1 federal energy regulatory commission...

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AMENDED JOINT STATUS REPORT

FEDERAL ENERGY REGULATORY COMMISSION DAVID A. APPLEBAUM [email protected] WESLEY J. HEATH [email protected] EMILY C. SCRUGGS [email protected] MARIA CRISTINA MELENDEZ [email protected] Office of Enforcement 888 1

st Street, N.E.

Washington, DC 20426 Telephone: (202) 502-8100 Attorneys for FEDERAL ENERGY REGULATORY COMMISSION Please see continuation pages for a complete list of the parties and their respective counsel.

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF CALIFORNIA

FEDERAL ENERGY REGULATORY COMMISSION, Plaintiff, v. BARCLAYS BANK PLC; DANIEL BRIN; SCOTT CONNELLY; KAREN LEVINE; and RYAN SMITH, Defendants.

) ) ) ) ) ) ) ) ) ) ) ) )

CASE NO.: 2:13-cv-02093-TLN-DAD AMENDED JOINT REPORT IN COMPLIANCE WITH FED. R. CIV. P. 26(f) AND COURT’S ORDER REQUIRING JOINT STATUS REPORT Presiding: Hon. Troy L. Nunley Courtroom: 2 Trial Date: None Set

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CONTINUATION SHEET: PARTIES AND THEIR RESPECTIVE COUNSEL

THOMAS J. NOLAN (SBN 66992) [email protected] SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP 300 South Grand Avenue, Suite 3400 Los Angeles, California 90071-3144 Telephone: (213) 687-5000 Facsimile: (213) 687-5600 JAY B. KASNER (Admitted Pro Hac Vice) [email protected] STEVEN R. GLASER (Admitted Pro Hac Vice) [email protected] SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP Four Times Square New York, New York 10036 Telephone: (212) 735-3000 Facsimile: (212) 735-2000 PATRICK FITZGERALD (Admitted Pro Hac Vice) [email protected] SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP 155 North Wacker Drive Chicago, Illinois 60606 Telephone: (312) 407-0700 Facsimile: (312) 407-0411 JOHN N. ESTES III (Admitted Pro Hac Vice) [email protected] SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP 1440 New York Avenue, N.W. Washington, D.C. 20005 Telephone: (202) 371-7000 Facsimile: (202) 393-5760 GREGORY A. MARKEL (Admitted Pro Hac Vice) [email protected] CADWALADER, WICKERSHAM & TAFT LLP One World Financial Center New York, New York 10281 Telephone: (212) 504-6000 Facsimile: (212) 504-6666 PAUL J. PANTANO JR. (Admitted Pro Hac Vice) [email protected] JODI L. AVERGUN (Admitted Pro Hac Vice) [email protected] CADWALADER, WICKERSHAM & TAFT LLP 700 Sixth Street, N.W. Washington, D.C. 20001 Telephone: (202) 862-2410 Facsimile: (202) 862-2400

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CONTINUATION SHEET: PARTIES AND THEIR RESPECTIVE COUNSEL SETH P. WAXMAN (Admitted Pro Hac Vice) [email protected] DAN M. BERKOVITZ (Admitted Pro Hac Vice) [email protected] JONATHAN G. CEDARBAUM (Admitted Pro Hac Vice) [email protected] HEATHER M. ZACHARY (Admitted Pro Hac Vice) [email protected] WILMER CUTLER PICKERING HALE AND DORR LLP 1875 Pennsylvania Avenue, N.W. Washington, D.C. 20006 Telephone: (202) 663-6000 Facsimile: (202) 663-6363 MARK C. KALPIN (Admitted Pro Hac Vice) [email protected] WILMER CUTLER PICKERING HALE AND DORR LLP 60 State Street Boston, Massachusetts 02109 Telephone: (617) 526-6000 Facsimile: (617) 526-5000 Attorneys for BARCLAYS BANK PLC

SUSAN L. GERMAISE (SBN 176595) [email protected] McGUIREWOODS LLP 1800 Century Park East, 8th Floor Los Angeles, California 90067 Telephone: (310) 315-8200 Facsimile: (310) 315-8210 TODD MULLINS (Admitted Pro Hac Vice) [email protected] McGUIREWOODS LLP 2001 K Street, N.W. Washington, D.C. 20006-1040 Telephone: (202) 857-1752 Facsimile: (202) 828-3320 ALLISON D. CHARNEY (Admitted Pro Hac Vice) [email protected] McGUIREWOODS LLP 1345 Avenue of the Americas, 7th Floor New York, New York 10105 Telephone: (212) 548-2166 Facsimile: (212) 715-6279 Attorneys for DANIEL BRIN and SCOTT CONNELLY

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CONTINUATION SHEET: PARTIES AND THEIR RESPECTIVE COUNSEL

MARK E. MCKEEN (SBN 130950) [email protected] PAUL HASTINGS LLP 55 Second Street, Twenty-Fourth Floor San Francisco, California 94105 Telephone: (415) 856-7000 Facsimile: (415) 856-7100 MICHAEL L. SPAFFORD (Admitted Pro Hac Vice) [email protected] VICTORIA L.T. EARLS (Admitted Pro Hac Vice) [email protected] J. BUB WINDLE (Admitted Pro Hac Vice) [email protected] PAUL HASTINGS LLP 875 15TH Street, N.W. Washington, D.C. 20005 Telephone: (202) 551-1700 Facsimile: (202) 373-1705 Attorneys for KAREN LEVINE and RYAN SMITH

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AMENDED JOINT STATUS REPORT 1

Pursuant to Federal Rules of Civil Procedure (“FRCP”) 26(f) and this Court’s

October 10, 2013 Order Requiring Joint Status Report (ECF No. 2), the Federal Energy Regulatory

Commission (“FERC” or “Commission”), Barclays Bank PLC (“Barclays”) and the former

individual traders named herein, Daniel Brin, Scott Connelly, Karen Levine, and Ryan Smith (the

“Individual Traders,” and collectively with Barclays and FERC, “Parties”), filed a Joint Report In

Compliance With FRCP 26(f) And Court’s Order Requiring Joint Status Report with this Court on

December 16, 2013 (the “Joint Status Report,” ECF No. 52). On June 2, 2015, following the

Parties’ joint request to update the December 16, 2013 Joint Status Report, this Court ordered the

Parties to file an amended Joint Status Report which shall address the Parties’ positions on the

scope of the proceedings pursuant to Section 31(d)(3)(B) of the Federal Power Act and include a

proposed briefing schedule on this issue (the “June 2 Order,” ECF No. 91). In compliance with the

June 2 Order, the Parties submit the following Amended Joint Status Report (“Amended Report”).

The Parties set forth their respective positions on those issues in sections I and VI of the Amended

Report, and their respective proposed briefing schedules in section XIII. This Amended Report is

the result of a conference between counsel for all Parties which took place on June 30, 2015, and

three rounds of draft reports exchanged between the Parties.

I. Summary of the Claims

A. FERC’s Summary of the Claims

This matter involves judicial review of civil penalties assessed by the Commission against

Barclays and its Individual Traders for engaging in a fraudulent scheme to manipulate electricity

prices in and around California during the 2006-2008 time period. On July 16, 2013, the

Commission issued an order finding that Barclays and its Individual Traders engaged in a

fraudulent scheme to trade physical electricity uneconomically to benefit related financial

positions, in violation of the Federal Power Act’s (“FPA”) prohibition of energy market

manipulation, 16 U.S.C. § 824v(a) (2012), and the corresponding prohibition in the Commission’s

regulations, 18 C.F.R. § 1c.2 (2013) (the “Anti-Manipulation Rule”). The Commission found that

the scheme constituted “a fraudulent device, scheme, or artifice, or . . . was a course of business

that operated as a fraud.” (Commission’s July 16, 2013 Order Assessing Civil Penalties (“Penalty

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Assessment Order”), ECF No. 1-1 ¶ 26.) The Commission assessed the following penalties: a $435

million civil penalty to Barclays, a $1 million civil penalty to Brin, a $15 million civil penalty to

Connelly, a $1 million civil penalty to Levine, and a $1 million civil penalty to Smith. The

Commission also ordered Barclays to disgorge $34.9 million of unjust profits. Respondents failed

to pay the assessed civil penalties or disgorge the unjust profits. Pursuant to Section 31(d)(3)(B) of

the FPA, 16 U.S.C. § 823b(d)(3)(B), the Commission seeks an order from this Court affirming the

assessed civil penalties and requiring disgorgement.

