Federal Register / Vol. 77, No. 50 / Wednesday, March 14, 2012 / Notices 15125 

the United States will cause to be 

transferred a total of $71,000 from the 

Judgment Fund at the United States 

Treasury to the EPA Hazardous 

Substance Superfund. 

The Department of Justice will receive 

for a period of thirty (30) days from the 

date of this publication comments 

relating to the proposed Consent Decree. 

Comments should be addressed to the 

Assistant Attorney General, 

Environment and Natural Resources 

Division, and either emailed to 

pubcomment-ees.enrd@usdoj.gov or 

mailed to P.O. Box 7611, U.S. 

Department of Justice, Washington, DC 

20044–7611, and should refer to this 

case: United States v. FMC Corporation, 

Civil Action No. 2:11–cv–00699, D.J. 

Ref. 90–11–2–09066/1. 

During the public comment period, 

the Consent Decree may be examined on 

the following Department of Justice Web 

site, http://www.usdoj.gov/enrd/ 

Consent_Decrees.html. A copy of the 

proposed Consent Decree may also be 

obtained by mail from the Consent 

Decree Library, P.O. Box 7611, U.S. 

Department of Justice, Washington, DC 

20044–7611 or by faxing or emailing a 

request to ‘‘Consent Decree Copy’’ 

(EESCDCopy.ENRD@usdoj.gov), fax no. 

(202) 514–0097, phone confirmation no. 

(202) 514–5271. In requesting a copy 

from the Consent Decree Library, please 

enclose a check payable to the ‘‘U.S. 

Treasury’’ or, if by email or fax, forward 

a check in that amount to the Consent 

Decree Library at the stated address, in 

the following amount (25 cents per page 

reproduction cost): $6.50 for the 

Consent Decree (with Exhibit A—Site 

Map). 

Henry S. Friedman, 

Assistant Section Chief, Environmental 

Enforcement Section, Environment and 

Natural Resources Division. 

[FR Doc. 2012–6066 Filed 3–13–12; 8:45 am] 

BILLING CODE 4410–15–P 

DEPARTMENT OF JUSTICE 

Notice of Lodging of Second Consent 

Decree Under the Clean Air Act 

Notice is hereby given that on March 

6, 2012, a proposed Second Consent 

Decree in United States and the State of 

Kansas v. Coffeyville Resources Refining 

& Marketing, LLC et. al., 04-cv-01064 (D. 

Kan. 2004), was lodged with the United 

States Court for the District of Kansas. 

On June 13, 2004, the Court entered 

a Consent Decree in this action (Docket 

No. 8) that required Defendant 

Coffeyville Resources Refining & 

Marketing, L.L.C. (‘‘CRRM’’) to install 

certain air pollution controls to reduce 

emissions of oxides, sulfur dioxide and 

particulate matter at its oil refinery 

located in Coffeyville, Kansas. Under 

the proposed Second Consent Decree 

the United States and State grant CRRM 

an extension on installation of some of 

these controls. And CRRM has agreed to 

implement new and upgraded pollution 

controls; to comply with more stringent 

emission limits, and to follow more 

aggressive leak-detection and repair 

practices. These measures will reduce 

CRRM’s emission of various nitrogen 

oxides (NOx), sulfur dioxide (SO2), 

volatile organic compounds, particulate 

matter, carbon monoxide, and other 

pollutants that affect air quality. CRRM 

will also pay approximately $970,000 in 

civil penalties under the Clean Air Act, 

the Comprehensive Environmental 

Response, Compensation, and Liability 

Act, and the Emergency Planning and 

Community Right-to-Know Act. 

The Department of Justice will receive 

for a period of thirty (30) days from the 

date of this publication comments 

relating to the Second Consent Decree. 

Comments should be addressed to the 

Assistant Attorney General, 

Environment and Natural Resources 

Division, and either emailed to 

pubcomment-ees.enrd@usdoj.gov or 

mailed to P.O. Box 7611, U.S. 

Department of Justice, Washington, DC 

20044–7611, and should refer to United 

States and State of Kansas v. Coffeyville 

Resources Refining & Marketing, LLC et. 

al., 04-cv-01064 (D. Kan. 2004), D.J. Ref. 

90–5–1–2–07459/1. 

During the public comment period, 

the Second Consent Decree may also be 

examined on the following Department 

of Justice Web site: http:// 

www.usdoj.gov/enrd/ 

Consent_Decrees.html. A copy of the 

Second Consent Decree may also be 

obtained by mail from the Consent 

Decree Library, P.O. Box 7611, U.S. 

Department of Justice, Washington, DC 

20044–7611 or by faxing or emailing a 

request to ‘‘Consent Decree Copy’’ 

(EESCDCopy.ENRD@usdoj.gov), fax no. 

(202) 514–0097, phone confirmation 

number (202) 514–5271. If requesting a 

copy from the Consent Decree Library 

by mail, please enclose a check in the 

amount of $52.25 (25 cents per page 

reproduction cost) payable to the U.S. 

Treasury or, if requesting by email or 

fax, forward a check in that amount to 

the Consent Decree Library at the 

address given above. 

Robert E. Maher, Jr., 

Assistant Chief, Environmental Enforcement 

Section, Environment and Natural Resources 

Division. 

[FR Doc. 2012–6044 Filed 3–13–12; 8:45 am] 

BILLING CODE 4410–15–P 

DEPARTMENT OF JUSTICE 

Antitrust Division 

United States v. Morgan Stanley; 

Public Comments and Response on 

Proposed Final Judgment 

Pursuant to the Antitrust Procedures 

and Penalties Act, 15 U.S.C. 16(b)–(h), 

the United States hereby publishes 

below the comments received on the 

proposed Final Judgment in United 

States v. Morgan Stanley, Civil Action 

No. 1:11–CV–06875–WHP, which were 

filed in the United States District Court 

for the Southern District of New York on 

March 6, 2012, together with the 

response of the United States to the 

comments. 

Copies of the comments and the 

response are available for inspection at 

the Department of Justice Antitrust 

Division, 450 Fifth Street, NW., Suite 

1010, Washington, DC 20530 

(telephone: 202–514–2481), on the 

Department of Justice’s Web site at 

http://www.justice.gov/atr, and at the 

Office of the Clerk of the United States 

District Court for the Southern District 

of New York, 500 Pearl Street, New 

York, New York 10007. Copies of any of 

these materials may be obtained upon 

request and payment of a copying fee. 

Patricia A. Brink, 

Director of Civil Enforcement. 

IN THE UNITED STATES DISTRICT 

COURT FOR THE SOUTHERN 

DISTRICT OF NEW YORK 

UNITED STATES OF AMERICA, 

Plaintiff, v. MORGAN STANLEY, 

Defendant. 

Civil Action No.: 11–civ–6875 WHP 

Hon. William Pauley III 

RESPONSE OF PLAINTIFF UNITED 

STATES TO PUBLIC COMMENTS ON 

THE PROPOSED FINAL JUDGMENT 

Pursuant to the requirements of the 

Antitrust Procedures and Penalties Act, 

15 U.S.C. § 16(b)–(h) (‘‘Tunney Act’’), 

the United States files the public 

comments concerning the proposed 

Final Judgment in this case and the 

United States’ response to those 

comments. After careful consideration, 

the United States continues to believe 

that the relief sought in the proposed 

Final Judgment will provide an effective 

and appropriate remedy for the antitrust 

violation alleged in the Complaint. The 

United States will move the Court for 

entry of the proposed Final Judgment 

after the public comments and this 

Response have been published in the 

Federal Register, pursuant to 15 U.S.C. 

§ 16(d). 


srobinson on DSK4SPTVN1PROD with NOTICES
15126 Federal Register / Vol. 77, No. 50 / Wednesday, March 14, 2012 / Notices 

1MSCG and Morgan Stanley are collectively 

referred to hereinafter as ‘‘Morgan.’’ 

2 In the state of New York, sellers of retail 

electricity must purchase a product from generators 

known as installed capacity (‘‘capacity’’). 

3Under the Morgan/KeySpan Swap, if the market 

price for capacity was above the strike price ($7.57 

per kW-month), Morgan would pay KeySpan the 

difference between the market price and $7.57 

times 1800 MW; if the market price was below 

$7.57, KeySpan would pay Morgan the difference 

times 1800 MW. Under the Morgan/Astoria Hedge, 

if the market price for capacity was above $7.07 per 

kW-month, Astoria would pay Morgan the 

difference times 1800 MW; if the market price was 

below $7.07, Astoria would be paid the difference 

times 1800 MW. Morgan retained the differential 

(e.g., $7.57–$7.07 times 1800 MW) as revenues. 

4The effects of the Morgan/KeySpan Swap 

continued until March 2008, at which time changes 

in regulatory conditions eliminated KeySpan’s 

ability to affect the market price. KeySpan was sold 

to another company in August 2007. The State of 

New York conditioned its approval of the 

acquisition on the divestiture of KeySpan’s 

Ravenswood generating assets and required 

KeySpan to bid its New York capacity at zero from 

March 2008 until the divestiture was completed. 

Since then, the market price for capacity has 

declined. 

I. PROCEDURAL HISTORY 

The United States brought this 

lawsuit against Defendant Morgan 

Stanley on September 30, 2011, to 

remedy a violation of Section 1 of the 

Sherman Act, 15 U.S.C. § 1. In January 

2006, Morgan Stanley Capital Group 

Inc. (‘‘MSCG’’), a subsidiary of 

defendant Morgan Stanley,1 executed 

agreements with KeySpan Corporation 

(‘‘KeySpan’’) and Astoria Generating 

Company Acquisitions, L.L.C. 

(‘‘Astoria’’) that would effectively 

combine the economic interests of the 

two largest competitors in the New York 

City electric capacity market. The likely 

effect of this combination was to 

increase capacity prices for the retail 

electricity suppliers who must purchase 

capacity, and, in turn, to increase the 

prices consumers pay for electricity. 

Simultaneously with the filing of the 

Complaint, the United States filed a 

proposed Final Judgment and a 

Stipulation signed by the United States 

and Morgan consenting to the entry of 

the proposed Final Judgment after 

compliance with the requirements of the 

Tunney Act. Pursuant to those 

requirements, the United States filed a 

Competitive Impact Statement (‘‘CIS’’) 

in this Court on September 30, 2011; 

published the proposed Final Judgment 

and CIS in the Federal Register on 

October 11, 2011, see United States v. 

Morgan Stanley, Proposed Final 

Judgment and Competitive Impact 

Statement, 76 Fed. Reg. 62843 (Oct. 11, 

2011); and published summaries of the 

terms of the proposed Final Judgment 

and CIS, together with directions for the 

submission of written comments 

relating to the proposed Final Judgment 

(‘‘PFJ’’), in The Washington Times for 

seven days (October 10 through October 

14 and October 17 and 18, 2011) and in 

The New York Post for seven days 

(October 25 through October 31, 2011). 

The 60-day period for public comments 

ended on December 30, 2011. The 

United States received two comments, 

as described below, which are attached 

hereto. 

II. THE COMPLAINT AND THE 

PROPOSED FINAL JUDGMENT 

A. Background 

As alleged in the Complaint and as 

discussed more fully in the CIS [Dkt. #2] 

at 2–7, this case involves Morgan’s 

participation in an agreement with 

KeySpan that caused an anticompetitive 

effect in the New York City Capacity 

Market.2

In 2005, KeySpan, a pivotal capacity 

supplier, anticipated that tight supply 

and demand conditions in the New 

York City capacity market would ease 

due to entry of new generation. 

Concerned that market entry would lead 

to lower prices and revenues, KeySpan 

studied various options, including the 

direct purchase of Astoria. Such an 

acquisition, however, would have raised 

significant market power concerns. 

KeySpan decided instead to approach 

Morgan to arrange a financial 

transaction that would provide KeySpan 

an indirect financial interest in Astoria’s 

capacity sales. Morgan informed 

KeySpan that such an agreement 

between Morgan and KeySpan would be 

contingent on Morgan also entering into 

an agreement with Astoria, the only 

other generator with sufficient capacity 

to offset Morgan’s payments to 

KeySpan. 

