Comment from  Another day, more financial douchebaggery.  The Federal Energy Regulatory Commission (FERC) is going to town on financial institutions that in any way manipulated the energy markets.  Barclays is alleged to have run a very active scheme of “manipulating physical electricity prices at a loss in order to make profits in related positions in the swaps market, a strategy known as a ‘loss-leader”.  Barclays bank documents show that energy traders “bragged about how they would ‘crap on’ certain markets to profit in other ones.”  Nice touch guys.

Article below from the Huffington Post:

U.S. regulators threatened to fine Barclays roughly $470 million to settle allegations that the bank and four traders manipulated California electricity markets, reviving the specter of a sector-wide crackdown on energy trading.

It could possibly be the biggest penalty ever levied by the Federal Energy Regulatory Commission (FERC), and potentially exceeds the fine Barclays paid over the Libor bid-rigging scandal that cost Chief Executive Robert Diamond his job.

The bank has 30 days to show why it should not be penalized for an alleged scheme of manipulating physical electricity prices at a loss in order to make profits in related positions in the swaps market, a strategy known as a “loss-leader”.

British bank Barclays said it would fight the agency, likely setting up a landmark legal battle that could set a precedent over whether the once-common trading ploy in commodity markets is illegal or simply ill-advised.

It will have huge implications across the market, as the FERC – – w hich won expanded powers to tackle manipulation in 2005 after the California power trading scandal and related Enron meltdown — pur sues similar investigations against companies including BP and Deutsche Bank.

The FERC also said four of the company’s power traders — Daniel Brin, Scott Connelly, Karen Levine, and Ryan Smith — have 30 days to show why they should not be assessed a total of $18 million in civil penalties.

It said their activity accounted for nearly a quarter of all trading in the next-day power market during the period, accruing gains of an estimated $34.9 million. Bank documents showed how the traders bragged about how they would “crap on” certain markets to profit in other ones, the order shows.

Barclays “strongly disagreed” with the order, which it said was “by nature a one-sided document, and does not reflect a balanced and full description of the facts.”

“We believe that our trading was legitimate and in compliance with applicable law,” Barclays spokesman Mark Lane said in an email. “We have cooperated fully with the FERC investigation, which relates to trading activity that occurred several years ago. We intend to vigorously defend this matter.”

The four traders left Barclays over the past five years for reasons unrelated to the investigation, according to a source familiar with the matter. The bank closed its Portland office in 2011 and effectively quit the Western power market this year.

It is the latest blow for Barclays, which has fired staff, clawed back pay and taken other disciplinary action after being fined $450 million by U.S. and British regulators over Libor.

New CEO Antony Jenkins, who took over at the end of July, is in the middle of a review to change the bank’s culture and lift profitability. The changes are due to be unveiled in February.

Earlier on Wednesday, Barclays announced that the U.S. Department of Justice and the Securities and Exchange Commission were investigating whether it was complying with U.S. laws in its ties with third parties who help it win or retain business.

The FERC order is tantamount to an indictment, suggesting the issue may go to court after settlement talks were unsuccessful, said Craig Pirrong, a University of Houston professor and expert in energy trade regulation.


The order threatens to stir up memories of the California power crisis, but the allegations involve a far more subtle trading strategy that industry veterans say had been common in global markets: using loss-making trades in benchmark physical commodity markets in order to profit from derivatives positions.

The “loss leader” gambit had until recently been viewed as outside the bounds of regulators, whose purview typically covered either physical markets or derivatives, but rarely both. Although the practice has diminished greatly in recent years as regulators get tougher, many veterans fear that old deals could come back to haunt them.

As well as the return of $34.9 million gains plus interest, the commission is also seeking a $435 million civil penalty.

“Scary stuff,” said one senior executive at a trading firm. “Which I guess is the point.”

The FERC first flexed its muscles earlier this year with a record $245 million settlement with power company Constellation Energy over similar allegations. Other agencies pursued larger fines against power merchants after the California debacle.

“FERC is getting tougher,” said Pirrong. He cautioned that there are “factual and conceptual challenges” in proving manipulation in court, but that isn’t stopping the agency.

“It is going to town on this theory of manipulation, and I would wager that any firm that traded both physical and financial power is at risk of a similar FERC action,” he said.


The FERC Office of Enforcement staff alleged Barclays engaged in a coordinated scheme to manipulate trading at four electricity trading points in the Western United States.

The order alleges that Connelly, hired in May 2006 to start a North American power market desk, hired a team of traders who ultimately came to dominate the market, making up 24 percent of all next-day fixed-price trading on the IntercontinentalExchange trading platform during the months in question.

The bank’s “total market concentration” was as much as 58 percent and no less than 10 percent in any given month, it says.

It then engaged in “loss-generating trading of next-day fixed-price physical electricity” at a number of key electricity hubs in order to pay off positions in the swaps market, where contracts are settled based on physical market prices.