By way of background, in the wake of Enron Corporation’s manipulative schemes in the

western U.S. electricity markets, Congress, through the Energy Policy Act of 2005, amended the

FPA to give the Commission broad authority to prohibit energy market manipulation, including the

ability to assess civil penalties against violators of up to $1 million for each day that a violation

occurs. The Commission implemented this statute in 2006 by promulgating the Anti-Manipulation

Rule. The FPA allows subjects of enforcement proceedings before the Commission to elect either

(1) an administrative hearing before an administrative law judge, pursuant to Section 31(d)(2) of

the FPA, or (2) for the Commission to assess any civil penalties by order, without an agency

hearing, pursuant to Section 31(d)(3) of the FPA, 16 U.S.C. § 823b(d)(3). Under Section 31(d)(3)

of the FPA, if a subject does not pay the civil penalty assessed by Commission order, the

Commission may institute an action in federal district court seeking an order affirming the penalty.

In such a case, the district court has authority to review the relevant law and facts de novo.

Barclays and its Individual Traders each previously elected the procedures of Section 31(d)(3) of

the FPA. As Barclays and its Individual Traders failed to pay the civil penalties assessed by the

Commission, the Commission here seeks an order from this Court affirming the civil penalties.

Because nearly all FERC enforcement investigations have been resolved through settlement, this is

the first action for affirmation of a penalty assessment brought under Section 31(d)(3) of the FPA

since the enactment of the Energy Policy Act of 2005.

The Commission’s Office of Enforcement staff (“Enforcement”) conducted an extensive

investigation of Barclays and its Individual Traders beginning in 2007, after multiple market

participants reported potentially manipulative trading by Barclays. During the investigation,

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Enforcement obtained and reviewed in excess of one million pages of documents and analyzed

hundreds of thousands of electricity trades. The documents reviewed included emails, instant

message communications (“IMs”), voice-recordings, and other relevant information. Enforcement

also conducted twenty-five (25) days of investigative depositions of Barclays’ current and former

employees, including Brin, Connelly, Levine, and Smith, and of certain third parties. The

investigation revealed that Barclays and its Individual Traders engaged in a joint scheme to

manipulate electricity prices during thirty-five (35) product months (i.e., trading of a specific

electricity product at a specific trading location for a specific calendar month) between 2006 and

2008 at four of the most significant electricity trading locations in the western U.S. at the time.

Respondents’ manipulative scheme was reflected in the trading data and communications in which

the Individual Traders openly and candidly discussed their manipulative trading. Respondents’

manipulative scheme is more fully described in the Commission’s October 9, 2013 Petition (and

the documents attached) (ECF Nos. 1.0-1.2.)

Commission procedures afforded Respondents many opportunities to present the

Commission and its staff with relevant information and defenses prior to the Commission assessing

civil penalties. In June 2011, consistent with Commission policy, Enforcement issued extensive

written preliminary findings to Respondents concluding that Respondents manipulated the western

U.S. electricity markets. This afforded Respondents an opportunity to respond to and challenge

Enforcement’s preliminary findings, and in August 2011, Respondents filed non-public briefs and

voluminous appendices in response.

After considering those responses, Enforcement provided notice on May 3, 2012, pursuant

to 18 C.F.R. § 1b.19, of its intention to recommend that the Commission initiate a public

proceeding against Respondents, in which Enforcement would recommend that the Commission

assess civil penalties and other sanctions. In June 2012, Respondents submitted to the Commission

non-public responses to Enforcement’s 18 C.F.R. § 1b.19 notices.

On October 31, 2012, the Commission issued an Order to Show Cause and Notice of

Proposed Penalty (“Order to Show Cause”) pursuant to Section 31 of the FPA, 16 U.S.C. § 823b.

Barclays Bank PLC, Daniel Brin, Scott Connelly, Karen Levine, and Ryan Smith, 141 FERC ¶

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61,084 (2012). In the Order to Show Cause, the Commission directed Barclays to show cause why

it should not be assessed a civil penalty in the amount of $435 million or a modified amount

consistent with Section 31(d)(4) of the FPA and disgorge $34.9 million in unjust profits. The

Commission also directed the Individual Traders to show cause why they should not be assessed

civil penalties of the following or modified amounts consistent with Section 31(d)(4) of the FPA:

Brin – $1 million, Connelly – $15 million, Levine – $1 million, and Smith – $1 million. The

Commission attached Enforcement’s Report and Recommendation (“Staff Report”) (ECF No. 1-2)

to its Order to Show Cause. The relevant legal and factual matters were then briefed before the

Commission through Respondents’ December 14, 2012 answers to the Order to Show Cause, and

Enforcement’s January 28, 2013 reply.

The Commission considered the record before it, including Respondents’ legal and factual

defenses and explanations. On July 16, 2013, the Commission issued its 85-page Penalty

Assessment Order (ECF No. 1-1), explaining in detail why the Commission found Barclays and its

Individual Traders liable for violating the Anti-Manipulation Rule. The evidence considered by the

Commission in its Penalty Assessment Order included only those materials cited by the parties, all

of which are in the possession of Barclays and its Individual Traders. Those materials consisted of

a deposition transcript of a single third-party witness provided by Enforcement to Respondents,

trade data, deposition testimony of the Individual Traders, IMs, e-mails and other documentary

evidence that Barclays either possessed or provided to Enforcement. Therefore, when Respondents

argue they have not had the opportunity to “cross-examine any witnesses,” they essentially argue

that they cannot cross-examine themselves or other current or former employees of Barclays.

Respondents also argue they have been deprived of discovery on documents relied upon by the

Commission involving third parties. However, these documents, all of which are in Respondents’

possession, involve statements by the Individual Traders to third parties regarding the manipulative

scheme. The Commission did not rely on statements from third parties regarding the meaning of

these documents as Respondents imply. Moreover, Barclays and the Individual Traders had the

opportunity to submit additional factual affidavits to the Commission from any witnesses they

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wished the Commission to consider, and in fact submitted affidavits from Mr. Connelly and a

Barclays employee who worked in risk management.

In its Penalty Assessment Order, the Commission addressed the mechanics of Respondents’

manipulative scheme, including how Respondents set up physical positions opposite financial

positions and flattened the physical electricity position uneconomically in the day-ahead fixed-

price market to affect the price indices against which Respondents’ financial positions settled. The

Commission found Respondents’ manipulative scheme was apparent in the trade data and

communications in which Respondents discussed their manipulative trading. The Commission also

explained why Respondents’ proffered defenses and explanations were not valid. The Commission

found the assessed penalties – $435 million for Barclays, $15 million for Connelly, and $1 million

each for Brin, Levine, and Smith – to be statutorily authorized under the FPA, appropriate in this

case, and in fact well below the maximum penalty amounts allowed. Although Respondents

repeatedly claim that the Commission based its determination of liability and penalty assessment

on Enforcement’s preliminary econometric model, the Commission did not have access to (a point

which Respondents concede in the December 16, 2013 Joint Status Report (see ECF No. 52 at 18)),

and did not rely on, this model. As the Commission emphasized in its Penalty Assessment Order,

it conducted an independent assessment of the penalty considering the required statutory factors of

the seriousness of the violation and the efforts to remedy the violation (although noting that the

result was consistent with its penalty guidelines).

Section 31(d)(3)(B) of the FPA, 16 U.S.C. § 823b(d)(3)(B), provides that in an action by

the Commission in district court for an order affirming the assessed civil penalties, the court “shall

have authority to review de novo the law and the facts involved, and shall have jurisdiction to enter

a judgment enforcing, modifying, and enforcing as so modified, or setting aside in whole or in part,

such assessment.” The Commission respectfully submits that this Court can and should affirm the

penalty assessment without modification following a review of the Commission’s Penalty

Assessment Order and the materials presented to the Commission by Enforcement and

Respondents during the penalty assessment process.

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Respondents argue, both in the December 16, 2013 Joint Status Report and here, that the

Commission’s penalty assessment procedures under the FPA are subject to due process

protections.1 The Commission does not disagree. The penalty assessment proceeding at the

Commission afforded Respondents with due process because they were given notice of the case

against them and an opportunity to meet it. See Mathews v. Eldridge, 424 U.S. 319, 349 (1976) (in

assessing constitutional sufficiency of administrative proceedings, the Court explained, “[t]he

judicial model of an evidentiary hearing is neither a required, nor even the most effective, method

of decisionmaking in all circumstances…[,] [a]ll that is necessary is that the procedures be

tailored, … to insure that [subjects] are given a meaningful opportunity to present their case.”).

