REPOST: JPMorgan settles energy market rigging case for $410 million

The LA Times recently published a report on the JPMorgan energy market rigging case, which was settled with a large penalty that was described by ISO officials as "historic in size and scope."  Read the full report here:

Image source: taxpayer.net

NEW YORK — California electricity customers will share $124 million of a federal settlement withJPMorgan Chase & Co. over allegations it manipulated the state's energy market.

JPMorgan, the nation's largest bank, agreed to pay a total of $410 million to settle allegations by the Federal Energy Regulatory Commission. The deal, which was announced Tuesday, also includes $285 million in civil penalties the bank will pay to the U.S. Treasury.

Ratepayers in the Midcontinent Independent System Operator will receive $1 million to settle charges JPMorgan also manipulated the power market in the Midwest.

Officials with the California Independent System Operator, which runs the state's electricity grid, praised the FERC settlement as a strong deterrent to any firm looking to rig the state's power market.

"Both the ISO and the FERC were on the beat for this conduct, and it worked extremely well for California ratepayers," said Nancy Saracino, the ISO's general counsel.

Saracino said the grid operator would return the $124 million in unjust profits to ratepayers as soon as possible.

"We've gotten every penny back and will be sending it back as soon as it hits our account," she said in a teleconference from the ISO's headquarters in Folsom, near Sacramento.

The settlement contained no admission or denial of wrongdoing by JPMorgan, nor did it name any executives. FERC said the New York company would conduct a "comprehensive assessment" of its policies and practices in the power business.

"We are pleased to put this matter behind us," a JPMorgan spokesman said in a statement. The settlement wouldn't have a "material impact" on earnings because the company previously had set aside reserves to cover the costs, the spokesman added.

FERC's investigation found that JPMorgan manipulated energy markets from September 2010 through November 2012.

The regulator found that JPMorgan engaged in 12 manipulative bidding strategies, which forced grid operators to pay unjust premiums.

California consumer advocates, however, questioned whether JPMorgan had been punished enough. The $410 million "really seems like a very small fine," said Mark Toney, executive director of the Utility Reform Network, a San Francisco group that monitors energy regulation and legislation. "It almost feels like the cost of doing business" for JPMorgan.

But ISO officials called the fine historic in size and scope.

"I wouldn't dismiss the size of the penalty at all," said Eric Hildebrandt, the director of market monitoring.

This month, the energy commission ordered the British bank Barclays, along with four of its traders, to shell out $453 million over allegations they manipulated energy markets, including California's, from 2006 to 2008. Barclays has vowed to fight the order.

FERC Commissioner Tony Clark on Tuesday said the JPMorgan settlement was an "eye-opener" highlighting challenges to regulators.

"In this investigation and others, it has become too common for subjects of an investigation to take steps to obfuscate the true intent of their business strategies as a litigation posture for dealing with their regulators," Clark said in a statement.

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REPOST: Home buyers must perform their own due diligence

This Los Angeles Times article answers a condo buyer’s question regarding a loan taken out by the homeowner association’s board of directors.

Question: Our homeowner association's directors have attorneys telling them they can do whatever they want because they are the board. Distrusting the board, I went to the office to inspect documents and found an agreement dated February 2007 for a loan for more than $3.3 million the board had taken out without the knowledge of owners. I purchased my condominium in 2007 after the loan was taken out. I believe that this obligation should have been disclosed during my purchase.

While in escrow, I had only two weeks to review my condo documents, which stated, among other things, that there was $2.05 million in reserves. That was confirmed by the association's manager. There was no mention of the loan proceeds.

I feel I was deceived in the purchase. Do I have any recourse against the association, the board of directors or real estate agents?

Answer: Boards are not free to do whatever they want. Their attorneys should be telling directors what they can legally do and what they are prohibited by law from doing. Attorneys and boards are limited by the law and by the association's governing documents. Being on the board is not justification for breaking the law, and attorneys can be disbarred for recommending actions that violate the law. That does not mean boards are prohibited from taking loans secured by the common property, but the actions must be authorized by the governing documents.

Those purchasing any property in a common-interest development need to read and understand the association's governing documents and how the restrictions will apply to them long before signing the final papers. Smart buyers perform due diligence well in advance of signing a purchase agreement. Providing those documents well in advance of closing should be a precondition to any sale. Leaving little time for review before the closing of escrow should be a red flag of potential problems at that association. What these documents cannot disclose is how your board will act.