The traders were aware that the trading was “likely unlawful”, and ignored the warning of the head of Americas commodity trading Joe Gold, who “made clear the practice was unacceptable”, according to the FERC order.

Experts say one of the biggest challenges in winning any manipulation cases is demonstrating that traders intentionally engaged in a losing trade to make bigger profits.

But, just as recorded telephone conversations between California power traders about driving up power prices for ” g randma Millie” proved damning a decade ago, the agency used instant messages and emails to bolster its case.

Smith, for instance, described how he manipulated the Palo Verde market, according to the FERC order, and the “NP light” — or off-peak power (‘light’) in the North Path 15 (NP) market in northern California in an attempt to “drive the SP light lower.”

Levine asked colleagues to “keep the PV index up and the SP daily index down” while she was on vacation.

Mike Masters, co-founder of Better Markets and a frequent advocate for stronger rules, said it could be the “tip of the iceberg” as regulators probe more deeply into commodities.

“It’s a very significant fine and not just because of the dollar amount. It also highlights how banks and swap dealers were combining financial and physical positions in a predatory way to manipulate commodity markets,” he said.

“If it’s happened in power markets you can be sure it was also going on in crude oil and other markets like refined oil products,” Masters said.


Commentary from the brackpipe:  The Union Bank of Switzerland (UBS) undertook efforts to promote tax evasion among it’s wealthiest clients for decades.  UBS had allowed wealthy people world-wide to evade taxes and paid the US Government $780 million to resolve a criminal case involving secret offshore accounts.  Earlier this year, Switzerland’s oldest bank, Wegelin AG, ceased doing business under that name after the U.S. indicted the bank and several of its employees.

What’s nuttier is that a UBS Banker and convicted felon who exposed the banks actions received the biggest whistleblower award in US history!  Think about this – the felon, Bradley Birkenfeld, was driven to criminal action BECAUSE of greed and now gets a huge cash payout for his whistle-blowing efforts.  Hmmmm… is that like giving the convicted crack dealer a truckload of crack for turning in his friends?

See full article below:

From – by Laura Saunders and Robin Sidel 

A former UBS AG banker who helped the U.S. government unleash an international crackdown on tax evasion was awarded $104 million in what is believed to be the largest-ever whistleblower payout to an individual.

Bradley Birkenfeld, 47 years old, began cooperating with U.S. authorities in 2007, while still at UBS. He provided prosecutors with detailed descriptions of the bank’s efforts to promote tax evasion and confessed to running errands for rich clients, including one instance when he sneaked diamonds into the U.S. in a toothpaste tube.

The case lifted the veil of Swiss bank secrecy that for decades had allowed wealthy people world-wide to evade taxes. UBS in 2009 agreed to turn over the names of more than 4,000 account holders who were U.S. taxpayers and pay $780 million to resolve a criminal case involving secret offshore accounts.

Since then, more than 33,000 U.S. taxpayers have confessed to holding undeclared overseas accounts and paid more than $5 billion in taxes and penalties.

Mr. Birkenfeld also was implicated. He pleaded guilty in 2008 to one count of conspiracy to defraud the U.S., a felony, and was given a 40-month sentence. He currently is in New Hampshire finishing his sentence in home confinement.

Under a 2006 law, the Internal Revenue Service can pay whistleblower awards of up to 30% of the collected proceeds.

The massive award, paid out last week to a felon still serving time, shows the lengths the agency now is willing to go to collect unpaid taxes, experts said. “If Brad Birkenfeld can get an award, then many company insiders will have no problem getting one,” said Scott Knott, an attorney in Washington who specializes in tax whistleblower lawsuits.

The law doesn’t preclude paying money to convicted felons, as long as they didn’t plan or initiate the evasion.

“The IRS encourages courageous actions,” said Sen. Charles Grassley (R., Iowa), who sponsored the law. “An award of $104 million is obviously a great deal of money, but billions of dollars in taxes owed will be collected that otherwise would not have been paid as a result of the whistleblower information.”

Mr. Birkenfeld’s lawyers acknowledged their client wasn’t above reproach.

“As Brad has shown, encouraging knowledgeable insiders to stick their necks out is often the only way we can ever find out about tax cheating by the fat cats,” said his lawyer, Dean Zerbe, in a news conference.

The award was paid out last week. Mr. Zerbe said Tuesday that corrections officials wouldn’t let Mr. Birkenfeld comment. The IRS doesn’t announce whistleblower awards, but an agency spokesman confirmed the payment, adding that Mr. Birkenfeld signed a disclosure waiver.

Experts who track whistleblowers said Mr. Birkenfeld’s payment is the largest ever.

The award could also persuade other whistleblowers to come forward under a broader corporate whistleblower rule revised in 2009 and 2010. There already have been large payments made under that statute.

