On December 30,2014, the Commission approved four Stipulation and Consent Agreements (Agreements) between the Office of Enforcement (Enforcement) and Twin Cities Power - Canada, Ltd., Twin Cities Energy, LLC, and Twin Cities Power, LLC (collectively, Twin Cities), and Jason F. Vaccaro, Allan Cho, and Gaurav Sharma (collectively, the Traders). Enforcement accused Twin Cities and the Traders of violating the Commission's anti-manipulation rule by manipulating electricity prices in the Midcontinent Independent System Operator, Inc. (MISO) from January 2010 through January 2011 in order to benefit their related financial positions. Twin Cities admitted the violations and agreed to pay a civil penalty of $2,500,000 and disgorgement of $978,186 plus interest. Twin Cities will also implement measures designed to ensure compliance in the future, including submitting compliance reports for four years.
The Traders neither admit nor deny the violations and agreed to pay the following civil penalties: Jason Vaccaro, $400,000, Allan Cho, $275,000, Gaurav Sharma, $75,000. Additionally, the Traders agreed to physical trading bans as follows: Jason Vaccaro for five years, Allan Cho for four years, Gaurav Sharma for four years. The Traders will also implement measures designed to ensure compliance in the future, including submitting compliance reports.
Enforcement alleged that one or more of the Traders engaged in a consistent pattern of flowing physical power in the direction of their financial swaps. The Traders imported power into MISO to increase supply when they held a short swap position, or exported power from MISO to decrease supply when they held a long swap position. Additionally, the Traders consistently and intentionally flowed large volumes of physical power in the direction of their financial positions with the intent to move prices at the Cinergy Hub. According to stipulated facts, the Traders' pattern of physical flows mirrored changes in their financial positions, with the Traders consistently adding to their financial positions while proportionally increasing their power flows and consistently decreasing their power flows or not flowing any power after their financial positions were reduced or eliminated. The Traders' physical power flows were not intended to get the best price and were not in response to market fundamentals. Although Enforcement admitted that the trading was occasionally profitable, over time it produced significant losses and the physical power flows consistently resulted in gains to, or avoided losses from, the Traders' financial swap positions.
This settlement is consistent with past Commission approved settlements concerning cross-market manipulation where a company loses money in one market (physical) to benefit positions held in another market (financial). The Commission has also stated that in certain cases it will require admissions and the company in this case admitted the violations. This settlement also supports the Commission's recent practice of pursuing remedies against individual traders.
Please let us know if you would like a more detailed briefing.