[ by Melanie Gretchen ]

The Americans are coming.

First, Barclays in late June agreed to pay $453 million to American and British regulations to settle allegations that it manipulated Libor.  Now, the Federal Energy Regulatory Commission (FERC) is seeking a $435 million civil penalty over accusations that the bank manipulated energy prices in and around California.  Together, the U.S. Justice Department and the SEC are investigating whether payments related to raising capital from investors in the Middle East during the height of the financial crisis violated the Foreign Corrupt Practices Act.

The Federal Energy Regulatory Commission order:

• involves complex transactions from 2006 to 2009
• accuses Barclays traders of taking losses in the market for delivering electricity in order to manipulate the price of an index that effectively bolstered the value of financial swaps held by the bank
• proposed the largest penalty ever sought by the Federal Energy Regulatory Commission – 3 times more than the previous record of $135 million fine imposed against Constellation Energy in April. [C-I Note: the commission calculated the $435 million amount based on the loss caused by the violations along with certain factors that can increase the fine.  Thus, a civil penalty of up to $1 million for each day of Barclays alleged activity for 655 product days could add up to charges of $655 million.]

• seeks to have Barclays disgorge approximately $35 million in profit.

In its defense, the bank said in a statement that its "trading was legitimate and above board," adding that it intended "to vigorously defend this matter."

Chance of Success. FERC would seem to have better odds.  Obstacles facing Barclays include:

1) The bank's role according to the commission:

• one of the traders involved was a senior manager
• the bank's internal compliance program was "inadequate" because it "did not have systems in place to detect" manipulative trading
• responsibility for compliance in the power trading operation was put in the hands of one the senior manager accused of the violations

2) The bank's (Libor scandal-ridden) record:

• the energy commission noted that the bank was involved in manipulation during the same period, even though it was in another part of the company and involved a far different financial issue

Going forward, the commission will seek a triple penalty against the bank, based on the claimed losses it inflicted on others trading in the financials swaps contracts, which Barclays is expected to challenge if it decides not to pursue a settlement and seeks a hearing.

As for DOJ and the SEC's investigation ... the prospect of failure by Barclays could cost the bank even more.  What investigators are looking at:

• the £11 billion ($18 billion) that Barclays raised during the 2008 financial crisis from Qatar Holding, the sovereign wealth fund of the Qatari government, and made payments totaling £400 ($639) million to facilitate the investments

In turn, those payments are being scrutinized by Britain's Serious Fraud Office and the Financial Services Authority (more unwanted attention).  What the American government might seek: a significant financial penalty from Barclays to settle any violations of the Foreign Corrupt Practices Act, putting Barclays in a tough spot to reach a favorable resolution.

C-I Note: Will the DOJ's praise of the bank for its "extraordinary cooperation" in the Libor inquiry help Barclays?  How will Barclays operate in the United States in the event of a 3-time loss?  Will settlement come soon or will the British bank fight to the bitter end?

For further details, go to [Dealbook, 11/5/12].