The Commission’s Penalty Assessment Order was based on an extensive administrative process

that provided Barclays and the Individual Traders with numerous opportunities to be heard. When

Respondents were given an opportunity to challenge Enforcement’s findings, they had in their

possession all of the evidence put before the Commission in assessing the penalties. The primary

testamentary evidence in the investigation came from Barclays’ employees and the Individual

Traders. The primary documentary evidence included trades executed by the Individual Traders as

well as their own written statements contained in their communications. As indicated in the

Penalty Assessment Order, this evidence demonstrates that Barclays and the Individual Traders

violated the Commission’s Anti-Manipulation Rule. In total, Barclays and the Individual Traders

submitted over 500 pages of arguments and hundreds of additional pages of exhibits in their

defense. However, as the Commission noted in its Penalty Assessment Order, Barclays and the

Individual Traders failed to rebut the evidence put forth by Enforcement of the manipulative

scheme.

Respondents argue specifically, at pages 16-19 and 26-27 of the December 16, 2013 Joint

Status Report, and below in this Amended Report, that due process requires an opportunity for

discovery and an opportunity to cross-examine witnesses before an impartial trier of fact. As

1 The Commission notes that its sections of the Amended Report address the positions

outlined by Respondents in the December 16, 2013 Joint Status Report as well as in this Amended Report regarding the scope of de novo review under Section 31(d)(3)(B) of the FPA.

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discussed above, the penalty assessment procedures satisfied due process because Respondents

were given numerous opportunities to present evidence and argument to the Commission.

However, Section 31(d)(2)(A) of the FPA also afforded Respondents the opportunities to obtain

discovery and cross-examine witnesses in an adjudicative hearing, the very opportunities

Respondents complain they have been denied. That Respondents did not elect to exercise those

opportunities does not mean that the Commission denied Respondents due process.

Section 31(d)(3)(B) of the FPA, 16 U.S.C. § 823b(d)(3)(B), authorizes the Court to review

de novo the law and the facts involved in deciding whether to affirm the Commission’s penalty

assessment. De novo review requires a “fresh, independent determination of ‘the matter’ at stake.”

See Doe v. United States, 821 F.2d 694, 697-98 (D.C. Cir. 1987) (en banc) (Ginsburg, J. R. B.)

(citations omitted). As the court stated in Doe, “[e]ssentially then, the district court’s charge was to

put itself in the agency’s place, to make anew the same judgment earlier made by the agency.” Id.

at 698. In performing this function, however, this Court has the discretion to expand or limit the

scope of the evidence that it considers necessary to its review. See id. (citing J. Stein & J. Gruff,

Administrative Law § 51.04 (rev. ed. 1985) (“court engaged in de novo review is not confined to

the administrative record, but may pursue whatever further inquiry it finds necessary or proper to

the exercise of court’s independent judgment”)).

Section 31(d)(3)(B) uses the word “review,” not “trial,” “hearing,” or, as Respondents

would have it, “adjudication.”2 The statute describes a process in which the Commission files for

“an order affirming the assessment of the civil penalty.” FPA Section 31(d)(3)(B), 16 U.S.C. §

823b(d)(3)(B). In describing the two procedures available to a subject following the issuance of a

2 Respondents conflate the concept of a “de novo review” with a “de novo trial” and cite a

number of cases in the December 16, 2013 Joint Status Report dealing with the procedures under statutes providing for a “de novo trial.” In an attempt to establish that “de novo review” and “de novo trial” are equivalent terms, Respondents cite United States v. First City Nat’l Bank of Houston, 386 U.S. 361, 368 (1967) (See ECF No. 52 at 20.) When read in the proper context, this case does not support Respondents’ position. In that case, the Court did not consider whether a distinction existed between statutes using the term “de novo trial” as opposed to “de novo review” but rather addressed the very different question of whether the statute, by providing for a “review,” had adopted a substantial evidence review standard. The Court recognized in that case that in conducting a de novo review, “[t]he courts may find the [agency’s] reasons persuasive or well nigh conclusive.” Id.

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Commission notice of the proposed penalty, Congress used the term “hearing” to describe the

process before an administrative law judge, but used the term “review” to describe the process in

district court. To read these adjacent, but distinctly worded, subsections of the FPA to mean both

processes require a full adjudicatory hearing (or trial) ignores the language of the statute.3 Indeed,

the court in Doe found a trial was not encompassed in the de novo review provided by statute and

rejected the position that they were necessarily equivalent: “de novo review, in diverse contexts,

does not entail any trial-type hearing.” Doe, 821 F.2d at 698 n.10 (citing cases). The FPA does not

require this Court in conducting its review to look beyond the record submitted to the Commission

in the administrative proceeding by Barclays, the Individual Traders, and Enforcement.4 See Doe,

821 F.2d at 698 (holding that the judge had fulfilled the de novo role when “the district judge made

the same judgment earlier entrusted to the agency head, and he apparently did so for himself, i.e.,

on the basis of information he found sufficient to make the judgment, and without deferring to the

prior agency conclusion on the matter”).

This Court can conduct a de novo review of the penalty assessment by reviewing the record

that was before the Commission and that all parties had access to at the time the Commission

3 Respondents, in support of their argument that the Commission has interpreted “de novo

review” to require a “de novo trial” in all cases, reference a Commission rulemaking from 1988 implementing civil penalty authority for hydroelectric projects under Part I of the FPA. (See infra p. 13.) This rulemaking predated the enactment of the Energy Policy Act of 2005. After the Commission received anti-manipulation authority pursuant to the Energy Policy Act of 2005, the Commission addressed its civil penalty enforcement procedures through its Statement of Administrative Policy Regarding the Process for Assessing Civil Penalties, 117 FERC ¶ 61,317 (2006). In the Commission’s 2006 Statement, the Commission explained its enforcement procedures and correctly noted that FPA Section 31(d)(3), 16 U.S.C. § 823b(d)(3), if elected, provided for de novo review of the Commission’s penalty assessment. Id. at ¶ 5. 4 The legislative history is silent on the procedure by which a federal court should conduct

the de novo review of the Commission’s civil penalty assessment under Section 31 of the FPA, 18 U.S.C. § 823b. In the December 16, 2013 Joint Status Report, Respondents attempt to incorporate the legislative history of a different statute, namely the Natural Gas Policy Act of 1978, 15 U.S.C. § 3301 et seq., as allegedly demonstrating that Congress intended FPA Section 31 civil penalties to be subject to a de novo trial. (See ECF No. 52 at 21.) Respondents do this by pointing not to the legislative history of Section 31 of the FPA itself that provides the actual procedure at issue but rather to legislative history of a different and superseded section of the FPA, Section 316A, 18 U.S.C. § 825(o)(1), the provision which provides the statutorily authorized civil penalties amount. Any decision by Congress to model the amount of civil penalties available under the FPA on a different statute says nothing about the procedure it intended to apply in assessing those penalties.

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issued its penalty assessment. Of course, should the Court decide that additional information

would be helpful, the Commission is prepared to offer any additional information, evidence,

briefing, or argument that the Court determines would assist in its review of the Commission’s

Penalty Assessment Order. In the event the Court decides that a review of the record or a

supplementary evidentiary hearing is insufficient for its review of the penalty assessment, the

Commission is prepared to proceed with a trial.

One issue where the Court may decide that additional information would be helpful is the

amount of disgorgement. The Commission’s assessment of $34.9 million in disgorgement is

distinct from its penalty assessment. In assessing disgorgement, the Commission wrote:

We find that disgorgement of unjust profits stemming from Barclays’

manipulative scheme is necessary and appropriate under section 309 of the FPA.

Although different or more precise disgorgement amounts undoubtedly will be

considered in the federal district court action to affirm the penalty assessment,

based on the evidence available to us at this time we agree with [Enforcement]

Staff that Barclays should disgorge $34.9 million in unjust profits, plus interest.

(Commission’s Penalty Assessment Order, ECF No. 1-1 ¶ 147.) As discussed below in section

VI(A) (“FERC’s Statement on Discovery and Proposed Briefing Schedule”), the Commission

proposes that the Court consider the issue of disgorgement after it has reviewed the Commission’s

determinations of liability and civil penalties. Unlike liability and civil penalties, the issue of

disgorgement requires a showing of unjust profits. The Commission may introduce expert

testimony on the amount of disgorgement at the appropriate time, for which discovery may be

appropriate.