In January 2006, Morgan entered into 

a financial derivative agreement with 

KeySpan (the ‘‘Morgan/KeySpan 

Swap’’), and, at the same time, an 

offsetting agreement with Astoria (the 

‘‘Morgan/Astoria Hedge’’). Under the 

terms of the Morgan/KeySpan Swap, 

when the market clearing price for 

capacity was above a certain amount, 

Morgan essentially was required to pay 

KeySpan a multiple of the difference 

between the clearing price and the strike 

price.3 The terms of both the Morgan/ 

KeySpan Swap and the Morgan/Astoria 

Hedge ran from May 2006 through April 

2009. Morgan earned approximately 

$21.6 million in net revenues from the 

two agreements. 

The revenues from Astoria’s capacity 

sales that KeySpan obtained through the 

Morgan/KeySpan Swap effectively 

eliminated KeySpan’s incentive to 

compete for sales in the same way a 

purchase of Astoria or a direct 

agreement between KeySpan and 

Astoria would have done. As a result, 

KeySpan consistently bid its capacity 

into the capacity auctions at the highest 

allowed price and, despite the addition 

of significant new generating capacity in 

New York City, the market price of 

capacity did not decline.4 This result 

would not have been achieved without 

Morgan’s participation. 

B. United States v. KeySpan 

On February 22, 2010, the United 

States filed suit against KeySpan for its 

role in the Morgan/KeySpan Swap. 

Simultaneous with the filing of its 

Complaint, the United States filed a 

proposed Final Judgment requiring 

KeySpan to pay to the United States $12 

million as disgorgement of ill-gotten 

gains. See Complaint, United States v. 

KeySpan Corp., No. 10–1415 (S.D.N.Y. 

Feb. 22, 2010). On February 2, 2011, 

after completion of the Tunney Act 

procedures, the Court entered the 

KeySpan Final Judgment, and, in 

making its public interest 

determination, found that disgorgement 

is available to remedy violations of the 

Sherman Act. See United States v. 

KeySpan Corp., 763 F. Supp. 2d 633, 

638–41 (S.D.N.Y. 2011) (WHP). 

C. The Morgan Complaint and Proposed 

Final Judgment 

On September 30, 2011, the United 

States filed the current suit against 

Morgan for its role in the Morgan/ 

KeySpan Swap. The United States 

alleges that Morgan entered into an 

agreement (the Morgan/KeySpan Swap), 

the likely effect of which was to 

increase prices in the New York City 

Capacity Market, in violation of Section 

1 of the Sherman Act, 15 U.S.C. § 1. 

Simultaneous with the filing of its 

Complaint, the United States filed a 

proposed Final Judgment requiring 

Morgan to pay to the Treasury of the 

United States $4.8 million as 

disgorgement of ill-gotten gains. The 

proposed Final Judgment requires 

Morgan to disgorge profits gained as a 

result of its unlawful agreement in 

restraint of trade. As stated in the CIS, 

the proposed relief serves the public 

interest by depriving Morgan of illgotten gains, thereby deterring Morgan 

and others from engaging in similar 

anticompetitive conduct in the future. 


srobinson on DSK4SPTVN1PROD with NOTICES
Federal Register / Vol. 77, No. 50 / Wednesday, March 14, 2012 / Notices 15127 

5On January 13, 2012, State Senator Michael 

Gianaris and New York City Council Member Peter 

Vallone sent a joint letter to the Court asking the 

Court to re-evaluate the proposed settlement. The 

letter was placed in the case docket [Dkt. #9]. The 

letter raises issues similar to those raised by the 

PSC and AARP; accordingly, these issues will be 

fully addressed in this response of the United States 

to the formal comments submitted by the PSC and 

AARP. 

6AARP requests access to the derivative 

agreements. AARP Cmts at 21. The agreement that 

the United States alleged violated the Sherman 

Act—the Morgan/KeySpan Swap—is publicly 

available as an attachment to KeySpan’s January 18, 

2006 Form 8–K filing with the SEC in which 

KeySpan announced that it had entered into the 

transaction, available at http://www.sec.gov/ 

Archivesiedgar/data/10623791000106

237906000004/ex101-8kjan2406.txt. 

7See, e.g., Mary Arm Mason & William Monts III, 

Morgan Stanley to Disgorge Profits Earned from 

Anticompetitive Derivative Agreements, Hogan 

Lovells (Dec. 9, 2011) (reporting that ‘‘[Ole key 

points from the Morgan Stanley case for financial 

services clients are: (1) the DOJ is prepared to use 

Section 1 to outlaw financial arrangements aimed 

at producing anticompetitive effects, (2) the DOJ 

will take enforcement action against the financial 

services companies that facilitate these 

arrangements, even though they do not participate 

in the underlying physical commodity market, and 

(3) pure financial players may have a duty to 

examine the competitive effects of their 

arrangements on the underlying markets’’), 

available at http://emailcc.com/rv/ff000213

bdac60e42b089aa3f84a8b12fdc2a196; Barry Nigro 

& Maria Cirincione, DOJ Orders Financial Services 

Continued 

II. STANDARDS GOVERNING THE 

COURT’S PUBLIC INTEREST 

DETERMINATION UNDER THE 

TUNNEY ACT 

The Tunney Act calls for the Court, in 

making its public interest 

determination, to consider certain 

factors relating to the competitive 

impact of the judgment and whether it 

adequately remedies the harm alleged in 

the complaint. See 15 U.S.C. 

§ 16(e)(1)(A) and (B) (listing factors to be 

considered). 

This public interest inquiry is 

necessarily a limited one, as the United 

States is entitled to deference in crafting 

its antitrust settlements, especially with 

respect to the scope of its complaint and 

the adequacy of its remedy. See 

generally United States v. Microsoft 

Corp., 56 F.3d 1448, 1458–62 (DC Cir. 

1995); United States v. SBC Commc’ns, 

489 F. Supp. 2d 1, 12–17 (D.D.C. 2007). 

Under the Tunney Act, the ‘‘Court’s 

function is not to determine whether the 

proposed [d]ecree results in the balance 

of rights and liabilities that is the one 

that will best serve society, but only to 

ensure that the resulting settlement is 

within the reaches of the public 

interest.’’ KeySpan, 763 F. Supp. 2d at 

637 (quoting United States v. Alex 

Brown & Sons, 963 F. Supp. 235, 238 

(S.D.N.Y. 1997) (quoting Microsoft, 56 

F.3d at 1460) (emphasis in original), 

aff’d sub nom, United States v. Bleznak, 

153 F.3d 16 (2d Cir. 1998)). 

With respect to the scope of the 

complaint, the Tunney Act review does 

not provide for an examination of 

possible competitive harms the United 

States did not allege. See, e.g., 

Microsoft, 56 F.3d at 1459 (holding that 

it is improper to reach beyond the 

complaint to evaluate claims that the 

government did not make). 

With respect to the sufficiency of the 

proposed remedy, the United States is 

entitled to deference as to its views of 

the nature of the case, its perception of 

the market structure, and its predictions 

as to the effect of proposed remedies. 

See, e.g., KeySpan, 763 F. Supp. 2d at 

642; SBC Commc’ns, 489 F. Supp. 2d at 

17 (holding that the United States is 

entitled to deference as to predictions 

about the efficacy of its remedies). 

Under this standard, the United States 

need not show that a settlement will 

perfectly remedy the alleged antitrust 

harm; rather, it need only provide a 

factual basis for concluding that the 

settlement is a reasonably adequate 

remedy for the alleged harm. SBC 

Commc’ns, 489 F. Supp. 2d at 17. A 

court should not reject the United 

States’ proposed remedies merely 

because other remedies may be 

preferable. KeySpan, 763 F. Supp. 2d at 

637–38. 

III. SUMMARY OF COMMENTS 

The United States received formal 

comments from the Public Service 

Commission of the State of New York 

(‘‘PSC’’) and from AARP, a nonprofit 

organization that helps people over the 

age of fifty.5 At the outset, both 

comments commend the United States 

for enforcing the antitrust laws to 

protect the integrity of New York 

capacity markets. 

The comments raise three central 

objections: (1) that the proposed $4.8 

million dollar disgorgement is 

inadequate to deter similar 

anticompetitive conduct or otherwise 

serve its remedial purpose, especially 

given the likely magnitude of the injury 

to consumers from any increase in New 

York City capacity prices (PSC Cmts at 

7–14; AARP Cmts at 11–16 and 19–25); 

(2) that the decree does not contain an 

admission of wrongdoing by Morgan 

(AARP Cmts at 16–18); and (3) that the 

disgorged proceeds, rather than being 

remitted to the Treasury, should directly 

or indirectly benefit electricity 

consumers who paid higher electricity 

rates as a result of the illegal agreement 

(AARP Cmts at 10–16). 

AARP recommends that the United 

States withdraw from the proposed 

settlement and proceed in the litigation 

or renegotiate a settlement with Morgan 

that would provide equitable relief to 

electric utility customers, an admission 

by Morgan of its violation of the 

Sherman Act, a quantification of the 

total harm to consumers, and a 

disgorgement of all profits Morgan 

realized from the transaction at issue. 

AARP Cmts at 28. The PSC asks the 

Court to order the United States to 

supplement the record. PSC Cmts at 16. 

IV. RESPONSE TO THE COMMENTS 

The United States has carefully 

considered these objections but finds 

that they do not warrant modification of 

the proposed Final Judgment. 

A. The Proposed Remedy Is Appropriate 

and Deters Anticompetitive Conduct 

The commenters argue that 

disgorgement of $4.8 million is an 

inadequate remedy that will not serve as 

an effective deterrent, especially when 

compared to Morgan’s approximately 

$21.6 million net revenues earned under 

the Swap and the increased prices paid 

by electricity consumers. Such concerns 

are misplaced.6

The proposed remedy constitutes 

significant and meaningful relief. In its 

action against KeySpan, the United 

States sought disgorgement under the 

Sherman Act for the first time. In 

approving that settlement, this Court 

recognized that the disgorgement by a 

power generator engaged in an alleged 

anticompetitive scheme would become 

‘‘an important marker for enforcement 

agencies and utility regulators alike.’’ 

KeySpan, 763 F. Supp. 2d at 642. In this 

case, the United States seeks 

disgorgement from the financial services 

firm that facilitated the transaction. Just 

as the KeySpan remedy created an 

important marker for disgorgement from 

the principal competitor in an 

anticompetitive scheme, the proposed 

remedy in this unprecedented case 

demonstrates the United States’ resolve 

to pursue financial services firms that 

leverage derivative agreements for 

anticompetitive ends, and the antitrust 

liability that may result from such 

enforcement actions. Financial services 

firms contemplating the use of such 

anticompetitive agreements will now 

recognize the prospect of Sherman Act 

liability and disgorgement, thereby 

diminishing their appetite for and 

deterring this illegal conduct. Indeed, 

the filing of the proposed settlement has 

already prompted legal commentators to 

warn about the enforcement issues 

raised by this case, including the duty 

of financial services firms to consider 

the implications of their agreements on 

competition in the underlying markets.7


srobinson on DSK4SPTVN1PROD with NOTICES
15128 Federal Register / Vol. 77, No. 50 / Wednesday, March 14, 2012 / Notices 

Firm to Disgorge Profits from Derivative Contract, 

Fried Frank Antitrust & Comp. L. (Oct. 17, 2011) 

(reporting that this case ‘‘puts firms on notice that 

any type of agreement facilitating anticompetitive 

conduct is subject to scrutiny and that the DOJ may 

seek penalties against indirect third party 

participants, as well as direct competitors’’), 

available at http://www.friedfrank.com/siteFiles/ 

Publications/Final%2010-17-11%20D0J

%200rders%20Financial%20Services%20Firm%20

to%20Disgorge%20Profits%

20from%20Derivative%20Contract.pdf. 

8There is no dispute that Morgan earned $21.6 

million under the two derivative agreements. 

9Though a legitimate off-setting counter-party 

would likely not have agreed to the strike price as 

high as the $7.57 per kW-month found in the 

Morgan/KeySpan Swap, Morgan would nonetheless 

have earned revenues from a legitimate off-setting 

transaction so long as it exceeded the $7.07 per KWmonth price in the Astoria Hedge. In the alternative, 

Morgan would also dispute that the entire $21.6 

million earned under both agreements is cognizable 

as ill-gotten gains. See CIS at note 4. 

