Regulators correctly found that traders for Barclays Plc manipulated the California power market from late 2006 to 2008 and should pay the record penalties proposed in October, the Federal Energy Regulatory Commission staff said in a report.
The report, dated Monday but posted on the agency's website on Tuesday, found Barclays (BARC.L) and four of its traders used losses in physical markets to make gains in financial markets, and that they knew their activity was unlawful.
The FERC staff's 124-page report was in response to Barclay's on December 14 denying that it did anything wrong and saying that FERC's findings were erroneous.
FERC staff is recommending the matter be sent to federal court, where Barclays previously vowed to vigorously defend itself.
FERC staff said the bank lost about $4.1 million through its physical cash trades, but "reaped gains of approximately $34.9 million in its financial positions."
The staff said Barclays' manipulative trading scheme cost other market participants at least $139.3 million.
"We believe that our trading was legitimate and in compliance with applicable law," Barclays said in an emailed statement.
"The FERC should reject the Office of Enforcement's recommendations, decline to assess any penalties, and terminate this matter without any further proceedings."
FERC proposed in October that the bank pay a $435 million civil penalty and refund its almost $35 million in trading profits for allegedly engaging in a "coordinated scheme" to manipulate trading in four major western electricity hubs.
The case is expected to be a first major test of FERC's enforcement powers, expanded by Congress in 2005 legislation that had its genesis in the Enron electricity manipulation scandals in the western United States earlier in the decade.
Since 2005, FERC has increased its enforcement division's staff to more than 200 from about a dozen, led by a number of high-profile law enforcement recruits.
Barclays in a December 14 document termed the allegations that are the centre of the agency's case "erroneous inferences drawn from mere fragments of documents."
FERC termed the bank's December response, at over 500 mostly single-spaced pages, "remarkable."
"In all these pages, Barclays and its individual traders do not directly address the three-part manipulative scheme discussed above and detailed in the report," the agency said.
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