by Jean-Claude Junker, president of the Euro group when Mr. Strauss-Kahn was selected in 2007, that the next I.M.F. leader would not be a European.

The statement stopped well short of rejecting Ms. Lagarde’s candidacy, saying merely that technical background and political acumen, rather than nationality, should be the main factors determining the choice of future managing directors.

But the statement also spotlighted what has become in increasingly common refrain among emerging market nations on the global economic and political stage: that the gradual shift in economic and demographic influence to rapidly developing countries should be reflected in increasing representation for them in international institutions.

“Adequate representation of emerging market and developing members in the fund’s management is critical to its legitimacy and effectiveness,” the executive directors’ statement said.

Still, in the absence of any consensus among emerging-market nations on a single candidate from their ranks, there appeared to be little to indicate that a bid by Ms. Lagarde would be derailed.

Mexico is nominating the governor of its central bank, Agustin Carstens, who told Reuters in an interview that the United States had welcomed his participation in the race for the job but was neutral on whether to support his candidacy.

Arvind Virmani, who represents India and three other countries on the I.M.F. board, told Bloomberg News in an interview that there appeared little chance that a candidate from an emerging market would succeed in getting the job. “There is no indication which suggests that the result will be any different this time,” he said.

Liz Alderman reported from Paris.

Article source: http://www.nytimes.com/2011/05/26/business/global/26fund.html?partner=rss&emc=rss