In 2010 the U.S. government paid $96 million to Cheryl Eckard, a former quality-assurance manager at GlaxoSmithKline PLC who helped the government win a guilty plea and a $750 million payment from the drug company to settle an investigation of manufacturing deficiencies.

The global crackdown on tax evasion isn’t yet over. Earlier this year, Switzerland’s oldest bank, Wegelin AG, ceased doing business under that name after the U.S. indicted the bank and several of its employees.

In July, German authorities raided the homes of Credit Suisse Group AG clients who were suspected of evading taxes. That case centers on about 5,000 clients who might have bought insurance policies at a unit of the Swiss bank as a way to earn tax-free interest on savings.

The inquiries have shaken up the clubby world of private banking so much that Switzerland, long a bastion for the rich, has lost some of its cachet. Alois Pirker, a research director at Boston consulting firm Aite Group, estimates that Swiss private-banking fees have fallen at least 25% in the past two years because foreign clients no longer see an advantage to stashing money there.

“The business that remains there is under extreme fee pressure, and the dust hasn’t settled yet,” Mr. Pirker said. He says wealthy Americans are moving funds to other tax havens, such as the Cayman Islands, Monaco and some Asian countries.

Mr. Birkenfeld, the son of a neurosurgeon, grew up near Boston and graduated from Norwich University, a military school in Vermont, in 1988. Later he worked for Credit Suisse and Barclays PLC in Geneva before moving to UBS in 2001 as one of about 50 private bankers at the firm in Geneva.

Prosecutors said Mr. Birkenfeld described helping clients hide wealth by purchasing art and jewels from funds in Swiss accounts. He said bankers used encrypted laptops and erased references to U.S. banking clients in communications.

He was convicted on the conspiracy charge in 2008, after he started cooperating with authorities. Prosecutors said he withheld information from them concerning his relationship with a wealthy California developer who was a UBS customer.

Mr. Birkenfeld served about 30 months in the Schuylkill County Federal Correctional Institution in Pennsylvania. In August, he was released to a halfway house in New Hampshire. He will be released at the end of November and placed on probation.

Mr. Zerbe said his client has asked for a presidential pardon.

At his sentencing hearing, Justice Department official Kevin Downing said, “Without Mr. Birkenfeld walking into the door of the Justice Department in the summer of 2007, I doubt as of today that this massive fraud scheme would have been discovered by the U.S. government.”

Mr. Zerbe said the $104 million award is 26% of the $400 million in tax paid by UBS to the IRS as a result of the 2009 settlement. The large-awards program pays between 15% and 30% of proceeds collected, which can be hard to determine.

Although Mr. Zerbe said Mr. Birkenfeld provided information that ultimately led to $5 billion in revenue collected by the U.S., not all of that is eligible for whistleblower awards. Mr. Zerbe said his client has other related whistleblower claims outstanding. He declined to say how much Mr. Birkenfeld’s attorneys would collect as a fee.

IRS whistleblower awards are fully taxable.

What do people think about this verdict?  Please weigh in!


“Lance Armstrong was stripped of his record seven Tour de France titles late Thursday after he refused to fight allegations that he used performance-enhancing drugs.

Thursday, Mr. Armstrong notified the U.S. Anti-Doping Agency that he wouldn’t fight the charges the agency brought against him in June, a move that, according to USADA, immediately strips him of all of his athletic titles going back to Aug. 1, 1998, roughly a year before his first Tour de France victory. USADA said Mr. Armstrong is also banned immediately from competing in Olympic and other elite-level sports for the rest of his life.”

From the WSJ:  “The U.S. Anti-Doping Agency filed formal doping charges against former professional cyclist Lance Armstrong, a move that could cost him some or all of his seven Tour de France titles.

The charges, which had been expected, were received today by Mr. Armstrong’s attorney following a unanimous recommendation from an independent review board earlier this week.

In a letter sent June 12, USADA said it planned to pursue allegations that Mr. Armstrong, his former team director, three physicians connected to the team and a staff member had operated an organized conspiracy to cheat by using performance-enhancing drugs and methods that violated the rules of the sport.

Mr. Armstrong has 10 days to respond to USADA’s official charging letter, which was sent Thursday evening, to decide whether to contest the charges. If he does, the case will be argued in front of an independent arbitration panel of three people. To prove its case, USADA would have to convince two arbitrators that the allegations are true…

USADA, a nonprofit organization that operates under the auspices of the World Anti-Doping Association, said more than 10 former teammates of Mr. Armstrong’s will testify that he doped during his cycling career. It also said it had obtained blood-testing results from 2009 and 2010 that allegedly show Mr. Armstrong doped during those years.

The agency, which is responsible for enforcing doping rules for Olympic sports, doesn’t have the authority to bring criminal charges. As a result of the case being initiated, Mr. Armstrong, a former rider with the U.S. Postal Service team, has been banned from competition in Ironman triathlons. He took up that sport after retiring from cycling in 2011.”