10 Indeed, ‘‘room must be made for the 

government to grant concessions in the negotiation 

process for settlements.’’ SBC, 489 F. Supp. 2d at 

15. 

11 KeySpan, 763 F. Supp. 2d at 642 (citing In re 

Linerboard Antitrust Litig., 321 F. Supp. 2d 619, 

633 (E.D. Pa 2004) (collecting cases) & In re Milken 

& Assocs. Sec Litig., 150 F.R.D. 46, 54 (S.D.N.Y 

1993) (‘‘The Second Circuit has held that a 

settlement can be approved even though the 

benefits amount to a small percentage of the 

recovery sought.’’)). 

12SEC v. Blavin, 760 F.2d 706, 713 (6th Cir. 

1985). See also SEC v. Tome, 833 F.2d 1086, 1096 

(2d Cir. 1987) (‘‘Whether or not [any victims] may 

be entitled to money damages is immaterial [to 

disgorgement].’’). 

13See October 12, 2010 Transcript of Hearing in 

United States v. KeySpan, 1:10-cv-01415–WHP, at 

10–14. In addition, in this case as in KeySpan, 

commenters’ estimates of consumer harm may be 

significantly overstated. Id. at 14–15. 

14AARP Cmts at 16–18 & 28 (recommending that 

the PFJ be amended to include an ‘‘admission by 

Morgan of its violation’’); PSC Cmts at 10 (quoting 

SEC v. Citigroup Global Markets, Inc., Slip Op. at 

10, 2011 WL 5903733 at *5 (S.D.N.Y. 2011)). 

15The district court proceedings in the Citigroup 

case have been temporarily stayed by the Court of 

Appeals (pending a panel ruling on a motion to stay 

pending appeal). SEC v. Citigroup Global Markets 

Inc., 2011 WL 6937373 (2nd Cir. Dec. 27, 2011). 

The PSC and AARP nevertheless 

argue that disgorgement of anything 

short of the $21.6 million in net 

revenues earned by Morgan under the 

Swap 8 will not strip Morgan of the 

entirety of its ill-gotten gains and 

therefore will not deter the conduct at 

issue. This position ignores the 

deterrent value of the proposed 

settlement described above. It also 

ignores the disputes that would likely 

arise in calculating Morgan’s ill-gotten 

gains for the purpose of determining 

disgorgement. The theory of the United 

States’ case rests on the illegality of the 

Morgan/KeySpan Swap but not the 

Astoria Hedge. As such, were this 

matter to proceed to trial, Morgan would 

likely contend that but for the Morgan/ 

KeySpan Swap, it would have entered 

into a legitimate transaction with 

someone other than KeySpan to offset 

the Astoria Hedge, and that any 

disgorgement remedy should be 

adjusted downward to account for a 

legitimate retum.9 Although the United 

States would have contested these 

arguments and sought disgorgement of 

the full $21.6 million in net revenues 

had this action proceeded to trial, the 

settlement reflects, among other things, 

the fact that there is a dispute about the 

amount of Morgan’s net revenues that 

were ill-gotten. 

The United States recognizes that it 

has not proved its case at trial and that 

‘‘a court considering a proposed 

settlement does not have actual findings 

that the defendant[] engaged in illegal 

practices, as would exist after a trial.’’ 

SBC Commc’ns, 489 F. Supp. 2d at 15 

(citing Microsoft, 56 F.3d at 1461). The 

$4.8 million disgorgement amount is the 

product of settlement negotiations and 

accounts for litigation risks and costs. It 

is appropriate to consider litigation risk 

and the context of a settlement when 

evaluating whether a proposed remedy 

is in the public interest.10 As this Court 

has recognized ‘‘Mlle adequacy of the 

disgorgement amount must be evaluated 

in view of the Government’s decision to 

settle its claims and seek entry of the 

consent decree. When a litigant chooses 

to forgo discovery and trial in favor of 

settlement, full damages cannot be 

expected.’’ 11

Here, the litigation costs and risks are 

not insignificant. The United States 

would have had to establish at trial that 

the KeySpan Swap caused 

anticompetitive effects in the New York 

capacity market, a complex endeavor 

that would have required substantial 

fact and expert testimony and evidence. 

And, in the present case against Morgan 

Stanley, the United States would have 

had the additional burden of 

establishing the liability of a financial 

services firm for using a derivative 

agreement to facilitate an 

anticompetitive effect even though the 

company itself was not a participant in 

the underlying market. Assuming the 

United States prevailed on liability, 

there would be additional risk, as 

discussed above, in establishing the 

proper disgorgement amount. While the 

United States is confident that it could 

prevail on these issues at trial, the 

settlement obviates the risk—and 

significant cost—of litigation. 

The PSC and AARP also argue that 

the reasonableness of the proposed 

remedy should be evaluated in light of 

the ratepayer harm caused by Morgan. 

PSC Cmts at 13–15; AARP Cmts at 5, 11, 

16. In essence, they seek a disgorgement 

amount that takes into account the 

losses suffered by retail electricity 

consumers. As this Court recognized in 

KeySpan, such comments ‘‘fail to 

comprehend the nature of the 

disgorgement remedy. The ’primary 

purpose of disgorgement is not to 

compensate investors,’ but rather to 

divest a wrongdoer of the proceeds of 

their misconduct.’’ KeySpan, 763 F. 

Supp. 2d at 642 (quoting SEC v. 

Cavanaugh, 445 F. 3d 105, 117 (2d Cir. 

2006)). Indeed, the extent of market 

harm is not relevant to the disgorgement 

calculation; once a violation has been 

established, a district court ‘‘possesses 

the equitable power to grant 

disgorgement without inquiring 

whether, or to what extent, identifiable 

private parties have been damaged by 

[the violation].’’ 12

In this case, the source of Morgan’s 

ill-gotten gains is the revenues it earned 

under the derivative agreements. 

Indeed, the derivative agreements 

represent Morgan’s only source of 

revenue in this case. Morgan did not 

participate in the actual capacity market 

and thus it did not earn any auction 

revenues, much less pocket consumer 

overpayments. Moreover, as the United 

States explained in the KeySpan 

proceedings,13 an inquiry into consumer 

harm would require the Court to assess 

the price of capacity that would have 

prevailed absent the Swap, a 

problematic exercise given the 

uncertainty of determining market 

outcomes absent the Swap. Accordingly, 

given the difficulty of definitively 

estimating the harm to the market and 

its irrelevance to the questions relating 

to the adequacy of the disgorgement 

remedy, AARP’s assertion that the 

United States is obligated to provide 

estimates of total economic harm and 

profits received by all market 

participants resulting from the alleged 

violation should be rejected. 

B. Public Policy Rejects the Contention 

That a Settlement of a Government 

Antitrust Case Should Contain an 

Admission of Wrongdoing 

AARP argues that the proposed final 

judgment is not in the public interest 

because it does not contain an 

admission or finding that Morgan 

violated the law. Similarly, the PSC 

quotes language from SEC v. Citigroup 

challenging the sufficiency of a consent 

judgment ‘‘that does not involve any 

admissions’’ by the defendant.14

Government antitrust suits are 

governed by a specialized statutory 

regime that provides no basis to require 

that consent decrees include either a 

finding or an admission of liability.15

Congress has designed the remedial 


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16 63 Cong. Ch. 323, 38 Stat. 730, 731, codified 

as amended at 15 U.S.C. § 16(a). 

17With one exception, every reference to 

‘‘violation’’ or ‘‘violations’’ in the Tunney Act is 

immediately preceded by ‘‘alleged.’’ The only 

exception is a reference to ‘‘the violations set forth 

in the complaint.’’ 15 U.S.C. § 16(e)(2) as enacted, 

currently 16 U.S.C. § 16(e)(1)(B). The Tunney Act 

contains no reference to admissions or findings of 

violations or of liability. Congress amended the 

Tunney Act in 2004, but those amendments do not 

affect the analysis here. 

18S. Rep. No. 298, 93d Cong., 1st Sess. (1973) (‘‘S. 

Rep.’’) at 5 (emphasis added). See also 119 Cong. 

Rec. 3449, 3451 (Feb. 6, 1973 floor statement of 

Senator Tunney: ‘‘Essentially the decree is a device 

by which the defendant, while refusing to admit 

guilt, agrees to modify its conduct and in some 

cases to accept certain remedies designed to correct 

the violation asserted by the Government.’’). (The 

legislative history of the Tunney Act, including the 

House and Senate Reports and the statement of 

Senator Tunney cited herein, is available at 

http://www.justice.gov/jmd/ls/legislative_histories/ 

pl93-528/pl93-528.html). 

19H. Rep. No. 1463, 93rd Cong., 2d Sess. (1974) 

(‘‘H. Rep.’’) at 6, reprinted at 1974 U.S. Code Cong. 

& Admin. News 6535, 6536–37. See also id. 

(‘‘Present law, 15 U.S.C. § 16(a), encourages 

settlement by consent decree as part of the legal 

policies expressed in the antitrust laws. * * * The 

bill preserves these legal and enforcement policies. 

* * *’’). 

20S. Rep. at 3 & 7; see also H. Rep. at 8, 1974 

U.S.C.C.A.N. at 6539 (also describing consent 

decrees as a ‘‘viable settlement option’’). 

21The proposed Final Judgment in this case states 

that the United States and defendant Morgan have 

‘‘consented to the entry of this Final Judgment 

without trial or adjudication of any issue of fact or 

law, for settlement purposes only, and without this 

Final Judgment constituting any evidence against or 

an admission by Morgan for any purpose with 

respect to any claim or allegation contained in the 

Complaint.’’ PFJ at 1. Equivalent statements are 

conventional in government antitrust consent 

decrees negotiated pre-trial. 

22Cf: Armour, 402 U.S. at 681 (interpreting 

consent decree in which defendants had denied 

liability for the allegations raised in the complaint); 

see also 18A Wright and Miller, Federal Practice 

and Procedure § 4443, at 256–57 (2d ed. 2002) 

(‘‘central characteristic of a consent judgment is that 

the court has not actually resolved the substance of 

the issues presented’’). 

23See Swift & Co. v. United States, 276 U.S. 311, 

327 (1928) (refusing to vacate injunctive relief in 

consent judgment that contained recitals in which 

defendants asserted their innocence). 

24E.g., United States v. Alex. Brown & Sons, Inc., 

963 F. Supp. 235, 238–39 (S.D.N.Y. 1997) (‘‘In 

enacting the Tunney Act, Congress recognized the 

high rate of settlement in public antitrust cases and 

wished to encourage settlement by consent decrees 

as part of the legal policies expressed in the 

antitrust laws.’’) (internal quotations omitted). 

25United States v. Microsoft, 159 F.R.D. 318, 337 

(D.D.C. 1995), rev ’d 56 F.3d 1448 (D.C. Cir. 1995). 

26United States v. Microsoft, 56 F.3d at 1448, 

1461 (D.C. Cir. 1995). 

27 Id. 

provisions of the antitrust laws to 

encourage consent judgments, which 

allow the government to obtain relief 

without the ‘‘time, expense and 

inevitable risk of litigation.’’ United 

States v. Armour and Co., 402 U.S. 673, 

681 (1971). Thus, for nearly a century, 

the antitrust laws have expressly limited 

the ability of private plaintiffs seeking 

treble damages to rely on consent 

decrees entered in government cases. 

Section 5 of the Clayton Act, originally 

enacted in 1914,16 provides that 

litigated final judgments establishing a 

violation in civil or criminal cases 

‘‘brought by or on behalf of the United 

States under the antitrust laws’’ shall be 

‘‘prima facie evidence’’ against the 

defendant in subsequent private 

litigation, but the statute specifies that 

this provision does not apply to 

‘‘consent judgments or decrees entered 

before any testimony has been taken.’’ 

15 U.S.C. § 16(a). Under this regime, a 

defendant can elect to accept a consent 

decree and avoid the risk of a litigated 

judgment that would seriously weaken 

its position in follow-on private 

litigation. Congress provided this 

exception to the Clayton Act’s prima 

facie evidence provision ‘‘in order to 

encourage defendants to settle promptly 

government-initiated antitrust claims 

and thereby to save the government the 

time and expense of further litigation.’’ 

United States v. National Ass’n of 

Broadcasters, 553 F. Supp. 621, 623 

(D.D.C. 1982) (collecting cases). 

