Tuesday, March 28, 2017

FERC Orders $15 Million Penalty in PJM Market Manipulation Case

By Rich Heidorn Jr.

Federal regulators ordered a Florida energy trader to pay $15 million in penalties and repay almost $1.3 million in profits for making riskless up-to-congestion trades in PJM to cash in on line-loss rebates.

The Federal Energy Regulatory Commission imposed the penalty July 2 against City Power Marketing, of Fort Lauderdale, Fla., and its founder K. Stephen Tsingas (IN15-5), ruling that they were guilty of market manipulation and making false and misleading statements to commission investigators.

The commission ordered City Power to pay $14 million and Tsingas to pay $1 million in civil penalties and disgorgement of $1,278,358 in unjust profits, plus interest.

Chairman Norman Bay, who headed the Office of Enforcement during the City Power investigation, did not participate in the order.

The commission said City Power cashed in on line-loss rebates — or marginal loss surplus allocations (MLSA) — through three types of UTC transactions: “round-trip” trades that canceled each other out; trades between import and export pricing points of the same PJM interface with equivalent prices (SOUTHIMP-SOUTHEXP); and trades between two PJM nodes that historically had a very small price spreads (NCMPAIMP-NCMPAEXP).

The commission concluded that City Power created the false impression that it was trading to arbitrage price differences “when, in fact, it was engaging in trades solely to collect MLSA payments to the detriment of other market participants.”

“As we have noted, trades that are pre-arranged to cancel each other out and involve no economic risk are wash trades, which are inherently fraudulent,” the commission said.

The order also concluded that Tsingas attempted to mislead investigators by denying the existence of incriminating instant messages between him and a business partner, Timothy Jurco.

The allegations against City Power are virtually identical to those FERC made in its case against Rich and Kevin Gates and their Powhatan Energy Fund.

On May 29, the commission ordered the Gates brothers and their associates to pay $34.5 million in penalties and disgorged profits. If the Gates brothers don’t pay up within 60 days, as they insist they won’t, FERC will have to file a complaint in U.S. District Court to force payment. (See FERC Orders Gates, Powhatan to Pay $34.5 Million; Next Stop, Federal Court?)

FERC also may face challenges collecting from Tsingas and his company, which said in April that FERC’s investigation forced Tsingas to lay off all of his employees and “destroyed” the company. (See UTC Trader: Firm was Ruined by ‘Unfair’ FERC Prosecution.)

FERC investigators contend Tsingas’ net worth is at least $10 million, including “a waterfront mansion” in Fort Lauderdale worth $3 million, a yacht, a house in Greece and several autos.

Tsingas told FERC his net worth is “roughly $1 million” and that his “yacht” is a nine-year-old, 32-foot outboard boat “without a cabin or a shower” and that his “mansion” is a simple three-bedroom house.

Attorneys for Tsingas and City Power did not respond to a request for comment.

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