B. Defendants’ Summary of the Claims

1. FERC’s Allegations Against Defendants

The Complaint arises out of trading activity by Barclays and the Individual Traders

(collectively, “Defendants”) on Barclays’ trading floor located in New York City. From that

location, Defendants engaged in electricity trading at four different trading hubs in Washington,

Arizona, and California from November 2006 to December 2008. FERC alleges that certain trades

executed by Defendants in New York during this time period manipulated prices at these trading

hubs in violation of Section 222 of the FPA and Rule 1c.2 promulgated thereunder, 18 C.F.R. §

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1c.2. FERC does not and cannot allege, however, that any of the transactions at issue constituted

anything other than bona fide trades with willing counterparties that accepted the risk of entering

into trading contracts opposite Barclays.5 Moreover, FERC does not and cannot allege that any of

the trades involved fraudulent or deceptive devices, such as wash trades, which are inherently

misleading.

Instead, FERC’s allegations involve what it calls a “related positions” claim, in which

Defendants allegedly entered into electric energy trades in one market to benefit related positions

in another market, through a three-part scheme. Specifically, FERC alleges that Defendants first

entered into swaps contracts (“Swaps” or “Swap Contracts”) that do not impose an obligation to

deliver or receive electricity, but which instead are financially settled by reference to an index price

published by the IntercontinentalExchange (“ICE”), an electronic trading platform used by market

participants to trade electric energy.6 FERC alleges that Defendants then entered into other open

market transactions to purchase or sell electricity at the same trading hubs as their financial Swaps

positions and, in the final step, entered into offsetting open market transactions, known as

“flattening” transactions, on ICE ECM. According to FERC, the end result was that Defendants

completely offset all alleged purchases and sales transactions, and thereby avoided any obligation

to deliver or receive any electricity, but that the flattening transactions impacted the ICE ECM

index price against which the Swap Contracts settled in a way that benefitted those financial Swap

positions.

Under FERC’s theory, it can impose liability based on transactions that are otherwise legal

and appropriate simply because of a market participant’s alleged intent. This cannot be and is not

the law. Defendants deny FERC’s allegations regarding their purported intent and have done so

5 In FERC’s July 16, 2013 penalty assessment order, Barclays Bank PLC, et al., 144 FERC ¶

61,041 (2013) (“Penalty Assessment Order”), FERC conceded that “[s]imply buying jurisdictional day-ahead power at the same location where swap positions would be benefitted from higher prices will not in and of itself violate the Anti-Manipulation Rule.” (Penalty Assessment Order, at P 45.)

6 The specific exchange that is the subject of FERC’s allegations is operated by ICE US OTC

Commodity Markets, LLC (“ICE ECM”). Electric energy transactions traded on ICE ECM could not, without additional contracts and arrangements, result in the physical transmission, receipt, or delivery of electric energy.

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throughout FERC’s investigation, including under oath during the Individual Traders’ investigative

depositions. Finally, even accepting arguendo FERC’s theory of manipulation, FERC is relying on

cherry picked transactional data and a handful of informal emails and IMs, which are unconnected

to any actual trading and are inconsistent with the trading data upon which FERC’s allegations

rely. These communications do not alter the legitimacy of the open market trading at issue, nor do

they fill the holes in FERC’s evidence and analysis.

The filing of the Complaint in this action was preceded by a nonpublic investigation that

FERC commenced in 2007. During that investigation, FERC exercised substantial investigative

authority to engage in broad discovery from Defendants and third parties. Defendants, however,

were not given the opportunity to engage in any discovery of third parties or access any portion of

FERC’s investigative record. On October 31, 2012 FERC issued an Order to Show Cause to

Defendants, attaching and relying solely on the Staff Report. (Compl. Ex. 2, Appendix A (“Staff

Report”).) Under Section 31(d) of the FPA, 16 U.S.C. § 823b(d), Defendants had the option of

electing to defend against FERC’s allegations either: (1) in an agency hearing before an

administrative law judge, including discovery rights, a contested evidentiary hearing, and an

opportunity to submit proposed findings of fact and briefs; or (2) in an action to be filed by FERC

in federal district court. 16 U.S.C. § 823b(d)(3)(B). Defendants elected an action in federal district

court in which they are entitled, for the first time, to a de novo adjudication of both the law and the

facts. See 16 U.S.C. § 823b(d)(3)(B). Pursuant to Defendants’ election, on July 16, 2013, FERC

issued a Penalty Assessment Order and subsequently filed this action, with a jury demand.

2. Nature of the District Court Action

FERC asserts in its Summary of the Claims (above) that the Court “can and should” affirm

the civil penalties against Barclays and the Individual Traders based on a review of FERC’s

Penalty Assessment Order, and the materials that were before FERC when it issued that order—

similar to the manner in which an appellate court would review an appeal of a lower court’s

decision after a trial on the merits. According to FERC’s position, the Court can summarily affirm

FERC’s Penalty Assessment Order without regard to the FRCP that govern the process and

procedures in any other civil action before a federal district court. FERC’s position is unfounded.

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FERC is incorrect in contending that no disclosures under FRCP 26(a) are required in this

case, no discovery is necessary, and the Court should resolve the case based on a “motion for an

order affirming the civil penalties” that, apparently, would not be governed by FRCP 56 or any

other Rule. FERC’s position on the procedures that apply to this case is foreclosed by FPA Section

31(d), the FRCP, and fundamental principles of fairness grounded in the Due Process protections

of the U.S. Constitution. As a threshold matter, Defendants are not before this Court on an

“appeal” of an adverse decision by FERC. Instead, once a defendant opts for a federal district

court adjudication of alleged liability under FPA Section 31(d), FERC is required by the statute to

pursue its claims against the defendant in a civil “action” where the relevant facts and legal issues,

and ultimately the defendant’s liability, are adjudicated on a de novo basis. 16 U.S.C.

§ 823b(d)(3)(B). The de novo directive in FPA Section 31(d) thus sets forth the Court’s broad

authority to review de novo the facts and the law; it does not limit in any respect the scope or

nature of this civil action.

FERC’s position regarding the nature of this case would deprive Defendants of their

statutory right to have FERC’s claims adjudicated in federal court. FERC’s position also would

deprive Defendants of the most basic rights the law guarantees before the government can impose

millions of dollars in civil penalties for alleged statutory and regulatory violations. The most

fundamental of those rights is an adjudication of alleged liability before an impartial trier of fact.

FERC mischaracterizes Defendants’ position regarding the due process aspects of the

disputed procedural issues. (See pages 5-7, supra.) Defendants will address that issue in the

briefing contemplated by the Court’s June 2 Order on the Parties’ Joint Stipulation. (See Section

XIII, infra.) We note here, however, among other problems, that FERC’s interpretation would

mean that a defendant that elects a district court de novo action gets fewer rights, and no

adjudicative rights, compared to a defendant that elects an administrative hearing before an ALJ.

This cannot be the case, and it, and the other issues raised in the Joint Status Report and this

Amended Report, underscore broadly the need for de novo consideration of all of FERC’s claims

and, specifically, the need for briefing on the procedural issue presented.

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The Penalty Assessment Order which FERC urges the Court to summarily affirm was not

the result of an adjudication. It simply was the culmination of an investigation. Defendants had no

opportunity for discovery from FERC or third parties, no opportunity to examine or cross-examine

any witnesses (including the unidentified individuals who prepared the expert opinions that are

presented throughout the Penalty Assessment Order), and in some instances Defendants were

denied access to the investigative testimony of witnesses. The information on which FERC relied

was not subject to the Federal Rules of Evidence, or any evidentiary standard, to ensure its

relevance, reliability, fairness, competence, or scientific validity. The factual “findings” and legal

“conclusions” described in FERC’s order (and in the Complaint) are nothing more than allegations.

They were not, and never have been, tested or proven by a contested evidentiary proceeding before

a neutral trier of fact, as the FPA requires before a civil penalty can be imposed for alleged

violations of that statute. FERC previously acknowledged this in a formal rulemaking to

promulgate regulations implementing FPA Section 31(d), stating that “[w]hen a party elects federal

district court procedures to apply to a civil penalty case, the ensuing assessment order merely

triggers the process leading to a de novo trial.” Procedures for the Assessment of Civil Penalties

Under Section 31 of the Federal Power Act, 53 FR 32035 at ¶ 31,220 (Aug. 23, 1988) (emphasis

added). Under Section 31(d), FERC’s penalty assessment was not, and cannot constitute, an

adjudication. FERC was not authorized to make a “determination of a violation” under the statute.

