On August 7, 2012, U.S. District Judge William H. Pauley III granted the Department of Justice Antitrust Division's (DOJ) motion for entry of a consent decree requiring Morgan Stanley to disgorge $4.8 million for its role in an allegedly illegal swap agreement that allowed KeySpan Corporation (KeySpan) to manipulate energy prices in the New York City electric generating capacity market (see Memorandum & Order, U.S. v. Morgan Stanley, Case No. 1:11-cv-06875 (S.D.N.Y., Aug 7, 2012)). As explained in previous blog entries in February 2010 and February 2011, a financial swap agreement between KeySpan and Morgan Stanley, coupled with Morgan Stanley's hedge agreement with Astoria Generating Company Acquisitions, L.L.C. (Astoria), resulted in KeySpan's acquisition of a financial interest in the capacity of Astoria, its largest competitor. According to the DOJ, this allowed KeySpan to withhold its own generating capacity, resulting in higher electricity prices for New York City consumers. KeySpan and the DOJ reached a settlement concerning this issue in February 2010, with KeySpan agreeing to disgorge $12 million. Comments were filed in response to the DOJ's motion by the Public Service Commission of the State of New York (NYPSC) and AARP. The commenters voiced three main complaints against the consent decree:
- that the $4.8 million, representing approximately 22% of the bank's net revenues resulting from the arrangements, was inadequate to deter future misconduct,
- that Morgan Stanley had not admitted any wrongdoing, and
- that the disgorged money should be returned to New York City ratepayers instead of being remitted to the U.S. Treasury.