FERC's Latest Market Manipulation Case Shows Renewed Focus on Enforcement

On May 20, 2021, FERC ordered an energy trading firm (GreenHat) and its owners to show cause why they should not be found to have violated FERC's Anti-Manipulation Rule and pay $242 million in combined civil penalties and disgorgement.

This is the third litigated enforcement proceeding since March—unusual by FERC standards, as most enforcement matters are settled—and reflects new FERC Chairman Richard Glick's repeated calls for a renewed focus on enforcement. As reported previously, this increased enforcement activity follows FERC's slowest year (2020) and Chairman Glick's claim that the previous Commission went "AWOL" on enforcement.  

Staff's case, set forth in a 128-page FERC staff report, asserts that GreenHat manipulatively traded financial electricity contracts (called FTRs) in the largest FERC-regulated power market (PJM Interconnection). Rather than trading these contracts with the intent to profit based on market fundamentals, staff claims GreenHat amassed a large FTR portfolio expressly based on a strategy of minimizing collateral obligations—allowing them to sell off profitable portions of their portfolio and default on unprofitable portions at minimal cost to GreenHat, but while causing $179 million in losses to PJM members and ultimately ratepayers. In staff's words, this was "a textbook example of a type of fraud in which perpetrators acquire assets with no intent to pay for them, and then use the assets to generate cash (or other benefits) for themselves." Staff further claims that GreenHat rigged the auction with "inside information" from counterparties, and misrepresented their financial strength when PJM became concerned about a looming default.

Three other takeaways make this case worth following. First, certain owners of GreenHat were also involved in conduct underlying an earlier FERC market manipulation settlement, and Chairman Glick has previously noted his interest in taking regulatory action to address the Commission's inability to "track[] recidivist fraudsters." Second, the proposed penalties here, and the proposed penalties in the other two litigated enforcement proceedings this year, are significantly higher than would have been proposed by the previous Commission based on analysis of previous settlements and enforcement actions. Third, Commissioner Danly issued a lengthy concurrence in which he criticized several core components of FERC staff's allegations—which is rare if not unprecedented in FERC's history.