“Such a fact pattern does not a $5 million penalty make.”
Or so says one dissenting FERC Commissioner in the recent Maxim Power enforcement proceeding.1 On May 1, 2015, FERC issued an order assessing civil penalties (the “Order”) of $5 million against Maxim Power Corporation and its named subsidiaries (“Maxim”),2 as well as $50,000 against Maxim Energy Marketing Analyst, Kyle Mitton (together, the “Respondents”), for violating the Commission’s Anti-Manipulation and Market Behavior rules. The Commission did not order disgorgement of profits because the overpayments at issue in the matter were returned through ISO-NE tariff processes. Nor did the Commission impose compliance obligations or other penalties.
The Commission’s Order largely followed the facts and reasoning articulated by FERC Enforcement Staff (“Staff”) in its Order to Show Cause and reply to Respondents’ answer, which we have described in recent Clients and Friends Memos.3 The Commission found,4 with the exception of dissenting Commissioner Clark, that Respondents engaged in a fraudulent “offer oil, burn gas” scheme that involved misleading the ISO-NE independent market monitor (“IMM”). Primarily through senior analyst Mr. Mitton, the Commission asserted that Maxim engaged in a series of transactions with ISO-NE to obtain payments for “reliability dispatches based on the price of expensive fuel oil when Maxim[’s Pittsfield plant] in fact burned much less costly natural gas.”5 The Commission further found that in executing the scheme, Respondents omitted material information from communications with the ISO-NE IMM in order to retain inflated reliability payments, thereby violating the Commission’s Market Behavior and Anti-Manipulation rules.6