* Morgan Stanley to pay $4.8 mln, no admission of wrongdoing
* Electricity price-fixing said to cost consumers $300 mln
* Justice Department: Pact sends message to banking industry
* Morgan Stanley declines to comment
By Jonathan Stempel
Aug 7 A federal judge grudgingly approved Morgan
Stanley's $4.8 million settlement of electricity
price-fixing charges over activity estimated to have cost New
York consumers about $300 million, turning aside claims by a
major nonprofit that the accord let the bank off too easily.
The case, which also involved the electricity generator
KeySpan Corp, was the first in which the U.S. Department of
Justice said it tried to recover improper profit from a
financial services company that used derivatives to foster
Morgan Stanley entered a swap agreement with KeySpan in 2006
that gave it a stake in revenue by Astoria Generating Co, which
also operated in New York City. It also entered a related hedge
The government said the arrangement allowed KeySpan to
withhold substantial electricity generating capacity from the
market, driving prices higher for consumers, and generated $21.6
million of net revenue for Morgan Stanley.
U.S. District Judge William Pauley in Manhattan said he
shared the concerns of state officials and the AARP, a nonprofit
serving people 50 and older, that any settlement should have
reflected the harm to consumers and forced Morgan Stanley to
give up the $21.6 million.
"Given the government's stark allegations of manipulative
conduct against Morgan Stanley, disgorgement of $4.8 million is
a relatively mild sanction," Pauley wrote. "There is a risk that
a large financial services firm like Morgan Stanley could view
such a modest penalty as merely a cost of doing business.
"But despite this court's misgivings, the government's
decision to settle for less than full damages is entitled to
judicial deference, particularly in view of the novelty of the
The judge also rejected the AARP argument that the $4.8
million be returned to consumers, in part because sending it
instead to the U.S. Treasury served the public interest.
"It's extremely disappointing," Michael Gianaris, a New York
State senator who opposed the accord, said in a telephone
interview. "If banks can commit misdeeds and still generate tens
of millions of dollars in profit as a result, not only are we
not achieving justice, but we are not deterring future acts by
Morgan Stanley spokeswoman Mary Claire Delaney declined to
comment. The AARP did not respond to requests for comment.
Justice Department spokeswoman Gina Talamona said the accord
"should send a message to the financial services community that
the antitrust division will vigorously pursue anyone who engages
in anticompetitive conduct in the derivatives industry, and that
they will be held accountable."
KeySpan, now part of Britain's National Grid Plc,
settled its part of the case in 2010 for $12 million, also
without admitting wrongdoing.
"Hundreds of thousands of people won't see any restitution
at all," Peter Vallone Jr, a New York City councilman who also
opposed the accord, told Reuters. "The only good here was that
the scam was uncovered."
The case is U.S. v. Morgan Stanley, U.S. District Court,
Southern District of New York, No. 11-06875.