Instead, its assessment simply was the prerequisite for the agency to formally file its action in

federal court alleging violations of the FPA. Compare 16 U.S.C. § 823b(d)(2)(A) (providing the

Commission “shall assess the penalty, by order, after a determination of violation has been made”

in an “agency hearing”) with 16 U.S.C. § 823b(d)(3)(A) (providing the Commission “shall

promptly assess such penalty, by order, after the date of receipt of the” respondents’ election to

have the claims heard in federal court).

That is the process Defendants elected pursuant to FPA Section 31(d), and both FERC and

Defendants have requested a jury trial. FERC’s effort to impose a summary review here cannot be

squared with that constitutional right of Defendants.

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II. Status of Service of Process

Pursuant to a stipulation filed with the Court on October 24, 2013 (and so ordered by the

Court on October 30, 2013), Barclays and the Individual Traders have all been “deemed to have

accepted service of the Petition For An Order Affirming The Federal Energy Regulatory

Commission’s July 16, 2013 Order Assessing Civil Penalties Against Barclays Bank PLC, Daniel

Brin, Scott Connelly, Karen Levine, And Ryan Smith (the “Petition”) through their attorneys as of

October 15, 2013,” and have waived any and all defenses as to the method, manner, or

effectiveness of service of process. (Joint Stipulation and Order Re: Acceptance of Service, ECF

No. 35.)

III. Possible Joinder of Additional Parties

None of the Parties anticipates the joinder of additional parties.

IV. Contemplated Amendments to the Pleadings

A. FERC’s Position

The Commission does not anticipate amendments to pleadings at this time. However, this

proceeding presents unique procedural issues since this is the first civil penalty assessment to be

reviewed in federal court since the passage of the Energy Policy Act of 2005. Depending on the

resolution of the procedural issues raised herein and potential substantive legal issues raised by

Respondents, the Commission reserves its right to seek leave to amend if necessary, as allowed

under FRCP 15.

Respondents filed their Answers to the Commission’s Petition on June 17, 2015 and

included certain defenses in these pleadings. (See ECF Nos. 92-96.) Regardless of the procedure

that applies to this proceeding, these defenses are facially invalid or without support. If the Court

concludes Section 31 of the FPA requires a trial under the FRCP, a number of these defenses are

waived under FRCP 12 or have already been rejected by the Court and hence should be stricken.

B. Defendants’ Position

Defendants do not believe that any amendment to the Complaint could cure the

fundamental legal infirmities therein.

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Defendants disagree with FERC’s general statement (above) that “[a] number” of

Defendants’ defenses “should be stricken.” If FERC files a motion under FRCP 12(f), Defendants

will respond in due course to any specific arguments FERC may assert for striking specific

defenses.

C. Joint Position on FRCP 12(f) Motions Regarding Respondents’ Answers

The Parties agree to extend the time for FERC to file any motions under FRCP 12(f)

regarding the Answers (ECF Nos. 92-96) to 21 days from the date the Court decides the disputed

procedural issues regarding Section 31 of the FPA.

V. The Statutory Basis for Jurisdiction and Venue

A. Jurisdiction

1. FERC’s Position

In its May 20, 2015 Order (the “May 20, 2015 Order,” ECF No. 87) denying Defendants’

Motion to Dismiss or, in the Alternative, to Transfer the Commission’s October 9, 2013 Petition,

this Court found that FERC had adequately established its jurisdiction over the conduct and

transactions at issue under FPA §§ 201 and 222. (See May 20, 2015 Order at 26.) The Court also

found that “entity” as used in FPA § 222 encompasses claims against the Individual Traders. (See id. at

32.)

2. Defendants’ Position

Defendants acknowledge the Court’s May 20, 2015 Order, but respectfully submit that

FERC does not have statutory jurisdiction over the challenged conduct and therefore it has no

statutory authority to bring this action. (See generally Motion to Dismiss at 22-33.) By addressing

jurisdiction in this Amended Report, Defendants intend no waiver of the arguments raised in the

Motion to Dismiss, the pleadings and records on file in this case, or at oral argument, either in this

action or on appeal.

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B. Venue

1. FERC’s Position

In its May 20, 2015 Order, this Court found that FERC met its burden of establishing that

an “act or transaction constituting the violation” occurred within the Eastern District of California

pursuant to Section 317 of the FPA, 16 U.S.C. § 825p. (See May 20, 2015 Order at 18.)

2. Defendants’ Position

Defendants acknowledge the Court’s May 20, 2015 Order, but respectfully submit that

venue does not lie in this District. (See generally Motion to Dismiss at 11-22.) By addressing

venue in this Amended Report, Defendants intend no waiver of the arguments raised in the Motion

to Dismiss, the pleadings and records on file in this case, or at oral argument, either in this action or

on appeal.

VI. The Parties’ General Discovery Positions

A. FERC’s Statement on Discovery and Proposed Briefing Schedule

As discussed more fully in section I(A) above (“FERC’s Summary of the Claims”), the

Commission respectfully submits that this Court can and should affirm the civil penalties assessed

against Barclays and the Individual Traders without modification following a review of the

Commission’s Penalty Assessment Order and the extensive record presented to the Commission by

Barclays, the Individual Traders, and Enforcement during the administrative process (hereafter,

“the Administrative Record”). The following materials comprise the Administrative Record:

(a) the Commission’s July 16, 2013 Penalty Assessment Order (ECF No. 1-1);

(b) the Commission’s October 31, 2012 Order to Show Cause;

(c) Enforcement Staff’s Report and Recommendation which accompanied the

Commission’s October 31, 2012 Order to Show Cause (ECF No. 1-2);

(d) the Respondents’ December 14, 2012 Answers to the Order to Show Cause;

(e) Enforcement Staff’s January 28, 2013 Reply to the Respondents’ Answers to the

Order to Show Cause; and,

(f) The underlying documents, trade data, IMs, transcripts of testimony, and other

materials cited and discussed in the above documents.

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The Respondents concede they have copies of the entire Administrative Record.

The Commission proposes a procedure to review the civil penalties as follows:

Event Date

The Commission files with the Court the

Administrative Record before the Commission

Thirty (30) days following the Court’s issuance

of the Scheduling Order

The Commission files a motion for an order

affirming the civil penalties assessed by the

Commission against Respondents

Forty-five (45) days following the filing of the

record

Respondents file opposition to the

Commission’s motion for an order affirming the

civil penalties

Forty-five (45) days following the filing of the

Commission’s motion

The Commission files a reply in support of its

motion for an order affirming the civil penalties

Thirty (30) days following the filing of

Respondents’ opposition

The Commission does not believe discovery or FRCP 26(a) disclosures are necessary for

the Court to affirm the civil penalties assessed by the Commission. All of the testimony, data, and

documents considered by the Commission in deciding the Order to Show Cause and assessing civil

penalties were and are in the possession of Respondents. In fact, the vast majority of this

information came from Respondents through depositions of Barclays’ current and former

employees, including the Individual Traders, and Respondents’ production of trade data and

documents.7

Respondents’ position is that the preliminary econometric model used to calculate

disgorgement provided the foundation for the Commission’s case and was the basis for the civil

penalties assessed by the Commission against Respondents. Respondents are incorrect. The

preliminary econometric model Respondents reference was not presented to the Commission (a

point which Respondents concede in the December 16, 2013 Joint Status Report (see ECF No. 52

at 18)), or even relied on by the Commission in assessing the civil penalties. Rather, the

Commission made clear in its Penalty Assessment Order that quantifying the effects on prices

7 Moreover, Respondents also possess information they sought and obtained from ICE

directly despite any earlier implication that they did not have the opportunity to obtain discovery from ICE. (See ECF No. 52, at 20.)

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caused by Respondents’ manipulation was not required, and that the assessed civil penalties were

statutorily authorized and appropriate irrespective of Respondents’ effects on market prices:

The [Commission’s] Penalty Guidelines recognize that it might be difficult to

measure pecuniary loss in some instances, noting that the Commission “cannot

predict how it will measure loss in every case.” For instance, the Commission

recognized that it “may need to rely on a reasonable estimate of loss” when “precise

calculations [of loss] cannot be made.”

