A former Barclays Plc trader who bragged about disrupting the western U.S. power market more than a decade ago dodged a $1 million fine by a U.S. regulator for alleged manipulation.
Ryan Smith convinced a federal judge in Sacramento, California, that the Federal Energy Regulatory Commission waited too long to bring its case against him for allegedly scheming with three Barclays traders starting in 2006 to use money-losing physical power trades at four hubs in California and the Northwest to reap profits in financial positions.
The case against Barclays and those traders has been closely watched by stakeholders in U.S. power markets both because the cumulative fine of $488 million marked a record for the energy regulator and it may set a precedent for what counts as manipulation. After flexing its enforcement powers with a boost from Congress in 2005, the commission is now facing a test of its authority to issue fines with several companies fighting back in courts around the U.S. A trial in the Barclays case is set for May 2019.
Several cases brought by the agency have either been dismissed or settled without guidance from judges on what constitutes misconduct.
Matthew Connolly, an attorney with Nutter McClennen & Fish LLP in Boston, said the Barclays case “is significant for the industry, no question.”
“There’s been no decision in federal court confirming or denying that FERC’s market manipulation is in accordance with their statute,” said Connolly, who isn’t involved in the Barclays case.
Read More: Barclays Fights Price-Fixing Fine in Power-Market Test
Smith’s victory Friday signals that the regulator needs to pursue enforcement actions on a faster timeline. Still, the commission may be able to use the ex-Barclays trader’s expletive-laced email from 2006 about his manipulation of electricity prices for 4 million residents in four states in the southwestern U.S. as evidence to support its fine against the London-based bank, according to Ken Irvin, a lawyer with Sidley Austin LLP in Washington who isn’t involved in the case.
Smith worked with the bank’s West Power Desk in New York from April 2006 to March 2007, while the claims against Barclays extend through December 2008. The commission imposed fines of $15 million on Smith’s supervisor and $1 million each on two other traders — all of which will be contested at the 2019 trial.
The case is Federal Energy Regulatory Commission v. Barclays Bank Plc,, 13-cv-02093, U.S. District Court, Eastern District of California (Sacramento).
— With assistance by Robert Burnson