Requiring admissions or findings of 

liability as a prerequisite to entering a 

consent decree would undercut 

Congress’s purpose and contravene the 

public interest in allowing the 

government to obtain relief without the 

risk and delay of litigation. 

Congress confirmed its continuing 

recognition of the importance of consent 

decrees when it amended the Clayton 

Act in 1974 to specify procedural 

requirements governing a district court’s 

determination of whether entry of a 

proposed consent decree in a 

government antitrust case is in the 

public interest. Antitrust Procedures 

and Penalties Act, § 2, Pub. L. No. 93– 

528, 88 Stat 1706 (1974), codified at 15 

U.S.C. § 16(b)–(h) (‘‘Tunney Act’’). The 

repeated references to the ‘‘alleged’’ 

violation in the language of the Tunney 

Act strongly suggest that Congress did 

not expect decrees arising under the 

antitrust laws to contain admissions of 

liability.17 And the legislative history 

unambiguously demonstrates Congress’ 

understanding that government antitrust 

settlements typically occur without an 

admission or finding of liability. The 

Senate Report accompanying S. 782, the 

bill that became the Tunney Act, 

explains: 

The entry of a consent decree is a 

judicial act which requires the approval 

of a United States district court. Once 

entered the consent decree represents a 

contract between the government and 

the respondent upon which the parties 

agree to terminate the litigation. 

Pursuant to the terms of the decree, the 

defendant agrees to abide by certain 

conditions in the future. However the 

defendant does not admit to having 

violated the law as alleged in the 

complaint. Obviously, the consent 

decree is of crucial importance as an 

enforcement tool, since it permits the 

allocation of resources elsewhere.18

The corresponding House Report is 

equally clear on the point: ‘‘Ordinarily, 

defendants do not admit to having 

violated the antitrust or other laws 

alleged as violated in complaints that 

are settled.’’ 19 Moreover, both reports 

plainly reveal that Congress not only 

understood the practice of entering into 

such consent decrees, but encouraged it, 

considering them a ‘‘legitimate and 

integral part of antitrust enforcement’’ 

and urging that they be retained ‘‘as a 

substantial antitrust enforcement 

tool.’’ 20

Accordingly, the government 

routinely enters into antitrust consent 

decrees explicitly disclaiming 

admissions or findings of liability.21

The Supreme Court has long endorsed 

the entry of consent judgments in which 

there is no finding of liability,22 and it 

has done so even when the defendant 

has affirmatively denied the alleged 

violation.23

Following enactment of the Tunney 

Act, courts have expressly recognized 

the Congressional intent to preserve the 

policy of encouraging antitrust consent 

decree expressed in that legislation.24

Only once, to our knowledge, has a 

district court objected to a proposed 

consent decree on the basis that a 

defendant had not admitted liability or 

wrongdoing, but this objection was 

specifically rejected on appeal. In 

United States v. Microsoft, the district 

court refused to enter the proposed 

consent decree in part because the 

defendant denied ‘‘that the conduct 

charged in the Government’s complaint 

to which it has consented, violates the 

antitrust laws.’’ 25 The DC Circuit 

reversed, expressly holding 

‘‘unjustified’’ the district court’s 

criticism of the defendant ‘‘for declining 

to admit that the practices charged in 

the complaint actually violated the 

antitrust laws.’’ 26 The Court of Appeals 

emphasized that the ‘‘important 

question is whether [the defendant] will 

abide by the terms of the consent decree 

regardless of whether it is willing to 

admit wrongdoing.’’ 27 We are aware of 

no government antitrust case in which 

a court refused to enter a consent decree 

because a defendant had failed to admit 

liability. 

AARP’s contention that absent an 

admission of wrongdoing or an 


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28See Simon v. KeySpan, 785 F. Supp. 2d at 138– 

39 (dismissing actions based on filed rate doctrine 

and other grounds). Plaintiffs have appealed this 

decision to the Second Circuit, but a decision has 

not yet been rendered. 

29 KeySpan, 763 F. Supp. 2d at 643. Moreover, the 

Miscellaneous Receipts Act (‘‘MRA’’) provides that 

members of the Executive Branch (including 

employees of the Department of Justice) who 

receive money for the United States are to remit 

such funds directly to the Treasury. 31 U.S.C. 

§ 3302(b) (2006). A purpose of the statute is to 

protect Congress’ appropriations authority by 

ensuring that money collected from various sources 

cannot be used for programs not authorized by law. 

The proposed remedy avoids any issues of 

compliance with the MRA. 

1The court papers are available at http:// 

www.justice.gov/atr/cases/morgan.html. 

2 76 Federal Register, No. 196 (Tuesday, October 

11, 2011). 

3The Antitrust Procedures and Penalties Act (the 

‘‘Tunney Act’’), 15 U.S.C. § 16(e)–(f), requires an 

opportunity for public comment prior to a court’s 

review of any proposed settlement between the 

government and an alleged antitrust law violator. 

4For more information about AARP see http:// 

www.aarp.org/. 

5New York residential electric rates are the 

highest in the continental United States. Energy 

Information Agency, Electric Power Monthly for 

August, 2011, Average Retail Price of Electricity to 

Ultimate Customers by End-Use Sector, by State, 

table 5.6.A, (Nov. 2011). Available at http:// 

www.eia.gov/electricity/monthly/index.cfm. 

6 ‘‘Every Con Ed customer in the five boroughs 

overpaid an average total of at least $40 over two 

years during a price-fixing scheme set up by the 

owners of a giant Queens power plant, the feds 

charge in a court case that would let the alleged 

gougers get away with most of the gains.’’ Bill 

Sanderson, $157 M Power Abuse, N.Y. Post, March 

9, 2010, available at http://www.nypost.com/f/print/ 

news/local/ 

power_abuse_SgLN9psbhjopRMEGU68fgK. 

adjudication of the facts entry of the 

decree would not be in the public 

interest is unwarranted. The relief that 

would be afforded by the proposed 

decree is appropriate to the violation 

alleged. The Tunney Act and the public 

interest require no more. To insist on 

more is to impose substantial resource 

costs on government antitrust 

enforcement; to risk the possibility of 

litigation resulting in no relief at all; to 

contravene a century of congressional 

and judicial policy; and to establish a 

precedent that could impede 

enforcement of the antitrust laws in the 

future. 

C. Disgorgement of Proceeds to the U.S. 

Treasury Is Appropriate 

AARP argues that Morgan’s $4.8 

million disgorgement payment should 

be made to entities other than the U.S. 

Treasury in order to benefit the 

electricity customers in New York City 

who paid higher prices as a result of 

Morgan’s conduct. The United States 

shares AARP’s concern for the New 

York City ratepayers and, indeed, 

brought this case and sought 

disgorgement in order to deter financial 

services firms from entering into 

financial arrangements that cause 

anticompetitive effects. The United 

States has carefully considered the 

suggested alternative uses for the 

disgorgement proceeds but has 

determined that payment to the U.S. 

Treasury is the most appropriate result 

in this circumstance. 

The alternative distribution plan 

proposed by AARP seeks, in effect, to 

restore funds to ratepayers. As this 

Court recognized in KeySpan, 763 F. 

Supp. 2d at 643. A remedy that seeks to 

reimburse funds to New York City 

ratepayers would raise questions 

relating to the filed rate doctrine, which 

bars remedies (such as damages) that 

result, in effect, in payment by 

customers and receipt by sellers of a rate 

different from that on file for the 

regulated service. See generally Square 

D Co. v. Niagara Frontier, 476 U.S. 409, 

423 (1986). Indeed, a lawsuit filed by 

private plaintiffs seeking damages from 

KeySpan and Morgan based on the 

Swap has been dismissed on the ground 

that the action is barred as a matter of 

law under the filed rate doctrine.28

In this case, the United States 

specifically chose to seek disgorgement, 

rather than restitution, as a remedy for 

this violation. As discussed in the CIS, 

disgorgement is particularly appropriate 

on the facts of this case to fulfill the 

remedial goals of the Sherman Act. CIS 

at 9–10. Disgorgement also provides 

finality, certainty, avoidance of 

transaction costs, and potential to do the 

most good for the most people. As in 

KeySpan, the proposed remedy here is 

well within the reaches of the public 

interest.29

VI. CONCLUSION 

After careful consideration of the 

public comments, the United States 

remains of the view that the proposed 

Final Judgment provides an effective 

and appropriate remedy for the antitrust 

violation alleged in the Complaint and 

that its entry would therefore be in the 

public interest. 

The United States is submitting this 

Response and the public comments to 

the Federal Register for publication 

pursuant to 15 U.S.C. § 16(d). After 

publication occurs, the United States 

will move this Court to enter the 

proposed Final Judgment. 

Dated: March 6, 2012 

Respectfully submitted, /s/ Jade Alice 

Eaton, jade.eaton@usdoj.gov, Trial 

Attorney, U.S. Department of Justice, 

Antitrust Division, Transportation, 

Energy & Agriculture Section, 450 Fifth 

Street, NW, Suite 8000, Washington, DC 

20004, Telephone: (202) 307–6316, 

Facsimile: (202) 307–2784. 

AARP COMMENTS IN OPPOSITION 

TO PROPOSED SETTLEMENT AND IN 

SUPPORT OF FURTHER 

PROCEEDINGS 

Preliminary Statement 

On September 30, 2011, the United 

States Department of Justice Antitrust 

Division (‘‘DOT’’) filed a Complaint 

commencing this civil antitrust action 

against defendant Morgan Stanley. On 

the same day, DOJ filed a proposed 

Final Judgment, agreed to by Morgan 

Stanley, which would settle the case 

subject to court review and approval, 

along with a Competition Impact 

Statement (‘‘CIS’’) in support of the 

proposed settlement.1 A notice inviting 

public comment 2 on the proposed 

settlement of this action has been 

issued, as is required by the Tunney 

Act.3 AARP submits these comments to 

DOJ in response to the notice. 

AARP is a nonpartisan, nonprofit 

organization that helps people over the 

age of 50 to exercise independence, 

choice, and control in ways beneficial to 

them and to society as a whole.4 AARP 

has millions of members, including 

more than 2,500,000 members who 

reside in New York state. AARP is 

greatly concerned about the threats to 

health and safety of vulnerable citizens 

caused by New York’s high electricity 

costs.5 Because the cost of utilities has 

skyrocketed, many low and middleincome families and older people must 

now choose between paying utility bills 

and paying for other essentials such as 

food and medicine. AARP works to 

protect consumers from excessive utility 

rates and charges. 

Many AARP members were adversely 

affected by the antitrust violations 

alleged in this action, which artificially 

increased prices in the electric capacity 

markets of the New York Independent 

System Operator (‘‘NYISO’’). Although 

the excessive charges were paid in the 

first instance by load-serving utilities 

such as Con Edison, they were directly 

passed on to utility customers. Utility 

customers had no way to escape 

payment of the inflated charges when 

their monthly electric bills were 

adjusted to include the costs.6

As consumers, AARP members 

depend upon the protection of the 

antitrust laws against the unlawful 

exercise of monopoly or market power, 

such as occurred in this case. They must 

also rely upon the vigorous enforcement 

of the antitrust laws by DOJ and the 

courts. 

AARP commends DOJ for challenging 

Morgan Stanley’s use of financial 

derivatives to facilitate gaming by 


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7The Sherman Act provides that Ielvery contract, 

combination in the form of trust or otherwise, or 

conspiracy, in restraint of trade or commerce among 

the several States, or with foreign nations, is 

declared to be illegal.’’ 15 U.S.C. § 1. 

8There was little risk of low prices that would 

require Keyspan to pay Morgan Stanley and Morgan 

Stanley to pay Astoria under the derivatives. 

Keyspan was able to set the clearing price because 

at least some of its capacity would be needed, and 

so it could confidently demand the ceiling price for 

all or most of it, confident that when some of its 

expensively priced capacity went unsold, it would 

receive payments from Morgan Stanley in 

accordance their derivative agreement. Keyspan 

‘‘consistently bid its capacity at its cap even though 

a significant portion of its capacity went unsold.’’ 

Complaint, p. 9, ¶ 32. 

9Complaint, p. 9, ¶ 35. 

10Of that amount, approximately $119 million 

was paid by New York City area utilities, and $39 

million was paid by utilities in the rest of the state. 

