California scheming? Barclays facing record $470m fine

Bank stands accused of plotting to rig the US State's electricity market to boost its profits as problems continue to pile up

Barclays suffered another huge blow to its reputation yesterday as America's main energy regulator said it wants to fine the bank a record $470m (£292m) for rigging the Californian electricity market, echoing the Enron debacle of 2000.

This is the latest scandal to break at the bank, whose chief executive Bob Diamond was forced to resign in July after Barclays was fined £290m by regulators on both sides of the Atlantic for rigging the key Libor interest rate.

Barclays has had to set aside £2bn for mis-selling payment protection insurance and £450m for mis-selling interest rate swaps to small businesses. It is also facing inquiries into how much it paid advisers when it was bailed out by Middle Eastern investors in 2008.

Electronic communications revealed between Barclays traders on the west coast of the US contained colourful and obscene language as they discussed how to rig the markets.

In one a trader says how he "fuckked [sic] with the Palo mkt" indicating he had moved the electricity price for that region to make profits on his complex financial bets.

In another a trader wrote: "I'm gonna try to crap on the NP light and it should drive the SP light lower", meaning by selling off-peak power in northern California the price in the south of the state would be driven down again, making him a profit. The Federal Energy Regulatory Commission said Barclays and four of its traders had consistently rigged the markets between 2006 and 2008. As well as proposing a $435m fine it wants Barclays to pay the equivalent of the $34.9m profit it made and the traders together to pay $18m.

Barclays said it would "vigorously" defend itself against the US regulator, which has given it 30 days under an order to show cause notice to appeal against its findings.

A Barclays spokesman said: "We believe that our trading was legitimate and in compliance with applicable law. The Order To Show Cause 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. We have co-operated fully with the FERC investigation, which relates to trading activity that occurred several years ago."

The FERC was created in 2005 in response to Enron and has been steadily clamping down on the energy trading arms of banks. It is investigating Deutsche Bank and JPMorgan as well as the oil giant BP.

In a 67-page order to show cause and notice of penalty", the FERC details how the four traders manipulated local and national markets between them and includes some of their electronic messages to each other.

The four, Daniel Brin, Scott Connelly, Karen Levine and Ryan Smith previously worked for another energy trading business Miran, which was fined hundreds of millions of dollars for false trading in the California power-trading scandal a decade ago.

The FERC said for over two years Barclays had "engaged in loss-generating trading of the next-day fixed-price physical electricity on the Intercontinental Exchange to benefit Barclays' financial swap positions at the primary electricity trading points in the western United States".

This, the regulator claimed, cost rival power traders $139m and made Barclays profits of $34.9m. There is no immediate indication that the alleged rigging affected prices charged to consumers.

In one message Mr Brin stated he was "doing phys[ical] so I am trying to drive price in the fin[ancial] direction" while in another Mr Smith described how he "fuckked [sic] with the Palo mkt", "propped up the Palo index" and was "gonna try to crap on the NP light and it should drive the SP light lower". In other words he was trading physical electricity in small local markets to shift prices to make huge financial bets on derivatives profitable.

In another round of electronic messages Mr Smith discussed with another trader at a different firm his tactics of dumping physical power he had bought through index trading into the cash market to push down the price.

Trader You blow your index load yet?

Smith Not yet. Why?

Trader Watching to see how low the hr's [hourly rates] can get

Trader It's like that battle scene from Braveheart: hold ... hold ... unleash hell!

Smith Ha

Trader With no load/low volume, a hvy handed index dump really moves it

Smith That's funny as hell. Good Braveheart

In another exchange Mr Smith and Mr Brin discuss their tactics trading between the different local markets including South Path, North Path, Palo Verde and Mid Columbia.

Smith Don't buy any SP light [off-peak electricity] index. I'm gonna try and crap on the NP light and should drive the SP light lower

Brin That is fine

Smith Don't buy any too early

Brin Yup

Smith I got the Palo hvy. You do midc hvy

Brin Okay

And in another exchange with a friend who traded at rival firm Mirant Mr Smith again boasts of cornering the North Path market.

Smith If you are long NP light I suggest selling it early

Trader We're short 1,000

Smith You'll see me offered there. Well, ten [minutes] have your bid behind and I will send it your way

Trader Why you buy index if it's going to tank

Smith My lil secret

Trader You crazy

Smith Tell you about it later

Trader Call me on the bat line [mobile phone]

A rival trader who has had a conversation with the Barclays traders about their seemingly absurd market positions which can only make them lose money concludes: "I need a mentor, these guys are retards."

The FERC said Barclays head of commodities Americas had made it clear that loss-making trading was unacceptable. Joseph Gold told the commission: "The golden rule was always under no circumstances lose money on a transaction for the intention of making money on another transaction."

All four traders have left Barclays in the past five years.

