If JPMorgan hadn't claimed that 25 emails subpoenaed by the
Federal Energy Regulatory Commission are shielded by
attorney-client privilege, we would never know that FERC is
investigating the bank for possible manipulation of the
California and Midwest energy markets. That's an undisputed
fact. What's now hotly debated between JPMorgan and FERC is
whether the commission improperly seized the opportunity to
expose its investigation by turning a private discovery dispute
into a public battle over privilege.
On several occasions between March and June of 2011,
according to a 39-page petition FERC filed in federal court in
Washington on July 2, California and Midwest energy market
sy s tem operators reported abusive bidding practices that
supposedly resulted in a total of $73 million in improper
payments to electricity generators. In response, FERC sent a
series of notices to JPMorgan, the bidder in all of the reports
it received. The last notice, in August 2011, informed the bank
that FERC's office of enforcement was opening a formal
investigation of market manipulation.
After FERC subpoenaed documents from JPMorgan, the bank
claimed attorney-client privilege over 53 emails. According to
the regulator's petition, it pressed for details on the
privilege claim and received no fewer than five written
assurances from the bank's counsel at Sutherland and Skadden,
Arps, Slate, Meagher & Flom that all of the material was
protected. Yet in May and June of this year, JPMorgan eventually
admitted that 28 of the supposedly privileged emails actually
didn't contain protected legal advice. Given that some of the
remaining 25 emails weren't directly to or from lawyers -- and
that some of the emails over which JPMorgan initially claimed
privilege contained manifestly unprotected communications --
FERC said the bank couldn't be trusted. That's why it went to
court to compel JPMorgan to either turn over unredacted versions
of the disputed emails or, at least, show them to a judge to
prove they're privileged.
But in a filing Friday, JPMorgan attributed a more sinister
motive to FERC's petition. The bank asserted in its 23-page opposition brief that the regulator was engaged in an "abusive
litigation tactic," using the privilege dispute to tell the
world about a non-public, incomplete investigation. "In the
normal course, when the enforcement staff seeks a subpoena in
the context of an ongoing non-public investigation, it does not
publicly disclose detailed information about the underlying
investigation itself," the JPMorgan brief said. "That makes good
sense; the mere existence of an investigation can stigmatize its
subject."
The bank also said that it initially withheld emails it
later determined to be non-privileged in an abundance of
caution, to be sure it didn't inadvertently turn over privileged
materials and accidentally waive privilege. (It said it has
produced more than 500,000 documents to FERC.) To show its good
faith, the bank accompanied its filing with a copy of all of the
25 disputed emails for inspection by U.S. Magistrate Judge
Deborah Robinson, as well as an affidavit explaining why it was
claiming privilege over each one. (Alas, neither the emails nor
the affidavit are public.)
Whichever view of privilege the judge accepts -- FERC's
narrow interpretation or JPMorgan's more expansive view of what
constitutes legal counsel -- FERC's disclosure of the
investigation didn't help a bank already worried about
reassuring investors who are rattled by the billions of dollars
in losses out of the CIO office in London. In the days after the
energy market probe was revealed, the bank's shares fell from a
high of $36.36 on July 2 to a low of $34.22 on July 5.
JPMorgan spokeswoman Jennifer Zuccarelli declined to comment
beyond the bank's filing.
(Reporting by Alison Frankel)
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