See Motion to Continent of Consolidated Edison 

Company of New York, Inc., etc., Re New York 

Independent System Operator, FERC Docket No. 

ER07–360 (Jan. 27, 2009), P. 2 and Affidavit of 

Stuart Nachmias, ¶¶ 13–14, available at http:// 

elibrary.ferc.gov/idmws/common/opennatasp?

filelD=11236060. The amount of capacity 

overcharges in 2007 and until NYISO capacity 

market rules were changed in early 2008 were not 

estimated. 

Keyspan and Astoria in the NYISO 

electricity auctions. AARP urges, 

however, that the proposed settlement 

be withdrawn and revised, and that 

further proceedings be held. 

The Complaint and the Proposed 

Settlement 

The Complaint alleges that Morgan 

Stanley violated Section 1 of the 

Sherman Act 7 by entering into separate 

financial derivative contracts with two 

major competing sellers in the NYISO 

electric capacity market, effectively 

combining their economic interests. The 

Morgan Stanley derivatives reduced the 

utilities’ risk of bidding strategically to 

raise the clearing price in the NYISO 

market, which is paid to all sellers. As 

a consequence, higher prices were paid 

for capacity by retail utilities, and the 

costs were passed through to 

consumers. 

Under Morgan Stanley’s derivative 

contract with the largest seller in the 

relevant market, Keyspan Corporation 

(‘‘Keyspan’’), Morgan Stanley paid 

Keyspan whenever NYISO auction 

prices exceeded a fixed level ($7.57/ 

MW). This rewarded Keyspan when it 

set the NYISO clearing price at the 

maximum. Even if all of its capacity was 

not sold at its high price, Keyspan was 

assured of benefitting from it through 

the derivative contract. Under Morgan 

Stanley’s parallel derivative contract 

with Astoria, Morgan Stanley 

guaranteed Astoria a fixed floor price for 

all its capacity sales, regardless of the 

prices established in the NYISO 

auctions, and Astoria agreed to pay 

Morgan Stanley whenever the NYISO 

auction price exceeded the floor price in 

the derivative contract. Morgan Stanley 

could take profits reaped by Astoria due 

to the artificially high price, and give 

them to Keyspan. The derivatives thus 

worked to insure Keyspan against lost 

profits if it lost some sales by bidding 

high, at the market rate cap. They 

assured Astoria that it would receive a 

known fixed price for all of its capacity, 

regardless of the outcome of the NYISO 

auctions.8 Morgan Stanley’s net profit 

from the derivatives was $21.6 million.9

The NYISO pays the market clearing 

price to all sellers, including those who 

offered capacity at a lower price. As a 

result, the total economic damage to 

electric customers exceeds the ill-gotten 

gains of Morgan Stanley and the two 

utilities. There is no quantification or 

estimate of this damage to the public 

and to customers in the Complaint or 

other papers in the record. One major 

capacity buyer, Consolidated Edison 

Company of New York, Inc. (‘‘Con 

Edison’’), estimated the inflated 

capacity costs to be approximately $159 

Million in 2006.10

Simultaneously with the filing of the 

complaint, and without further 

proceedings, DOJ and Morgan Stanley 

filed a proposed Final Judgment, which 

embodies their agreement to settle the 

case. Key provisions of the Final 

Judgment are: 

• Morgan Stanley admits no 

wrongdoing and the lawsuit is 

terminated, 

• Morgan Stanley agrees to disgorge 

to the government only $4.8 million of 

its $21.6 million profit from its 

derivative contracts. 

Standard of Review 

The Tunney Act establishes the 

procedure and standard of review 

applicable to the proposed settlement of 

an antitrust case brought by DOJ: 

(1) Before entering any consent 

judgment proposed by the United States 

under this section, the court shall 

determine that the entry of such 

judgment is in the public interest. For 

the purpose of such determination, the 

court shall consider— 

(A) the competitive impact of such 

judgment, including termination of 

alleged violations, provisions for 

enforcement and modification, duration 

of relief sought, anticipated effects of 

alternative remedies actually 

considered, whether its terms are 

ambiguous, and any other competitive 

considerations bearing upon the 

adequacy of such judgment that the 

court deems necessary to a 

determination of whether the consent 

judgment is in the public interest, and 

(B) the impact of entry of such 

judgment upon competition in the 

relevant market or markets, upon the 

public generally and individuals 

alleging specific injury from the 

violations set forth in the complaint 

including consideration of the public 

benefit, if any, to be derived from a 

determination of the issues at trial. 

15 U.S.C. § 16(e)(1). (Emphasis 

added). The Tunney Act standard was 

recently applied in the context of the 

DOJ settlement with Keyspan, involving 

the same derivative contract: 

[T]he Tunney Act allows courts to 

weigh, among other things, the 

relationship between the allegations set 

forth in the government’s complaint and 

the remedy imposed by the proposed 

final judgment, whether the proposed 

final judgment is overly ambiguous, 

whether the enforcement mechanisms it 

employs are adequate, and whether the 

proposed final judgment may 

affirmatively prejudice third parties. See 

United States v. Microsoft Corp., 56 

F.3d 1448, 1461–62 (DCCir. 1995) (per 

curiam). The court may not, however, 

‘‘make a de novo determination of facts 

and issues’’ in conducting its public 

interest inquiry. United States v. 

Western Elec. Co., 993 F.2d 1572, 1577 

(DCCir.), cert. denied, 510 U.S. 984, 114 

S.Ct. 487, 126 L.Ed.2d 438 (1993) 

(internal quotation and citation 

omitted). Rather, ‘‘jtjhe balancing of 

competing social and political interests 

affected by a proposed antitrust decree 

must be left, in the first instance, to the 

discretion of the Attorney General.’’ Id. 

(internal quotation and citation 

omitted). The court should therefore 

reject the proposed final judgment only 

if ‘‘it has exceptional confidence that 

adverse antitrust consequences will 

result—perhaps akin to the confidence 

that would justify a court in overturning 

the predictive judgments of an 

administrative agency.’’ Microsoft, 56 

F.3d at 1460 (internal quotations and 

citation omitted). 

In conducting its inquiry, the court is 

not required to hold a hearing or 

conduct a trial. See 119 Cong. Rec. 

24,598 (1973); United States v. Airline 

Tariff Pub. Co., 836 F.Supp. 9, 11 n. 2 

(D.D.C. 1993). The Tunney Act 

expressly allows the court to make its 


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11There must be ‘‘a factual foundation for the 

government’s decision such that its conclusions 

regarding the proposed settlement are reasonable.’’ 

United States v. Keyspan Corp., 763 F. Supp. 2d 

633, 637–38 (S.D.N.Y. 2011) (quoting United States 

v. Abitibi-Consolidated Inc., 584 F. Supp. 2d 162, 

165 (D.D.C. 2008). 

12NYPSC Comments in United States v. Keyspan, 

available at http://www.justice_gov/atr/cases/ 

f259700/259704-5.htm. 

13The total harm is greater than the profits 

because under NYISO market rules, artificially high 

prices achieved by participants in the scheme were 

paid to all sellers. 

public interest determination on the 

basis of the competitive impact 

statement and response to comments 

alone. A court may, in its discretion, 

invoke additional procedures when it 

determines such proceedings may assist 

in the resolution of issues raised by the 

comments. See H.R. Rep. No. 93–1463, 

at 8–9 (1974), reprinted in U.S.S.C.A.N. 

6535, 6539. 

United States v. Keyspan, 763 

F.Supp.2d 633, 637–638 (S.D.N.Y. 2011) 

(‘‘Keyspan’’), quoting United States v. 

Enova Corp., 107 F.Supp.2d 10, 17 

(D.D.C. 2000) (emphasis added). It is not 

necessary for the relief proposed in a 

settlement to be a perfect remedy for the 

alleged antitrust violation, but there 

must be a factual basis to support any 

DOJ conclusions that the remedies 

proposed are reasonably adequate.11

The Keyspan decision, quoted above, 

misapprehends the standard of review. 

The Tunney Act not only ‘‘allows’’ 

courts to consider the listed factors in 

its review. It requires such 

consideration. The Tunney Act was 

amended in the Antitrust Criminal 

Penalty Enhancement and Reform Act of 

2004 specifically to clarify that 

reviewing courts ‘‘shall’’ (instead of 

‘‘may’’) take each of the *enumerated 

factors into account in their review of a 

proposed antitrust case settlement. 15 

U.S.C. §§ 16(e)(1)(A) and (B). 

AARP demonstrates below that the 

proposed settlement fails to pass muster 

under the standards for approval of DOJ 

antitrust settlements. DOJ should 

withdraw its consent to the settlement, 

and conduct further proceedings to 

develop the record and proceed to trial, 

if a renegotiated agreement which 

addresses the concerns in these 

comments cannot be made. 

Argument 

1. The Proposed Settlement Is Not in 

the Public Interest Because It Provides 

No Benefit to Customers Harmed. 

The Morgan Stanley/Keyspan/Astoria 

derivatives supported gaming of the 

NYISO market, causing very serious 

financial harm to customers by 

artificially inflating the NYISO market 

prices for electric capacity. The DOJ 

Complaint and Competitive Impact 

Statement (‘‘CIS’’) very prominently 

state that the ‘‘likely effect’’ of the 

alleged antitrust violation ‘‘was to 

increase capacity prices for the retail 

electricity suppliers who must purchase 

capacity, and, in turn, to increase the 

prices consumers pay for electricity.’’ 

Complaint, pp. 1–2, CIS 1–2 (emphasis 

added). The prayer for relief in the DOJ 

Complaint includes a request for 

equitable relief to ‘‘dissipate the 

anticompetitive effects of the violation.’’ 

Complaint If 40. The only 

‘‘anticompetitive effects’’ identified in 

the record are the artificial increase in 

NYISO prices and the higher prices paid 

by consumers. 

The record at this stage contains no 

evidence of the magnitude of the injury 

to consumers, including many AARP 

members living in the New York City 

area. As previously discussed, there are 

indications outside the record that the 

price of capacity was artificially raised 

by approximately $157 million in 2006 

by the gambit supported by the Morgan 

Stanley derivatives, and the term of the 

agreements went beyond 2006. The New 

York State Public Service Commission 

stated in its comments on the settlement 

of the Keyspan case arising from the 

same transactions that the harm to 

consumers ‘‘could have totaled 

hundreds of millions of 

dollars.* * *’’ 12 The CIS does not 

attempt to address the magnitude of this 

harm to customers, which far exceeded 

the total profits of the participants in the 

scheme to raise NYISO prices.13 As a 

consequence, the record is insufficiently 

developed for a reviewing court to test 

whether the remedy proposed is 

appropriate. 

Under the proposed settlement there 

is not one penny for the injured 

consumers. Instead, the entire $4.8 

million of monetary relief is to be paid 

to the United States Treasury. This does 

nothing to address the injury to those 

most directly harmed, the electric 

customers whose bills were artificially 

increased. There is no explanation in 

the CIS of why this is so. 

The Tunney Act requires DOJ, in its 

CIS, to provide ‘‘a description and 

evaluation of alternatives to such 

proposal actually considered by the 

United States.’’ 15 U.S.C. § 16(b)(6). The 

CIS, however, contains no description 

or evaluation of alternative relief that 

would provide at least some benefit to 

the injured customers. Any claim by 

DOJ that equitable relief for the benefit 

of injured consumers was never 

‘‘actually considered’’ would not be 

credible. In the Keyspan case, involving 

the same derivative agreement, the 

settlement also provided no relief to 

consumers. The absence of any 

equitable relief for consumers drew 

vigorous protest in that case, in the 

comments of the New York State Public 

Service Commission, the New York 

State Consumer Protection Board, the 

City of New York, Con Edison, and 

AARP. Surely DOJ would at least have 

considered, however briefly, whether to 

seek some measure of relief for electric 

customers who suffered from the wrong. 

AARP expects that DOJ, in its 

response to these comments, will cite 

the recent court approval of the Keyspan 

settlement, which lacked any relief to 

customers. That, however, does not bar 

inclusion of such relief in the settlement 

of this case. 