That appears to be the case here. As discussed above, this matter involves a related-

position manipulation, a complex scheme in the wholesale power markets in which

a trader undertakes uneconomic or otherwise manipulative transactions in the

physical market with intent to affect an index (or average price) in order to benefit

related positions that settle on the index. When the scheme is successful, the

resulting index settles at a price different from the price that would have resulted

from non-manipulative, bona fide trading. But quantifying the scheme’s precise

effect on the index is unnecessary under our penalty statute. Markets are dynamic,

and traders’ expectations about reasonable prices may be affected by the non-

market or uneconomic prices offered by manipulators. Consummated transactions

affect and influence other traders, and manipulative transactions convey false

information to market participants and thus would improperly affect and influence

market participants—and, as [Enforcement] argued, this effect may be particularly

pronounced on platforms such as ICE where trading must occur on the prevailing

bid-offer spread. Moreover, requiring [Enforcement] to precisely quantify the

difference between the fair market value and the manipulated value of the Index—

and thus market harm—would require, in effect, [Enforcement] to prove that the

manipulative scheme resulted in an “artificial price” even though it is not an

element of manipulation under either the FPA or the Commission’s regulations.

(Commission’s Penalty Assessment Order, ECF No. 1-1 ¶¶ 128-29 (internal citations omitted).)

Econometric modeling and estimation of the market effects of Respondents’ manipulative trading

may be relevant in determining the amount Barclays should disgorge in unjust profits. The

Commission proposes that a separate judicial determination of the appropriate disgorgement

amount, in which the Commission may introduce expert testimony, occur following the Court’s

review of the Commission’s determination as to Respondents’ liability and the civil penalties under

FPA Section 31(d)(3), 16 U.S.C. § 823b(d)(3). At the time the Court considers the issue of

disgorgement, Respondents would have a full opportunity to conduct discovery relating to any

evidence (expert testimony or otherwise) the Commission offers at that time in support of its

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disgorgement calculation. The issue of disgorgement involves Barclays’ unjust profits, and is

distinct from determinations as to Respondents’ liability for statutory violations and civil penalties.

B. Defendants’ Statement on Discovery and Proposed Briefing Schedule

Under the FRCP, at this stage of a case, the Parties are required to make initial disclosures

and proceed with discovery. FERC opposes this. FERC’s position on discovery and the

appropriate procedural path for this case is fundamentally at odds with, and foreclosed by, the FPA

and the FRCP.

As in any civil action, whether filed by a government agency or a private party, discovery is

necessary on a number of issues in this case. The need for discovery is not affected by the fact that

FERC, like any other federal agency, conducted an investigation before filing this action.8 Nor is it

affected by the fact that, as part of the investigation, the Parties submitted papers and engaged in

other dialogue similar to the Securities and Exchange Commission’s Wells process, or the

submission of white papers to agency enforcement staff to explain why the regulator should

exercise its discretion not to proceed in a given case. The Penalty Assessment Order that preceded

this action simply constitutes FERC’s formal decision to file this action. Neither it nor FERC’s

investigation overrides the adjudicative rights of Defendants, the nature of this action, or the

attendant rights to discovery and defense that are guaranteed in federal court. The notion that

Defendants could be entitled to no discovery and no hearing simply is wrong.9

8 Defendants object to FERC’s use of the term, and attempt to unilaterally define what

constitutes, the “Administrative Record.” (See Section VI.A., supra.) The term “record” has a defined meaning in the context of agency adjudications and appeals from final agency orders. This case involves neither. The Administrative Procedure Act’s provisions governing appellate records are not applicable, and expressly carve out from their scope “a matter subject to a subsequent trial of the law and the facts de novo in a court.” 5 U.S.C. § 554(a)(1).

9 In meet-and-confer discussions after the Court issued the May 20, 2015 Order, counsel for

FERC stated that Defendants could submit a request for investigative materials that had not been provided to Defendants in the course of this litigation or the underlying non-public investigation. By letter dated June 9, 2015, a copy of which is attached as Exhibit 1, Defendants requested that FERC produce six categories of documents and data. Defendants stated in the letter that the requests did not limit Defendants’ intent to issue formal discovery requests to FERC and to third parties pursuant to the FRCP. By letter dated June 25, 2015, FERC counsel declined to provide any of the requested materials. (See Exhibit 2.) FERC acknowledged, however, that the disputed procedural issues are “currently pending before the Court,” and stated that FERC would “work

(cont’d)

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This case should now proceed with the initial disclosures required by the FRCP, followed

by the opportunity for discovery. Moving forward to the discovery phase at this juncture, in

addition to being required by the FRCP, also may result in a more fully developed record upon

which the Court can evaluate the Parties’ briefing on the disputed procedural issues, and assess the

full implications of FERC’s unprecedented position on the nature of this civil action. Defendants

set forth their proposed briefing schedule in Section XIII of this Amended Report.

1. Discovery Topics and Phases

(a) Discovery Topics

Defendants expect that they will need to take discovery that includes, but is not limited to,

the following topics: (1) each of FERC’s allegations, including its manipulation allegations; (2)

delivery, if any, of electricity by Barclays in the Eastern District of California in transactions

alleged to violate FERC’s anti-manipulation rule; (3) intent; (4) recklessness and the appropriate

standard of care; (5) the effects, if any, on relevant markets and pricing; (6) harm, if any, allegedly

caused by Defendants to market participants; and (7) the basis, if any, of FERC’s contention that

disgorgement, including the amount thereof, is warranted.

On these topics, Defendants expect they will need discovery from: (1) ICE,10

Dow Jones,

other index providers, over-the-counter brokers, and other market participants; (2) the California

Independent System Operator and other Independent System Operators or Regional Transmission

Organizations; (3) counterparties to trades executed by Defendants; (4) individuals who were

parties to contemporaneous electronic communications with Defendants; (5) former and current

Barclays employees; (6) persons with information about then-current market conditions and trends,

________________________

(cont’d from previous page) with [Defendants’ counsel] promptly, efficiently, and cooperatively” if the Court determines the disputed issues in Defendants’ favor.

10 FERC observes that Defendants “also possess information they sought and obtained from

ICE directly.” (See footnote 7, supra.) Defendants did obtain some information from ICE, but they had no subpoena authority and the information provided was incomplete. For example, what ICE calls its “order” data is missing for 115 days. Significantly, these important data would show all bids and offers for each day and are essential to put the trades consummated by Barclays and others in context.

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such as weather services, services that collect and report on significant electric facility outages, and

other price benchmarking entities who assessed and reported on market prices independently of

data contained in the ICE index; and (7) FERC. Defendants believe that FERC’s initial disclosures

should include its complete investigative file, which is distinct from the much more limited partial

record they have to-date offered to provide Defendants. To the extent they do not, and to the extent

the following is not otherwise provided to Defendants, Defendants expect that they will need to

take discovery that includes, but is not limited to: (1) depositions and interviews not previously

provided to Defendants; (2) analysis of trading data and methodology for selecting alleged

manipulation periods and days; (3) communications with and analysis of third parties and their

trading in the relevant markets during the relevant time period; (4) the econometric model and

other analyses, work papers, data, and other information used to reject Barclays’ arguments on the

merits of the liability question, on alleged market harm, and on the amount of alleged unjust profits

(disgorgement);11

and (5) any complaints or tips received concerning trading in relevant markets

during the relevant time period.

It is Defendants’ position that all discovery, including expert discovery, should be complete

by September 15, 2016.

2. Party Discovery Limitations

(a) Interrogatories

Defendants submit that each Party should be entitled to 25 interrogatories.

11 In an attempt to defend its refusal to provide Defendants with the preliminary econometric

model before filing this Petition, FERC erroneously seeks to downplay the role the model played in this case, mistakenly claiming that it was relevant only to calculating disgorgement of unjust profits. In addition to that issue, the Commission expressly adopted the model’s estimate of $139.3 million in alleged market harm as an input to its penalty calculations. Penalty Assessment Order PP 121-22 & n.353. And in one of its briefs to the Commission, Enforcement Staff argued that the Commission should rely on the preliminary econometric model as a basis for rejecting one of Barclays’ key arguments on the merits. Enforcement Staff Reply To Answers to the Order to Show Cause and Notice of Proposed Penalty at 68-69, 71-76 (January 28, 2013 Reply). While not citing the model, the Commission did, in fact, adopt Enforcement Staff’s position rejecting that argument. Penalty Assessment Order at PP 46-49.