Energy transfers: How it worked

The four Barclays traders exploited the differences between the daily prices of electricity in four local Californian markets – Mid-Columbia, South Path 15, North Path 15 and Palo Verde – and longer-term financial instruments known as swaps on the Intercontinental Exchange. The traders then took huge bets on the local physical markets – which are where the local power companies buy their daily needs – to move their longer-term bets, which generally ran for a month. The regulator said this was "highly co-ordinated" and produced "substantial, repeated and avoidable losses" for Barclays in the local markets but ensured that energy indices favoured their swaps.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
Arts and Entertainment
The Apprentice candidates Roisin Hogan, Solomon Akhtar, Mark Wright, Bianca Miller, Daniel Lassman
tvReview: But which contestants got the boot?
Arts and Entertainment
Jim Carrey and Jeff Daniels ride again in Dumb and Dumber To
filmReview: Dumb And Dumber To was a really stupid idea
News
people

Jo from Northern Ireland was less than impressed by Russell Brand's attempt to stage a publicity stunt

Sport
Scunthorpe goalkeeper Sam Slocombe (left) is congratulated by winning penalty taker Miguel Llera (right)
football
Life and Style
A woman walks by a pandal art installation entitled 'Mars Mission' with the figure of an astronaut during the Durga Puja festival in Calcutta, India
techHow we’ll investigate the existence of, and maybe move in with, our alien neighbours
Arts and Entertainment
Sir Ian McKellen tempts the Cookie Monster
tvSir Ian McKellen joins the Cookie Monster for a lesson on temptation
News
i100
News
ebooksNow available in paperback
Travel
Tourists bask in the sun beneath the skyscrapers of Dubai
travelBritish embassy uses social media campaign to issue travel advice for festive holiday-makers in UAE
Arts and Entertainment
Jennifer Saunders stars as Miss Windsor, Dennis's hysterical French teacher
filmJennifer Saunders and Kate Moss join David Walliams on set for TV adaptation of The Boy in the Dress
Life and Style
tech
Sport
Nabil Bentaleb (centre) celebrates putting Tottenham ahead
footballTottenham 4 Newcastle 0: Spurs fans dreaming of Wembley final after dominant win
Life and Style
Sebastian Siemiatkowski is the 33-year-old co-founder and CEO of Klarna, which provides a simple way for people to buy things online
tech
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Java Developer - Hertfordshire - £47,000 + bonus + benefits

£40000 - £470000 per annum + bonus: Ashdown Group: Java Developer / J2EE Devel...

Ashdown Group: Direct Marketing Manager - B2C, Financial Services - Slough

£45000 - £55000 per annum + Benefits: Ashdown Group: An exciting opportunity h...

Carlton Senior Appointments: Sr Wealth Manager - San Francisco - Inv AdvisoryFirm

$125 - $175 per annum: Carlton Senior Appointments: Senior Wealth Manager – In...

Carlton Senior Appointments: Private Banking Manager - Intl Bank - Los Angeles

$200 - $350 per annum: Carlton Senior Appointments: Managing Producer – Office...

Day In a Page

Jeb Bush vs Hillary Clinton: The power dynamics of the two first families

Jeb Bush vs Hillary Clinton

Karen Tumulty explores the power dynamics of the two first families
Stockholm is rivalling Silicon Valley with a hotbed of technology start-ups

Stockholm is rivalling Silicon Valley

The Swedish capital is home to two of the most popular video games in the world, as well as thousands of technology start-ups worth hundreds of millions of pounds – and it's all happened since 2009
Did Japanese workers really get their symbols mixed up and display Santa on a crucifix?

Crucified Santa: Urban myth refuses to die

The story goes that Japanese store workers created a life-size effigy of a smiling "Father Kurisumasu" attached to a facsimile of Our Lord's final instrument of torture
Jennifer Saunders and Kate Moss join David Walliams on set for TV adaptation of The Boy in the Dress

The Boy in the Dress: On set with the stars

Walliams' story about a boy who goes to school in a dress will be shown this Christmas
La Famille Bélier is being touted as this year's Amelie - so why are many in the deaf community outraged by it?

Deaf community outraged by La Famille Bélier

The new film tells the story of a deaf-mute farming family and is being touted as this year's Amelie
10 best high-end laptops

10 best high-end laptops

From lightweight and zippy devices to gaming beasts, we test the latest in top-spec portable computers
Michael Carberry: ‘After such a tough time, I’m not sure I will stay in the game’

Michael Carberry: ‘After such a tough time, I’m not sure I will stay in the game’

The batsman has grown disillusioned after England’s Ashes debacle and allegations linking him to the Pietersen affair
Susie Wolff: A driving force in battle for equality behind the wheel

Susie Wolff: A driving force in battle for equality behind the wheel

The Williams driver has had plenty of doubters, but hopes she will be judged by her ability in the cockpit
Adam Gemili interview: 'No abs Adam' plans to muscle in on Usain Bolt's turf

'No abs Adam' plans to muscle in on Usain Bolt's turf

After a year touched by tragedy, Adam Gemili wants to become the sixth Briton to run a sub-10sec 100m
Calls for a military mental health 'quality mark'

Homeless Veterans campaign

Expert calls for military mental health 'quality mark'
Racton Man: Analysis shows famous skeleton was a 6ft Bronze Age superman

Meet Racton Man

Analysis shows famous skeleton was a 6ft Bronze Age superman
Garden Bridge: St Paul’s adds to £175m project’s troubled waters

Garden Bridge

St Paul’s adds to £175m project’s troubled waters
Stuff your own Christmas mouse ornament: An evening class in taxidermy with a festive feel

Stuff your own Christmas mouse ornament

An evening class in taxidermy with a festive feel
Joint Enterprise: The legal doctrine which critics say has caused hundreds of miscarriages of justice

Joint Enterprise

The legal doctrine which critics say has caused hundreds of miscarriages of justice
Freud and Eros: Love, Lust and Longing at the Freud Museum: Objects of Desire

Freud and Eros

Love, Lust and Longing at the Freud Museum