In rejecting requests for equitable 

relief to consumers the court in the 

Keyspan case relied upon a perceived 

‘‘filed rate’’ barrier and potential 

‘‘transaction costs’’ of administering 

monetary relief to customers, stating: 

Finally, this Court rejects the notion 

that the Consent Decree should only be 

approved if the disgorged proceeds are 

returned to New York City consumers. 

While such relief might be optimal, 

payment of the disgorged proceeds to 

the Treasury is nevertheless ‘‘within the 

reaches of the public interest.’’ Alex. 

Brown, 963 F. Supp. at 238 (quotations 

omitted). It can be effectuated without 

incurring transaction costs and inures to 

the public benefit. See Sec. & Exchange 

Commin v. Bear, Steams & Co. Inc:, 626 

F. Supp. 2d 402,419 (S.D.N.Y. 2009) 

(answering ‘‘the question of how 

[disgorged money] can be used to do 

’the greatest good for the greatest 

number of people’ by ordering its 

transfer to the ‘‘Treasury to be used by 

the Government for its operations’’). 

Moreover, the Government raises 

valid concerns regarding potential 

violation of the filed-rate doctrine. 

‘‘The filed rate doctrine bars suits 

against regulated utilities grounded on 

the allegation that the rates charged by 

the utility are unreasonable. Simply 

stated, the doctrine holds that any ‘filed 

rate’—that is, one approved by the 

governing regulatory agency is per se 

reasonable and unassailable in judicial 

proceedings brought by ratepayers.’’ 

Wegoland Ltd. v. NYNEX Corp., 27 F.3d 

17, 18–19 (2d Cir. 1994); see also Keogh 

v. Chi. & Northwestern Ry. Co., 260 U.S. 

156, 163 (1922) (holding that the filed 

rate doctrine bars recovery for antitrust 

damages against carriers colluding to set 

artificially high shipment rates). In view 

of that prohibition, return of the 

disgorged proceeds to New York City 

electricity customers could circumvent 

the filed-rate doctrine. A court must 

extend ‘‘deference to the Government’s 


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14At issue was Keyspan’s $48 million profit from 

its derivative contract with Morgan Stanley. As the 

contract was neither filed nor part of Keyspan’s 

rates, which are set by the NYISO in its auctions, 

applicability of the ‘‘filed rate’’ doctrine to customer 

relief in that case is questionable. 

15Con Edison Electric Service Tariff, General 

Information, Part VII, A(1)(a)(8), available at http:// 

www.coned.com/documents/elec/159-164a.pdf. 

16The CIS is available at http://www.justice.gov/ 

atr/cases/f275800/275857.pdf. 

evaluation of the case and the remedies 

available to it.’’ Alex. Brown, 963 F. 

Supp. at 239. 

United States v. Keyspan Corp., 763 F. 

Supp. 2d 633, 643 (S.D.N.Y. 2011) 

(S.D.N.Y 2011) (emphasis added). 

This case does not involve any utility 

rate filed by Morgan Stanley. It involves 

profits extracted from large numbers of 

customers by sellers using Morgan 

Stanley’s services and derivative 

instruments as tools. Thus the ‘‘filed 

rate’’ rationale for not providing any 

relief to customers, perceived by the 

court to be a barrier in Keyspan,14

clearly is not applicable here. 

The transaction cost issue perceived 

to be a barrier to customer relief in 

Keyspan is also easily hurdled. Just as 

utilities paid artificially inflated NYISO 

charges for capacity and passed those 

charges on to their customers, utilities 

can pass on equitable monetary relief 

intended for the benefit of their 

customers in the normal course of 

business without excessive transaction 

costs. For example, Con Edison passes 

on variations in capacity costs to its 

customers every month, in monthly rate 

adjustments, through its ‘‘Market 

Adjustment Clause.’’ The Market 

Adjustment Clause takes into account 

36 variable factors every month, 

including ‘‘(8) certain NYISO-related 

charges and credits * * *.’’ 15 is 

Equitable monetary relief from the 

inflated NYISO charges could be 

provided as a credit to customers in the 

normal course of making rate 

adjustments. Refunds to utility 

customers relating to past overcharges 

are also a well-established remedy. 

Section 113 of the New York Public 

Service Law provides: 

2. Whenever any public utility 

company or municipality, whose rates 

are subject to the jurisdiction of the 

commission, shall receive any refund of 

amounts charged and collected from it 

by any source, the commission shall 

have power after a hearing, upon its 

own motion, upon complaint or upon 

the application of such public utility 

company or municipality, to determine 

whether or not such refund should be 

passed on, in whole or in part, to the 

consumers of such public utility 

company or municipality and to order 

such public utility company or 

municipality to pass such refunds on to 

its consumers, in the manner and to the 

extent determined just and reasonable 

by the commission. 

The New York State Public Service 

Commission supported the return of 

overcharges as equitable relief to 

customers in Keyspan. Surely the Public 

Service Commission would cooperate, if 

necessary in the oversight of monetary 

relief intended for utility customers 

when a provision for such relief is 

contained in an antitrust case 

settlement. 

In sum, unlike Keyspan, there is no 

‘‘filed rate’’ barrier in this case, and 

AARP has demonstrated that consumer 

benefits could be efficiently 

administered without the speculative 

transaction costs feared in Keyspan. The 

proposed remedy allowing the 

government to receive all the profits that 

Morgan Stanley agrees to cede, without 

consideration of the amount of harm 

suffered by customers and without any 

equitable relief to the customers, is not 

equitable and is not in the public 

interest. 

2. The CIS Should Be Withdrawn or 

Amended by DOJ To Support Its 

Reasons for Termination of the Action 

With No Finding of Wrongdoing by 

Morgan Stanley. 

As required by the Tunney Act, DOJ 

filed a Competitive Impact Statement 

(‘‘CIS’’) 16 in which it sets out the facts 

of the case, its reasoning and its 

conclusions in support of the 

settlement. The DOJ Antitrust Division 

Manual, 4th Ed., states that in a CIS, 

‘‘[a]ll material provisions of the 

proposed judgment should be 

discussed.’’ Id., at IV–57. Notably 

missing from the CIS in this case, 

however, is any discussion by DOJ of 

the critical provision which allows 

termination of the case with no 

admission of any wrongdoing by 

Morgan Stanley. The proposed final 

judgment states that Morgan Stanley: 

consented to the entry of this Final 

Judgment without trial or adjudication 

of any issue of fact or law, for settlement 

purposes only, and without this Final 

Judgment constituting any evidence 

against or an admission by Morgan for 

any purpose with respect to any claim 

or allegation contained in the Complaint 

* * *. 

Proposed Final Judgment, p. 1. The 

importance of this provision letting 

Morgan Stanley off the hook is 

underscored by the Complaint, in which 

DOJ demands ‘‘What the Court adjudge 

and decree that the Morgan/Keyspan 

Swap constitutes an illegal restraint in 

the sale of installed capacity in the New 

York City market in violation of Section 

1 of the Sherman Act.’’ Complaint, ¶ 39. 

Also, DOJ makes numerous references 

in the CIS to Morgan Stanley’s conduct 

as having constituted a violation of the 

Sherman Act: 

The United States brought this 

lawsuit against Defendant Morgan 

Stanley * * * to remedy a violation of 

Section 1 of the Sherman Act, 15 U.S.C. 

§ 1. [CIS 1] 

The proposed Final Judgment 

remedies this violation * * * [CIS 2]. 

Disgorgement will deter Morgan and 

others from future violations of the 

antitrust laws. [CIS 2] 

[D]isgorgement will effectively fulfill 

the remedial goals of the Sherman Act 

to ‘‘prevent and restrain’’ antitrust 

violations as it will send a message of 

deterrence to those in the financial 

services community considering the use 

of derivatives for anticompetitive ends. 

[CIS 9] 

Despite these assertions by DOJ in its 

CIS that there were violations of the 

law, it is the Final Judgment that counts 

most. The Final Judgment affirmatively 

disavows any finding or admission that 

the law was violated by Morgan Stanley. 

There is no explanation or factual basis 

in the CIS to support DOJ’s 

abandonment in the Final Judgment of 

the primary object of the action. It is 

incumbent upon DOJ to withdraw and 

amend its CIS to include its rationale for 

ending the case with no finding or 

admission that Morgan Stanley violated 

the antitrust laws, and with no 

commitment by Morgan Stanley that it 

will not engage in similar conduct in the 

future. The public should then be 

allowed an additional opportunity to 

respond to any amended or new CIS. 

With no finding that Section 1 of the 

Sherman Act is violated by the use of 

financial derivatives to backstop risks 

when sellers game electricity markets, 

no one, including Morgan Stanley, 

really knows whether this gambit is 

actually illegal. As a result, Morgan 

Stanley and any other future 

wrongdoers will still lack scienter, an 

essential element for criminal sanctions 

under Section 2 of the Sherman Act. 

Thus, future wrongdoers can try the 

gambit again and need be concerned 

only about trivial civil sanctions. 

3. DOJ Should Withdraw its Consent 

to the Settlement or Amend its CIS to 

Provide Support for its Conclusion that 

the Disgorgement Proposed in this Case 

will be a Deterrent. 

Disgorgement of profits is one of the 

equitable remedies available to address 

violations of the Sherman Act. United 

States v. Keyspan Corp., 763 F. Supp. 2d 

633, 638–641 (SDNY 2011). DOJ 

repeatedly emphasizes the settlement’s 


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17The DOJ Competitive Impact Statement asserts 

there are no ‘‘determinative’’ documents required to 

be submitted under the Tunney Act. See United 

States v. Central Contracting Co., Inc., 537 F. Supp. 

571 (E.D. Va. 1982). 

18Craig Pirrong, Energy Market Manipulation: 

Definition, Diagnosis, and Deterrence, 31 Energy 

Law Journal 1–2 (2010) (emphasis added). 

requirement that Morgan Stanley 

disgorge $4.8 million of its profits from 

the derivatives, claiming this payment 

to the government would serve as a 

deterrent: 

Disgorgement will deter Morgan and 

others from future violations of the 

antitrust laws. [CIS 2] 

The proposed Final Judgment requires 

Morgan to disgorge profits gained as a 

result of its unlawful agreement 

restraining trade. Morgan is to surrender 

$4.8 million to the Treasury of the 

United States. [CIS 8] 

* * * * * 

Requiring disgorgement in these 

circumstances will thus protect the 

public interest by deterring Morgan and 

other parties from entering into similar 

financial agreements that result in 

anticompetitive effects in the 

underlying markets, or from otherwise 

engaging in similar anticompetitive 

conduct in the future. [CIS 8] 

A disgorgement remedy should deter 

Morgan and others from engaging in 

similar conduct and thus achieves a 

significant portion of the relief the 

United States would have obtained 

through litigation * * * [CIS 11] 

There is no evidence in the record, 

however, to support these broad claims 

that the settlement crafted by Morgan 

Stanley and DOJ would have any 

deterrent effect on anyone. 

According to the CIS, ‘‘Morgan earned 

approximately $21.6 million in net 

revenues from the Morgan/Keyspan 

Swap and the Morgan/Astoria Hedge.’’ 

CIS 6 DOJ acknowledges that only a 

portion of Morgan Stanley’s profits 

would be disgorged if the proposed 

settlement is approved, attempting to 

put the best light on a small recovery: 

While the disgorged sum represents 

less than all of Morgan’s net transaction 

revenues under the two agreements, [fn. 

omitted] disgorgement will effectively 

fulfill the remedial goals of the Sherman 

Act to ‘‘prevent and restrain’’ antitrust 

violations as it will send a message of 

deterrence to those in the financial 

services community considering the use 

of derivatives for anticompetitive ends. 

[CIS 9] (emphasis added). 

If the 21% to be disgorged under the 

proposed settlement is ‘‘less than all’’ of 

the $21.6 million profit, as DOJ puts it, 

perhaps the amount of ill-gotten gains 

retained by Morgan Stanley—$16.8 

million, or 79%—might be said to be 

‘‘nearly all’’ of the net profit. 