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(b) Document Requests

Defendants submit that each Party should be entitled to propound up to 25 document

requests.

(c) Depositions

FERC and Defendants should be entitled to 25 depositions per side.

(d) Requests for Admission

Defendants posit that based on their general discovery position, each Party should be

permitted to propound 40 requests for admission for any purpose other than authenticating

documents or establishing business records exception to the hearsay rule.

3. Schedule

Event

Defendants’ Proposed Date

FRCP 26(a)(1) Disclosures

30 days from the date of the Joint Status Conference

FRCP 26(a)(2) expert disclosures and expert report(s) on issues for which a party bears the burden of proof due

March 1, 2016

Completion of All Fact Discovery

June 1, 2016

Completion of depositions of those experts designated on issues for which a party bears the burden of proof

June 15, 2016

FRCP 26(a)(2) rebuttal expert disclosures and rebuttal expert report(s) due

June 15, 2016

Completion of all expert discovery, including depositions of rebuttal experts

September 15, 2016

Dispositive Motions due September 30, 2016

Responses to any Dispositive Motions due

November 1, 2016

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Replies in Support of any Dispositive Motions due

November 18, 2016

Non-Discovery Motion Cut-Off

30 days after final order on FRCP 56 Motions

Final Pretrial Conference 30 days after all pretrial motions are resolved

Trial 30 days after pretrial conference

4. Length of Trial

Defendants estimate that the trial will last four to six weeks.

VII. FERC’s Alternative Discovery Plan

If the Court does not conclude the civil penalties can be affirmed based on a review of the

Penalty Assessment Order and the record, and that additional briefing, hearings, or a trial on any

issues is appropriate, the Commission submits discovery should proceed for both sides as outlined

below. Under this alternative proposal, the Commission believes discovery in this case can be

completed by August 1, 2016. As discussed above, the Commission’s Penalty Assessment Order

relied upon information already in Respondents’ possession, including trade data, documents, and

the communications and testimony of Respondents themselves, information which Respondents

have analyzed extensively.12

Given the procedural history of this matter and the process which has

already occurred, the Commission believes discovery should proceed expeditiously.

Many of Respondents’ discovery proposals allow them to obtain wider discovery than is

generally available under the Federal Rules of Civil Procedure, while narrowly constricting the

Commission’s ability to conduct discovery to less than what is provided under those rules. For

example, Respondents propose that they collectively be entitled to propound 125 interrogatories,

while limiting the Commission to 25, that they collectively be entitled to propound 125 document

requests, while limiting the Commission to 25, and that they be entitled to propound 200 non-

12 For example, Respondents at various times during the investigation presented Enforcement

and the Commission with analysis conducted by outside economic consultants in attempts to dissuade Enforcement from continuing the investigation and subsequently to dissuade the Commission from assessing a penalty.

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document-authentication requests for admission, while limiting the Commission to 40. The

Commission believes Respondents’ discovery positions are inappropriate.

1. Discovery Deadlines

The Commission proposes fact discovery for both parties commence upon the Court’s

issuance of a scheduling order and extend until April 15, 2016. As discussed in subsection 3

below, the Commission proposes that all expert discovery be completed by August 1, 2016.

Respondents propose a period of overlapping factual and expert discovery. The Commission

believes that its proposal of separate factual and expert discovery is more efficient and would lead

to a more expeditious resolution of this matter.

2. Discovery Limitations

The Commission proposes the Parties conduct discovery pursuant to the default provisions

of the Federal Rules of Civil Procedure, with the exception of interrogatories under FRCP 33.

With respect to interrogatories, the Commission proposes that each side (i.e., the Commission, and

Respondents, collectively) be entitled to 50 interrogatories. The default provisions of FRCP 33

allow each party to serve any other party with up to 25 interrogatories. In this case, that would

result in the Commission, and Respondents, collectively, each serving up to 125 interrogatories on

the other side. The Commission believes 125 interrogatories per side is excessive and unnecessary,

particularly given that this case involves a joint scheme and Respondents have consistently

coordinated their defense in this matter.

3. Rule 26(a) Disclosures

If the Court determines the civil penalties assessed by the Commission cannot be affirmed

based on a review of the Penalty Assessment Order and the record, the Commission believes FRCP

26(a) disclosures by both parties, at the same time, are appropriate. If the Court determines

additional briefing or hearings on certain issues is appropriate, the Commission proposes that both

sides be required to make initial disclosures but limited to disclosures relating to the issues subject

to additional briefing or hearings. If the Court determines a trial is appropriate, the Commission

proposes that both sides make all disclosures required by FRCP 26(a)(1) within 30 days of the

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Court’s entry of a scheduling order.

The Commission proposes expert disclosures under FRCP 26(a)(2) occur by April 29,

2016, rebuttal expert disclosures and reports be due June 10, 2016, and all expert discovery be

completed by August 1, 2016.

4. Discovery Topics

The Commission proposes that if the Court determines that additional briefing or hearings

on specific subjects are appropriate, then additional discovery, if any, should be limited to those

specific subjects. However, in the event the Court determines that a trial is appropriate in this

matter, the Commission, at the present time, without waiving its rights to pursue discovery on

additional topics, believes it would conduct discovery in the following general areas: (1)

documents and testimony related to witnesses that Respondents disclose under FRCP 26(a)(1); (2)

documents and testimony related to expert witnesses Respondents may call at trial; (3) third-party

discovery related to Respondents’ manipulation and the relevant markets; (4) testimony from

Barclays’ current and former employees, including the Individual Traders; and (5) documents and

testimony regarding Barclays’ compliance and risk management policies. The Commission

additionally notes that many of the topics put forth by Barclays and the Individual Traders for

discovery are not properly discoverable for a number of reasons, including that many of the

categories appear to seek material that is legally privileged or otherwise immune from discovery.

However, these issues can be addressed if and when discovery proceeds.

5. Dispositive Motions, Pretrial Conference, and Trial

If the Court determines that a trial is appropriate in this matter, the Commission has

requested a trial by jury, which it expects to last four to six weeks. The Commission proposes a

schedule as follows:

Event Date

Dispositive motions due September 9, 2016

Responses to any dispositive motions due October 21, 2016

Replies in support of any dispositive motions due November 18, 2016

Non-discovery motions deadline January 6, 2017

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Final pre-trial conference March 3, 2017

Trial April 3, 2017

VIII. Discovery Protocols and Procedures

The Parties agree on certain discovery protocols and procedures. First, the Parties have

agreed to accept, when feasible, service of discovery requests, interrogatories and requests for

admission and responses thereto via email. Second, the Parties have agreed that documents and

electronically stored information (“ESI”) be produced electronically (e.g., on compact discs or

hard-drives) in single-page Bates-numbered TIFF format (in an IMAGES folder), with a

Concordance data file (.dat) and an Opticon (.opt) load file (in a DATA folder), and OCR which

will be produced as document-level *.TXT file named after Bates start values. The Parties reserve

the right to request that specifically identified ESI be produced in native format.

IX. Special Procedures/Special Master

The Parties do not believe that any special procedures, such as reference to a special master

or agreement to try the matter before a magistrate judge, are appropriate.

X. Modification of Standard Pretrial Procedures

A. FERC’s Statement

As discussed above, the Commission submits this Court can affirm the civil penalties

assessed against Barclays and the Individual Traders based on a review of the Commission’s

Penalty Assessment Order and the record. As discussed in section VI(A) above (“FERC’s

Statement on Discovery and Proposed Briefing Schedule”), the Commission proposes the Court

consider the issue of disgorgement following the Court’s review of the Commission’s

determinations as to Respondents’ liability and the civil penalties under Section 31(d)(3) of the

FPA, 16 U.S.C. § 823b(d)(3).

B. Defendants’ Statement

FERC’s position—that the Court can affirm the civil penalties assessed against Barclays

and the Individual Traders based on a review of the Commission’s Penalty Assessment Order and

the “record” before FERC—is foreclosed by the FRCP, which govern this civil action. The FPA

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does not authorize the Court to disregard the FRCP here. Defendants do not believe there is any

basis for modifying the standard pretrial procedures dictated by the FRCP. Moreover, FERC’s

interpretation of the scope of Section 31(d) would deny due process of law to Defendants and

should only be considered by the Court on a fully briefed record. (See infra, Section XIII.B.)

Defendants also disagree with FERC’s assertion that the Court should bifurcate the case

and consider issues related to disgorgement separately from the issues of liability and penalties.