The loan should have appeared in the association's pro forma budget, where a buyer performing due diligence should have discovered it. But it is the buyer's duty to ask for and the seller's duty to disclose that assessment.

Civil Code Section 1368 lists documents buyers are required to receive before closing escrow, whether provided by the association or the seller. The association is not required to voluntarily disclose any loans or even any litigation involving the association. That failure does not make the association, its board or even the real estate agent liable to you. The onus for knowing what questions to ask, and to whom, is on the potential buyer.

The association may seek a separate assessment to pay off the loan, but titleholders may find selling or refinancing, although not prohibited, difficult while loans are outstanding. It is incumbent on buyers to perform their own due diligence before making an offer.

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The rigors of the law school investment

Studying law is an investment—and not an easy one at that. First, there are many resources involved in making this investment: money, time, and effort. Second, it is not something that students can easily get away from. The longer one stays invested in law school, the harder it is to get out, especially considering the resources which have already been spent at the time.

Image source: usnews.com

Lately, there have also been questions regarding the practicality of investing one’s resources on law school. The economy, with its ebbs and flows, has drastically affected the employment opportunities of the aspiring lawyer. The current job market for lawyers has come down to a fizzle, owing to the sheer number of licensed lawyers per capita. Unable to find a job and perpetually tethered to their students debts, new lawyers may soon find that all their investments will be met with an uncertain prospect.

Image source: fastweb.com

This is why aspiring lawyers should never take the decision of entering law school lightly, as it might be the largest financial decision they will ever do in their lifetime. Furthermore, its consequences are far-reaching in scope and duration. But as with all other investments, the yields of studying law will ultimately come in time, if one has enough patience to weather the many rigors of the education and employment process.

Image source: npr.org

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REPOST: Oklahoma High Court Logrolls State Tort Reform Law

Oklahoma Supreme Court became the newest state court on the nullification list according to this Forbes.com article.

Image Source: forbes.com

Fifteen years ago, Washington Legal Foundation published a groundbreaking Monograph, “Who Should Make America’s Tort Law: Courts or Legislatures?” Authors Victor Schwartz, Mark Behrens, and Mark Taylor described a growing tension between state legislatures and their passage of laws aimed at curbing abuses in personal injury and other types of “ tort” litigation, and state courts, which asserted their authority to “make” tort law by striking down legislative reform measures. The rulings are based entirely on state constitutional law, so tort reform advocates have no recourse to the U.S. Supreme Court. The practice certainly hasn’t abated, as evidenced by the numerous shorter papers WLF has devoted to this “judicial nullification” in the years since 1997 (examples here, here, and here).

On Tuesday, the Oklahoma Supreme Court became the newest state court on the nullification list, overturning a comprehensive tort reform law because it violated the Oklahoma Constitution’s “single subject” rule (Douglas v. Cox Retirement). Just one of the law’s 90 provisions affected the plaintiff – a requirement for an expert affidavit in personal negligence cases – but she challenged the entire law as unconstitutional “logrolling.” In a twelve-paragraph opinion, the Court ruled that the reform law violated Article 5, § 57 of the Oklahoma Constitution, the single subject rule. In the five-Justice majority’s opinion, the provisions of the bill were dissimilar enough that legislators who supported some but not all of the sections would feel “logrolled” into voting for the entire legislation.

The Court’s opinion defies law and logic. The single subject or purpose of the Oklahoma law, as the dissent put it plainly, was “tort reform.” The vote in the legislature, Justice Winchester wrote, reflected that “the public understood the common themes and purposes embodied in the legislation.” The House vote was 86-13; in the Senate, it was 42-5.

So what’s a state legislature to do under the non-guidance offered by the majority opinion in Douglas? Should it spend its limited time in session trying to pass 90 separate bills or smaller groups of bills, with, as the dissent wrote, “no greater assurance the legislation will pass the single-subject test”? Douglas will have a chilling effect not only on broad-based tort reform, but any other type of comprehensive reform.

So it’s back to the drawing board for the Oklahoma legislature, which will have to devote more taxpayer dollars if they want to craft a fairer civil justice system that will help keep businesses in Oklahoma and attract new ones.


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