The CIS fails to explain how 

disgorgement of only $4.8 million, and 

allowing Morgan Stanley to keep $16.8 

million of its profits from the scheme 

would deter similar future conduct by 

Morgan Stanley or anyone. There is 

simply no evidence in the record to 

support DOJ’s conclusion that the 

proposed settlement ‘‘will send a 

message of deterrence to those in the 

financial services community 

considering the use of derivatives for 

anticompetitive ends.’’ Id. Given the 

minimal development of the record, no 

one can see the derivative instruments 

used by Morgan Stanley. If the offending 

derivative agreements are not disclosed, 

there is even less likelihood of deterring 

similar transactions by others. These 

should have been provided by DOJ with 

the CIS as ‘‘determinative documents.17

DOJ is ordinarily entitled to deference 

in assessing the effectiveness of a 

remedy it agrees to, but here its 

conclusion that disgorgement of only 

$4.8 million is sufficient is refuted by 

every day common sense and 

arithmetic. The CIS does not explain in 

plain language how allowing a 

wrongdoer to keep 79% of its ill-gotten 

gains can be seen as any kind of 

‘‘message of deterrent.’’ Rather, the 

‘‘message’’ to some may really be that 

large profits can still be made from 

gaming electricity markets using 

financial derivative agreements to 

support bidding strategies. If found out, 

there will probably be no criminal 

antitrust sanction, and at worst one may 

keep the majority of the profit in a 

settlement with DOJ. The real lesson 

taught by the proposed settlement to 

potential manipulators could actually 

encourage similar conduct and further 

harm competition. This is not a remote 

or speculative concern. ‘‘Manipulation 

is a potentially serious problem in all 

derivatives markets, energy 

included.’’ 18 The CIS does not consider 

this possibility and therefore does not 

sufficiently address the impact on 

competition as required by the Tunney 

Act. 15 U.S.C. § 16(e)(1)(A). 

The $4.8 million disgorgement is 

probably well within the range of what 

Morgan Stanley’s litigation expenses 

might be if the case is litigated. The real 

lesson of the disclaimer and the small 

disgorgement is that this is merely a 

nuisance settlement. As recently stated 

by Judge Rakoff in the course of 

rejecting a settlement proposed of the 

SEC: 

[A] consent judgment that does not 

involve any admissions and that results 

in only very modest penalties is just as 

frequently viewed, particularly in the 

business community, as a cost of doing 

business imposed by having to maintain 

a working relationship with a regulatory 

agency, rather than as any indication of 

where the real truth lies. 

SEC v Citigroup Global Markets, Inc., 

11 Civ. 7387 (Nov. 28, 2011). 

4. The CIS Fails to Support the Claim 

that the Settlement is Reasonable 

Because it Avoids Litigation Risk. 

DOJ attempts to justify the proposed 

settlement by invoking its risk of 

litigation, i.e., that it might lose the case 

if it goes to trial: 

The $4.8 million disgorgement 

amount is the product of settlement and 

accounts for litigation risks and costs. 

[CIS 9] 

Had the case against Morgan 

proceeded to trial, the United States 

would have sought disgorgement of the 

$21.6 million in net transaction 

revenues Morgan earned under both the 

Morgan/Keyspan Swap and the Morgan/ 

Astoria Hedge. At trial, Morgan—in 

addition to raising arguments as to its 

lack of liability in general—would have 

disputed that the entire $21.6 million 

earned under both agreements would be 

cognizable as ill-gotten gains. [CIS 9, fn 

4]. 

While DOJ is ordinarily given 

considerable deference to its assessment 

of the merits of its case, it does not cite 

any authority or facts to show that this 

case is difficult. Based on the CIS and 

the record, there are written derivative 

contracts evidencing the profit-sharing 

arrangement of the utility 

counterparties, facilitated by Morgan 

Stanley as middleman. The utilities’ 

bidding records should be readily 

available from the NYISO. What is the 

problem with the case? DOJ gives no 

hint that its case is in any way doubtful. 

This case is only a variation on classic 

bid-rigging and price fixing. Here, 

Keyspan bid high, in order to elevate the 

auction price paid to all sellers, Astoria 

paid Morgan Stanley some of the extra 

profits it made due to the elevated price, 

and Morgan Stanley paid Keyspan, 

keeping a net $21.6 million profit for its 

services in facilitating the price raising 

game. Had the utility sellers made an 

agreement bilaterally with the same 

results, it would be seen as a crystal 

clear antitrust violation. See Addyston 

Pipe & Steel Co. v. United States, 175 

US 211, 243 (1899) (‘‘the defendants 

enter, not in truth as competitors, but 

under an agreement or combination 

among themselves which eliminates all 

competition between them for the 

contract, and permits one of their 

number to make his own bid and 

requires the others to bid over him’’). It 

should be equally clear that a 

middleman like Morgan Stanley, who 


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effectuates the economic alignment of 

the sellers with its derivative 

agreements, is part of the ‘‘combination’’ 

and is also a Sherman Act violator. 

The CIS makes an exaggerated claim 

that DOJ has won victory in the 

proposed settlement, stating: 

A disgorgement remedy should deter 

Morgan and others from engaging in 

similar conduct and thus achieves a 

significant portion of the relief the 

United States would have obtained 

through litigation. * * * [CIS 11] 

(emphasis added). 

If the $4.8 million to be disgorged is 

‘‘a significant portion’’ of the relief 

sought in the complaint, then the $16.8 

million retained by Morgan Stanley 

could be said to be three times as 

‘‘significant’’ because Morgan Stanley 

keeps the bulk of its profit from 

facilitating the scheme. 

5. The Keyspan Case Is Not A Barrier 

to a Consumer Remedy in This Case. 

DOJ relies heavily on the prior 

decision approving the settlement of its 

antitrust case against Keyspan, 

involving the same derivative contract, 

where $12 million of Keyspan’s $48 

million profit was disgorged, with no 

equitable relief for consumers: 

Keyspan, pursuant to a Final 

Judgment sought by the United States, 

has surrendered $12 million as a result 

of its role in the Morgan/Keyspan 

Swap.3 See United States v. Keyspan 

Corp., 763 T. Supp. 2d 633,637–38 

(S.D.N.Y. 2011). Securing similar 

disgorgement from the other responsible 

party to the anticompetitive agreement 

will protect the public interest by 

depriving Morgan of a substantial 

portion of the fruits of the agreement. 

The effect of the swap agreement was to 

effectively combine the economic 

interests of Keyspan and Astoria, 

thereby permitting Keyspan to increase 

prices above competitive rates, and this 

result could not have been achieved 

without Morgan’s participation in the 

swap agreement. Requiring 

disgorgement in these circumstances 

will thus protect the public interest by 

deterring Morgan and other parties from 

entering into similar financial 

agreements that result in 

anticompetitive effects in the 

underlying markets, or from otherwise 

engaging in similar anticompetitive 

conduct in the future. 

CIS 8, (emphasis added). If 

disgorgement of $4.8 million constitutes 

a ‘‘substantial portion of the fruits of the 

agreement,’’ then the amount of illgotten profits retained by Morgan 

Stanley is three times as ‘‘substantial.’’ 

As the emphasized language in the 

quotation above shows, the successful 

gaming of the NYISO market could not 

have been achieved by the utilities 

without Morgan Stanley acting as 

middleman. It was not something 

Keyspan and Astoria could have 

accomplished themselves in a bilateral 

agreement without flagrant and knowing 

violation of antitrust law, which might 

expose them to possible criminal 

charges and large fines under Section 2 

of the Sherman Act. Because its role as 

middleman was crucial to the scheme, 

it is appropriate to require Morgan 

Stanley to disgorge proportionately 

more than Keyspan, not less. 

The proposed settlement not only 

fails to ‘‘deprive the antitrust defendants 

of the benefits of their conspiracy.’’ Intl 

Boxing Club v. United States, 358 U.S. 

242 at 253 (1959). (quotation omitted), 

it does not even come close to that goal. 

Instead, it allows Morgan Stanley to 

retain the lion’s share, 79%, of the 

benefits. ‘‘[A]dequate relief in a 

monopolization case should * * * 

deprive the defendants of any of the 

benefits of the illegal conduct * * *’’ 

United States v. Grinnell Corp., 384 U.S. 

563, 577 (1966). Accord, United States 

v. E.I. du Pont de Nemours & Co., 366 

U.S. 316, 368 (1961) (‘‘Those who 

violate the Act may not reap the benefits 

of their violations * * *’’ (quotations 

omitted)). In any settlement parties may 

obtain something less in the 

compromise than they initially sought 

when commencing the litigation, but the 

woefully trivial disgorgement by 

Morgan Stanley of only $4.8 million of 

its profits cannot possibly be an 

adequate equitable remedy or in the 

public interest. 

AARP Recommendations 

AARP recommends that DOJ 

withdraw from the proposed settlement 

and proceed in the litigation, or 

renegotiate with Morgan Stanley to 

include the following in any new or 

revised settlement agreement: 

A. Allocation of profits made by 

Morgan Stanley to provide equitable 

relief to electric utility consumers 

harmed by the violation, 

B. Admission by Morgan Stanley of its 

violation of the Sherman Act as 

described in the Complaint, 

C. Quantification of the total harm to 

consumers and markets, and 

D. Disgorgement by Morgan Stanley of 

all profits it realized from the 

derivatives used to implement the price 

raising scheme. 

STATE OF NEW YORK DEPARTMENT 

OF PUBLIC SERVICE 

THREE EMPIRE STATE PLAZA, 

ALBANY, NY 12223–1350 

www.dps.state.ny.us 

PUBLIC SERVICE COMMISSION 

GARRY A. BROWN 

Chairman 

PATRICIA L ACAMPORA 

MAUREEN F. HARRIS 

ROBERT E. CURRY JR. 

JAMES L LAROCCA 

Commissioners 

PETER McGOWAN 

General Counsel 

JACLYN A. BRILLING 

Secretary 

December 30, 2011 

VIA E-MAIL 

William H. Stallings, Chief, 

Transportation Energy & Agriculture 

Section, Antitrust Division, United 

States Department of Justice, 

Washington, DC 20530, E-Mail: 

william.stallings@usdoj.gov. 

Re: United States of America v. Morgan 

Stanley, Civil Case No. 11–civ–6875 

Comments of the Public Service 

Commission of the State of New York 

Dear Chief Stallings: 

Pursuant to the Tunney Act, 15 U.S.C. 

§ 16(e)(1), enclosed please find 

comments of the Public Service 

Commission of the State of New York in 

response to the notice published in the 

Federal Register on October 11, 2011. 

See U.S. Dep’t of Justice, Antitrust Div., 

United States v. Morgan Stanley, 

Proposed Final Judgment and 

Competitive Impact Statement, 76 

Federal Register 62843 (October 11, 

2011). 

Please contact me at (518) 474–7663, 

if you have any questions. Thank you. 

Very truly yours, 

Sean Mullany 

Assistant Counsel 

Enclosure 

IN THE UNITED STATES DISTRICT 

COURT FOR THE SOUTHERN 

DISTRICT OF NEW YORK 

Civil Case No. 11–civ–6875, United 

States of America, Plaintiff v. Morgan 

Stanley, Defendant. 

COMMENTS OF THE PUBLIC SERVICE 

COMMISSION OF THE STATE OF 

NEW YORK, PURSUANT TO THE 

ANTITRUST PROCEDURES AND 

PENALTIES ACT, ON THE PROPOSED 

FINAL JUDGMENT 

SUMMARY 

The Public Service Commission of the 

State of New York (‘‘PSC’’) submits 


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these comments pursuant to the 

Antitrust Procedures and Penalties Act, 

15 U.S.C. §§ 16(b)–(h), in response to 

the notice published in the Federal 

Register on October 11, 2011, in this 

matter. U.S. Dep’t of Justice, Antitrust 

Div., United States v. Morgan Stanley, 

Proposed Final Judgment and 

Competitive Impact Statement, 76 

Federal Register 62843 (October 11, 

2011). 

The Department of Justice (‘‘DOJ’’) is 

to be commended for its faithful 

enforcement of the antitrust law to 

protect the integrity of electricity 

markets in New York City. The electric 

capacity market for New York City is 

highly concentrated. The antitrust law is 

properly applied in this case to address 

wrongful anti-competitive practices of 

Morgan Stanley. DOJ’s enforcement of 

the antitrust law is critical to protect 

consumers against the harmful effects of 

Morgan Stanley’s anti-competitive 

conduct in this case and, more 

generally, to protect the public interest 

in the integrity of the newly-created 

competitive electricity markets. 

