U.S. prosecutors are investigating whether JPMorgan Chase manipulated U.S. energy markets, people familiar with the matter said, in another sign that authorities have increased scrutiny over the embattled bank.
The investigation follows a civil settlement JPMorgan reached last month with the Federal Energy Regulatory Commission over allegations the bank manipulated power markets in California and the Midwest. JPMorgan agreed to pay $410-million. It also agreed to waive almost $227-million it had sought through a challenge to new market rules and shelved rights to $35-million that grid manager California Independent System Operator said it overpaid the bank.
At the time, Ferc said JPMorgan used “manipulative bidding strategies” to make tens of millions of dollars from old uneconomic gas-fired power plants. The bank started 10 of the 12 strategies even after an investigation had started, Ferc said.
The settlement did not allege wrongdoing by individuals but it did name Blythe Masters, the bank’s head of commodities, three times in the filing. The order found that she was kept informed of the business in spreadsheets and PowerPoint presentations that promised the company might earn up to $1.5-billion-$2-billion over eight years if it used the schemes across all of its power plants.
Ferc staff had previously claimed that Ms. Masters had misled them during their investigation, which the bank has always denied. Ms. Masters’ attorney could not be reached for comment.
The investigation into the energy markets by the U.S. attorney’s office in Manhattan, which was first reported by The Wall Street Journal, raises the stakes for the bank. JPMorgan is being scrutinized for oversight of its traders and risk management in the $6-billion “London whale” trading loss as well as its underwriting and securitization of mortgages.
The Securities and Exchange Commission is also investigating JPMorgan’s hiring of children of influential government officials in China.
JPMorgan, the U.S. attorney’s office and SEC declined to comment.
Last week the U.S. attorney’s office charged two former London-based JPMorgan traders with falsifying the bank’s books by inflating the value of credit derivative positions to avoid reporting hundreds of millions of dollars in losses in the London whale case.
U.S. authorities criticized the bank’s compliance and oversight as being in name only. The criminal complaint against the former traders said JPMorgan’s valuation group was “neither independent nor rigorous”. The bank was not charged with any wrongdoing, but it is expected to settle with the SEC and U.S. attorney’s office over the trades, people familiar with the matter have said. In settlements with both parties the bank is expected to admit wrongdoing.
Jamie Dimon, the bank’s chief executive officer, has publicly admitted mistakes related to the London whale trades after initially calling them a “tempest in a teapot”.
In May, Dan Kildee, a Democrat lawmaker from Michigan, wrote to the U.S. attorney-general urging the Department of Justice to open an investigation into JPMorgan’s actions in the energy market.