IGX

Now, it’s Morgan Stanley’s turn. Only this time, it isn’t being accused of selling dubious and enigmatic investments to naive investors. Instead, federal regulators have claimed that the bank served as a counterparty with KeySpan (a utility) and the electricity provider’s leading competitor as part of an effort to artificially prop up electricity prices in the New York metropolitan area.

In other words, derivatives have now been exposed as tools in an apparent antitrust scheme.

There is a first time for everything. According to a court-approved consent decree entered into with the bank last week, the Department of Justice claimed that the $4.8 million settlement was the agency’s “first attempt to obtain disgorgement from a financial services firm that used derivative agreements to facilitate anticompetitive behavior.”

So just when we thought we had heard all about the threats the hazardous use of derivatives could unleash on to the economy, a leading bank apparently managed to find a new way to use them, this time to help gouge consumers of more than $150 million.

Judge William H. Pauley III, the federal district court judge based in Manhattan who approved the settlement, called the $4.8 million figure a “relatively mild sanction” compared to the apparent harm caused by the scheme. “There is a risk,” he explained, “that a large financial services firm like Morgan Stanley could view such a modest penalty as merely a cost of doing business.”

Last year, Judge Pauley’s colleague on the bench echoed a similar sentiment in rejecting a $285 million settlement between Citigroup and the Securities and Exchange Commission. That ruling, authored by Judge Jed S. Rakoff, added fuel to the criticism that the financial sector has largely evaded responsibility for its role in the 2008 financial meltdown. Unfortunately for those who embraced the judge’s line of thinking, an appellate court overturned Judge Rakoff’s decision..

Although price-fixing by an electricity company may have cost New York customers nearly $300 million, the federal government can close the books on the case by collecting a penalty of just $12 million, a judge ruled on Wednesday.

KeySpan Energy Corporation, a wholesale electricity generator, artificially raised the price of electricity from May 2003 to March 2008 by making a complicated deal that gave it a stake in the profits of a competitor, the Astoria Generating Company, according to the Justice Department. The department and the company agreed to a settlement of $12 million, which would go to the federal treasury, but in court filings, Consolidated Edison, the New York State Consumer Protection Board and others objected, saying that the settlement was too small and that the money should go back to ratepayers.

protobuilder wrote:Let the free market sort this out.

Government, stay out of the way!

A criminal investigation into the collapse of the brokerage firm MF Global and the disappearance of about $1 billion in customer money is now heading into its final stage without charges expected against any top executives.

After 10 months of stitching together evidence on the firm’s demise, criminal investigators are concluding that chaos and porous risk controls at the firm, rather than fraud, allowed the money to disappear, according to people involved in the case.

The hurdles to building a criminal case were always high with MF Global, which filed for bankruptcy in October after a huge bet on European debt unnerved the market. But a lack of charges in the largest Wall Street blowup since 2008 is likely to fuel frustration with the government’s struggle to charge financial executives. Just a few individuals — none of them top Wall Street players — have been prosecuted for the risky acts that led to recent failures and billions of dollars in losses.