JPMorgan manipulated California’s energy market to great profit, then lied about it. Its penalty? Chump change (one day’s revenue).
By Michael Hiltzik
July 30, 2013, 8:46 p.m.
If you take our federal and state energy authorities at their word, you just might be convinced that the $410-million penalty dropped Tuesday on JPMorgan Chase for manipulating energy markets in California and the Midwest is a big deal.
“A historic fine,” declared Commissioner Tony Clark of the Federal Energy Regulatory Commission, which reached the settlement with Morgan. He said it “sends a strong signal.”
Over at the California Independent System Operator, the quasi-state agency that was directly victimized by JPMorgan’s behavior, the penalty was hailed as “a success story for market monitoring and market oversight,” as ISO general counsel Nancy Saracino stated on a conference call with the news media. “It’s a huge deterrent for the rest of the market,” she said.
Here are some better ways to think about this “historic” penalty, which was imposed for JPMorgan’s $125-million rip-off of California and Midwestern consumers: It’s chicken feed. A pittance.
It will have no more deterrent effect on white-collar wrongdoing at JPMorgan or anywhere else than telling its traders they’ve got to take the Ferrari to work instead of the Lamborghini, though they can still take the Lambo to the beach house. Our top regulators actually think they’ve gotten the better of a huge illegal enterprise, which is a good sign that they’re delusional. They didn’t even get Morgan to admit that it had done anything wrong.
Look at the numbers. Of the $410 million, $125 million represents the disgorgement of illicit profits from Morgan’s scheme — money the bank wouldn’t have collected at all if it operated within the law. (The sum is supposed to be returned to ratepayers.) So that doesn’t count. The real punishment is the balance of $285 million. How badly will that hurt JPMorgan Chase? Well, the big bank collected $97 billion in net revenue last year, so it represents a little more than a single day of intake.
Ask yourself: If you could steal $125 million, with the only downside being that if you got caught you might have to give the money back and lose a single day’s income, would you give it a go? Me too.
What’s worse is that even though FERC identified four JPMorgan employees as the perpetrators of the manipulation — Andrew Kittell and John Bartholomew of the bank’s Houston-based Principal Investments unit, their supervisor Francis Dunleavy, and his supervisor Blythe Masters, Morgan’s commodities mastermind — there’s no indication that these individuals will suffer any consequences for this rip-off.
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