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Dreyfus to pay $7.4 million to settle market manipulation charges

From the February 11, 2014 issue of Public Power Daily

Originally published February 11, 2014

By Robert Varela
Editorial Director

The Federal Energy Regulatory Commission on Feb. 7 approved a settlement under which Louis Dreyfus Energy Services will pay approximately $7.4 million to resolve allegations that the company manipulated the Midcontinent Independent System Operator Inc.'s energy markets between November 2009 and February 2010. The company will pay a civil penalty of $4.1 million and disgorge more than $3.3 million, plus interest, in unjust profits, while one of its traders, Xu Cheng, will pay a fine of $310,000 to resolve the allegations by FERC’s enforcement staff. 

Dreyfus used virtual trades, on which it lost money, to create artificial congestion in MISO’s day-ahead market and inflate the value of its trades of financial transmission rights (FTRs) at the Velva node in North Dakota, FERC staff said. The company "knew how virtual trades could affect market congestion and thereby affect FTR values," FERC said in a Feb. 7 order approving the settlement. "Cheng had written a dissertation in support of his Ph.D. that described in detail a strategy for using virtual trades to increase congestion in an area in a manner that would increase the value of FTR holdings."

The company "did not identify a reasonable fundamental basis for trading virtuals the way that it had at Velva," FERC said. Dreyfus and Cheng did not admit to nor deny having violated FERC's anti-manipulation rule, but each stipulated to the facts as recounted by commission staff.



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Senior Vice President, Publishing 
Jeanne Wickline LaBella

Editorial Director
Robert Varela

Editor, Public Power Daily
Jeannine Anderson

Communications Assistant
Fallon W. Forbush

Manager, Integrated Media 
David L. Blaylock

Integrated Media Editor 
Laura D’Alessandro