This would be highly inefficient and prejudicial to Defendants.

XI. Related Cases

The Parties are not aware of any currently pending related case.

XII. Settlement/Alternative Dispute Resolution (ADR)


The Commission remains open to attending a settlement conference.

B. Defendants’ Statement

While Defendants likewise are open to attending a settlement conference, Defendants

believe it is premature at this time.

XIII. Other Issues


The Respondents maintain that additional briefing on the scope of the proceedings is

necessary. However, Respondents spent thirteen pages of the December 16, 2013 Joint Status

Report discussing the scope of the proceedings. (See ECF No. 52 at 16-28.) Between the materials

in the December 16, 2013 Joint Status Report and this Amended Report, the scope of the

proceedings has been fully briefed, and the Commission respectfully submits that no additional

briefing is necessary.

While the Commission does not think additional briefing on this issue is necessary, it does

not oppose Respondents’ request for such briefing if the Court thinks that additional briefing is

necessary or helpful. The Commission opposes the page limits proposed by Respondents given the

extent that this issue has been addressed in the December 16, 2013 Joint Report and this Amended

Report as discussed above. To that end, the Commission proposes the following briefing schedule

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with page limitations incorporated from this Court’s guidelines for civil motion practice:

Event Date

Respondents’ brief on the scope of the

proceedings (twenty (20) pages)

Thirty (30) days following the Court’s

issuance of the Order requesting such

additional briefing

The Commission’s opposition brief on the scope

of the proceedings (twenty (20) pages)

Thirty (30) days following the filing of

Respondents’ brief on the scope of the

proceedings

Respondents’ reply to the Commission’s

opposition brief (ten (10) pages)

Fifteen (15) days following the filing of the

Commission’s opposition brief

As noted above, the Commission proposes that discovery, if any, commence upon the

Court’s resolution of the procedural issues identified above.

Finally, FERC will waive any disqualification and stipulate to the trial judge acting as a

settlement judge.

B. Defendants’ Proposed Briefing Schedule on the Scope of the Proceedings Pursuant to FPA Section 31(d)(3)(B)

Pursuant to the Parties’ Joint Stipulation regarding additional briefing on the scope of the

proceedings, and the Court’s June 2 Order directing the Parties to include a proposed briefing

schedule on that issue, Defendants propose the briefing schedule set forth below.13

Although

FERC asserts that the Court should treat this case differently from every other civil action (which

would typically mean that FERC should file the opening brief on this issue), Defendants have

agreed to FERC’s preferred order of briefing. Given the importance of this issue of first

13 Defendants first referenced this briefing in the Parties’ original Rule 26(f) Joint Report

(dated December 13, 2013), prior to the Court’s Order on their Motion to Dismiss.

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impression, Defendants submit that good cause exists to allow the Parties additional pages beyond

the standard page limitations and request the page limits indicated below.14

Event Date

Defendants file brief addressing the

application of FPA Section 31(d) and the

nature of this district court action (35 pages)

60 days following an order setting a briefing

schedule

FERC files brief addressing the application

of FPA Section 31(d) and the nature of this

district court action (35 pages)

45 days following the filing of Defendants’

brief

Defendants file reply brief (15 pages) 21 days following the filing of FERC’s brief

In terms of timing, Defendants submit that the Court may have a more fully developed

record on which to assess the full implications of FERC’s unprecedented position on the nature of

this civil action once the discovery process is underway. For that reason, Defendants request that

the discovery process go forward at this juncture, and that the Court order the unopposed briefing

on the disputed procedural issues to take place once the Parties’ contrary positions crystallize in

concrete disputed issues during discovery. For instance, during discovery, FERC can object and

oppose Defendants’ requests like any other party exercising their rights under the FRCP. In this

way, the Parties can identify the specific discovery they need or oppose, and why, thereby

providing concrete examples of the precise issues about which they disagree and the ways in which

FERC’s interpretation would require resolution of this case under procedures not delineated in the

FRCP and not authorized by the FPA.

Notwithstanding Defendants’ view that the case should now proceed with initial disclosures

and discovery, we recognize that, given FERC’s position on the nature of the proceeding, the Court

may determine to consider the procedural issues prior to moving forward with discovery. In that

14 Defendants are working to coordinate and consolidate their arguments regarding the scope

of the proceedings. Allowing Defendants the pages requested herein to address the issue collectively will promote efficiency and likely reduce briefing pages, as compared to if each defendant sought to separately brief the issue.

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event, Defendants are prepared to brief the issues that are the subject of the Joint Stipulation

forthwith, and request that the Court order such briefing on the schedule set forth above.

DATED: July 2, 2015 FEDERAL ENERGY REGULATORY COMMISSION

By: /s/ Wesley J. Heath (as authorized on 7/2/2015)

WESLEY J. HEATH Attorneys for FEDERAL ENERGY REGULATORY COMMISSION

DATED: July 2, 2015 SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP

By: /s/ Thomas J. Nolan

Thomas J. Nolan Attorneys for BARCLAYS BANK PLC

DATED: July 2, 2015 CADWALADER, WICKERSHAM & TAFT LLP

By: /s/ Gregory A. Markel (as authorized on 7/2/2015)

Gregory A. Markel Attorneys for BARCLAYS BANK PLC

DATED: July 2, 2015 WILMER CUTLER PICKERING HALE AND DORR LLP

By: /s/ Seth Waxman (as authorized on 7/2/2015)

Seth P. Waxman Attorneys for BARCLAYS BANK PLC

DATED: July 2, 2015 McGUIREWOODS LLP

By: /s/ Todd Mullins (as authorized on 7/2/2015)

Todd Mullins Attorneys for DANIEL BRIN and SCOTT CONNELLY

DATED: July 2, 2015 PAUL HASTINGS LLP

By: /s/ Michael L. Spafford (as authorized on 7/2/2015)

Michael L. Spafford Attorneys for KAREN LEVINE and RYAN SMITH

EXHIBIT 1

EXHIBIT 2

FEDERAL ENERGY REGULATORY COMMISSION Office of Enforcement

Washington, D.C. 20426

June 25, 2015

VIA E-MAIL Thomas J. Nolan Skadden, Arps, Slate, Meagher & Flom LLP 300 South Grand Avenue Los Angeles, CA 90071 (213) 687-5250 [email protected]

Re: Barclays’ June 9, 2015 Letter Requesting Certain Information Dear Tom:

We write in response to your June 9, 2015 letter requesting information from the Commission and its Office of Enforcement. As a threshold matter, we believe that you have in your possession all of the materials which comprise the Administrative Record, i.e., the following materials:

(a) the Commission’s July 16, 2013 Order Assessing Civil Penalties; (b) the Commission’s October 31, 2012 Order to Show Cause and Notice of

Proposed Penalty (Order to Show Cause); (c) Enforcement Staff’s Report and Recommendation which accompanied the

Commission’s October 31, 2012 Order to Show Cause; (d) the Respondents’ December 14, 2012 Answers to the Order to Show

Cause; (e) Enforcement Staff’s January 28, 2013 Reply to the Respondents’ Answers

to the Order to Show Cause; and,

EXHIBIT 2

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(f) The underlying documents, trade data,1 instant messages, transcripts of testimony, and other materials cited and discussed in the above documents.

We have given your request for information outside the Administrative

Record careful consideration. FERC’s position is that the District Court proceeding should be based on the Administrative Record (and, as you know, we have set forth our position on this point in detail in the December 16, 2013 Joint Status Report). As such, we decline to provide the information you requested because it is outside the scope of the Administrative Record. The question of whether the Court should look beyond the Administrative Record is currently pending before the Court. If the Court determines that its review should extend to materials outside of the Administrative Record, we will work with you promptly, efficiently, and cooperatively to ensure that you have any materials you are entitled to receive.

In short, we are prepared to address your individual requests (if warranted)

when the Court resolves this important procedural issue but, at this point in time, we do not believe it is proper to engage in discovery beyond ensuring that Barclays has the complete Administrative Record (as we believe it does).

Sincerely,

________________________ Emily C. Scruggs Office of Enforcement Federal Energy Regulatory Commission 888 First Street, N.E., Room 52-73 Washington, D.C. 20426 (202) 502-6689 [email protected]

cc: Wesley J. Heath

M. Cristina Melendez

1 Trade data includes data produced by Barclays to staff as well as ICE

Data provided with the Preliminary Findings Letters on or about June 10, 2011.

EXHIBIT 2

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