DOJ proposes to settle this litigation 

by having Morgan Stanley pay the 

United States government $4.8 million. 

DOJ asserts such a settlement will be in 

the public interest because Morgan 

Stanley’s payment of this amount into 

the U.S. Treasury will deprive Morgan 

Stanley of ‘‘a substantial portion’’ of its 

unjust enrichment. Competitive Impact 

Statement, at 8. DOJ admits it seeks only 

partial disgorgement of Morgan 

Stanley’s ill-gotten gains, saying that, if 

it proceeded to trial, it would have 

sought disgorgement of all of Morgan 

Stanley’s net transaction revenues, 

which DOJ asserts were $21.6 million. 

Competitive Impact Statement, at 9 & n. 

4. DOJ nonetheless claims the lesser 

amount of $4.8 million ‘‘will effectively 

fulfill the remedial goals of the Sherman 

Act’’ to ‘‘prevent and restrain’’ antitrust 

violations because the settlement will 

‘‘send a message of deterrence’’ to the 

financial services community. 

Competitive Impact Statement, at 9. 

According to DOJ, the lesser amount of 

$4.8 million will still prevent market 

participants from using such financial 

agreements to manipulate the capacity 

markets in the future. Competitive 

Impact Statement, at 8–9. 

These claims are central to DOJ’s 

assertion that the settlement is in the 

public interest, a finding that the Court 

must make in order to approve DOJ’s 

proposal. DOJ, however, has offered 

nothing to support its claims that this 

settlement, which would allow Morgan 

Stanley to retain almost 80 percent of its 

ill-gotten gains, will deter such 

anticompetitive conduct. Because of 

this, DOJ has not demonstrated that this 

settlement will achieve a central 

purpose of the Sherman Antitrust Act, 

namely preventing anticompetitive 

arrangements such as those facilitated 

by Morgan Stanley in this case. POINT 

I, below. 

To remedy this, the Court should, 

under the authority of the Tunney Act, 

direct DOJ to supplement the record to 

show how and why the settlement will 

prevent such violations from recurring. 

POINT II, below. 

DOJ has not shown that a settlement 

for $4.8 million would be reasonable. 

DOT alleges Morgan Stanley’s net 

revenues were $21.6 million. It asserts 

that $4.8 million is reasonable given the 

risks and costs of fully litigating the 

case. However, DOJ has offered only a 

summary statement of Morgan Stanley’s 

anticipated position at trial. Competitive 

Impact Statement, at 9 & n. 4. This 

statement does not shed light on the 

actual risks and costs of litigation. 

Moreover, in considering whether a $4.8 

million settlement would be reasonable, 

the Court should weigh the nature of 

Morgan Stanley’s wrongdoing, the 

impact of such a settlement on DOJ’s 

enforcement role, and the overall 

efficacy of antitrust law as a mechanism 

for preventing such harmful market 

manipulation. 

DOJ has already settled with KeySpan 

for $12 million, an amount equal to 24.5 

percent of KeySpan’s alleged wrongful 

gain. That settlement was approved by 

the court on February 2, 2011. United 

States v. KeySpan Corporation, 10 Civ. 

1415 (WHP) Memorandum and Order, 

(S.D.N.Y. Feb. 2, 2011). Now DOJ 

proposes to settle with Morgan Stanley, 

the financial institution that allegedly 

actively facilitated KeySpan’s wrongful 

manipulation of the capacity market. 

DOJ alleges that KeySpan, knowing it 

could not directly buy an interest in 

Astoria (its largest competitor), enlisted 

Morgan Stanley to act as an 

intermediary. Thus, Morgan Stanley’s 

involvement was designed to allow 

KeySpan to do indirectly what it could 

not do directly. In effect, DOJ alleges 

that Morgan Stanley actively facilitated 

KeySpan’s attempt to evade the law. 

Despite allegations of such egregious 

conduct, DOJ proposes to settle with 

Morgan Stanley for only 22.2 percent of 

Morgan Stanley’s wrongful gain. Such 

an arrangement, however, is more akin 

to a tax than a penalty. 

The settlement amount is particularly 

unreasonable given the fact that Morgan 

Stanley’s illegal conduct had a much 

larger harmful impact. As the PSC noted 

in its comments on DOJ’s earlier 

settlement with KeySpan, the illegal 

market manipulation that KeySpan and 

Morgan Stanley orchestrated imposed 

unnecessary costs on consumers which 

may have totaled tens of millions of 

dollars. Even if DOJ could not recover 

all those damages under the Sherman 

Antitrust Act, the reasonableness of 

seeking only 22.2 percent of what DOJ 

can recover should be measured, in part 

at least, by the larger consumer harm 

KeySpan and Morgan Stanley caused. 

United States v. KeySpan Corporation, 

10 Civ. 1415 (S.D.N.Y.) (WHP), 

Comments of the Public Service 

Commission of the State of New York, 

Pursuant To the Antitrust Procedures 

and Penalties Act, On the Proposed 

Finaljudgment, (Apr. 30, 2010). POINT 

III, below. 

BACKGROUND 

In this civil antitrust action, brought 

DOJ under Section 1 of the Sherman 

Act, 15 U.S.C. § 1, the government seeks 

equitable and other relief against 

Morgan Stanley for violating the 

antitrust law. According to DOJ, in late 

2005 and early 2006, Morgan Stanley 

entered into a ‘‘swap’’ agreement with 

KeySpan Corporation (‘‘KeySpan’’), then 

the largest electricity producer in the 

New York City metropolitan area. DOJ 

asserts this agreement (the ‘‘Morgan/ 

KeySpan Swap’’) ensured that KeySpan 

would withhold substantial output from 

the New York City electric generating 

capacity market, thereby discouraging 

competitive bidding and increasing 

capacity prices. On or about the same 

time, Morgan Stanley entered into an 

offsetting ‘‘swap’’ agreement with 

Astoria—KeySpan’s largest competitor 

(the ‘‘Morgan/Astoria Swap’’). Morgan 

Stanley, acting as the intermediary 

between KeySpan and Astoria, extracted 

revenues for its role. Thus, Morgan 

Stanley facilitated an arrangement ‘‘[t]he 

likely effect * * * was to increase 

capacity prices for the retail electricity 

suppliers who must purchase capacity, 

and, in turn, to increase the prices 

consumers pay for electricity.’’ 76 

Federal Register, at 62844. 

According to DOJ, the Morgan/ 

KeySpan Swap unlawfully restrained 

competition in New York City’s electric 

capacity market. KeySpan entered into 

that agreement to protect itself against 

increased losses from its preferred 

bidding strategy, due to the entry of new 

competitors into the capacity market. 76 

Federal Register, at 62844. Under the 

Morgan/KeySpan Swap, KeySpan, 

which already possessed substantial 

market power in the highly 

concentrated and constrained New York 

City capacity market, ‘‘enter[ed] into an 

agreement that gave it a financial 

interest in the capacity of Astoria— 

KeySpan’s largest competitor.’’ 76 


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1 In approving DOJ’s earlier $12 million 

settlement with KeySpan, the court noted that, 

according to DOJ, KeySpan ‘‘did not necessarily 

earn additional revenues’’ by not competing. 

Instead, the swap offered greater revenue certainty 

even though ‘‘competing could have earned the 

company greater revenues * * *’’ United States v. 

KeySpan Corporation, 10 Civ. 1415 (WHP) 

Memorandum and Order, at 14–15 (S.D.N.Y. Feb. 2, 

2011). Because of this, in part, the Court found the 

$12 million settlement with KeySpan to be 

reasonable. Here, Morgan Stanley’s swap revenues 

(aside from transactional costs) were profits since 

it would have had no revenues if KeySpan 

competed instead of entering into the swap. 

Accordingly, the court’s rationale for finding the 

KeySpan settlement amount reasonable does not 

support this proposed settlement with Morgan 

Stanley. 

Federal Register, at 62844. By giving 

KeySpan revenues not only from its 

own sales, but also from the capacity 

sales of its largest competitor, the 

Morgan/KeySpan Swap ‘‘effectively 

eliminated KeySpan’s incentive to 

compete for sales’’ of capacity. 76 

Federal Register, at 62846. Thus, ‘‘[t]he 

clear tendency of the Morgan/KeySpan 

Swap was to alter KeySpan’s bidding in 

the NYC Capacity Market auctions.’’ 76 

Federal Register, at 62846. 

As a result, electric capacity prices 

remained unlawfully inflated, and 

Morgan Stanley earned approximately 

$21.6 million in net revenues from the 

Morgan/KeySpan Swap and the 

Morgan/Astoria Swap. 76 Federal 

Register, at 62846. In addition, the 

elimination of competitive pressures, 

due to the anti-competitive Morgan/ 

KeySpan Swap imposed unnecessary 

costs on consumers which may have 

totaled tens of millions of dollars. 

POINT I 

DOJ HAS NOT PROVIDED ENOUGH 

INFORMATION TO DETERMINE 

WHETHER THE PROPOSED 

SETTLEMENT IS IN THE PUBLIC 

INTEREST 

Before entering any consent judgment 

proposed by the United States, the court 

must first determine that entry of such 

a judgment ‘‘is in the public interest.’’ 

15 U.S.C. § 16(e)(1). In doing so, ‘‘the 

court shall consider— 

(A) the competitive impact of such 

judgment, including termination of 

alleged violations, provisions for 

enforcement and modification, duration 

of relief sought, anticipated effects of 

alternative remedies actually 

considered, whether its terms are 

ambiguous, and any other competitive 

considerations bearing upon the 

adequacy of such judgment that the 

court deems necessary to a 

determination of whether the consent 

judgment is in the public interest; and 

(B) the impact of entry of such 

judgment upon competition in the 

relevant market or markets, upon the 

public generally and individuals 

alleging specific injury from the 

violations set forth in the complaint 

including consideration of the public 

benefit, if any, to be derived from a 

determination of the issues at trial. 

15 U.S.C. § 16(e)(1)(A) &(B). 

In seeking this Court’s approval, DOJ 

has the burden to ‘‘provide a factual 

basis for concluding that the settlements 

are reasonably adequate remedies for 

the alleged harms.’’ United States v. 

SBC Communs., Inc., 489 F. Supp. 2d 1, 

17 (D.D.C. 2007). In this case, DOJ has 

not met this burden. Neither the 

competitive impact statement, nor the 

proposed consent decree provides the 

information needed to evaluate whether 

this settlement would be a reasonably 

adequate remedy for the harm caused by 

KeySpan. 

Under the proposed settlement, 

Morgan Stanley would be required to 

pay the United States government a total 

of $4.8 million dollars. United States v. 

Morgan Stanley, Proposed Final 

Judgment and Competitive Impact 

Statement, 76 Federal Register 62843, 

9949 (October 11, 2011). According to 

DOJ, this amount ‘‘remedies [Morgan 

Stanley’s] violation by requiring Morgan 

to disgorge profits obtained through the 

anticompetitive agreement.’’ 76 Federal 

Register, at 62846. According to DOJ, 

‘‘[d]isgorgement will deter Morgan and 

others from future violations of the 

antitrust laws.’’ 76 Federal Register, at 

62846. Thus, according to DOJ, the 

public interest is served because the 

proposed settlement will both prevent 

Morgan Stanley’s unjust enrichment, 

and will deter such wrongful conduct in 

the future. 

Preventing Morgan Stanley’s unjust 

enrichment is a legitimate purpose of 

any proposed settlement. In fashioning 

relief in response to a violation of the 

antitrust law, ‘‘[o]ne of [the] objectives 

* * * is to ’deny to the defendant the 

fruits of its statutory violation.’’ 

Massachusetts v. Microsoft Corp., 373 

F.3d 1199, 1232 (DC Cir. 2004) (quoting 

United States v. Microsoft Corp., 253 

F.3d 34, 103 (DC Cir. 2001)). However, 

the unstated premise underlying DOJ’s 

claims (that disgorgement is necessary 

to prevent unjust enrichment, and a $4.8 

million penalty is adequate) is that 

Morgan Stanley’s unjust enrichment 

totaled only $4.8 million. Yet DOJ itself 

asserts that Morgan Stanley’s net 

revenues totaled $21.6 million. 76 

Federal Register, at 62847. Thus, DOJ 

itself acknowledges it is seeking only 

partial disgorgement. 

DOJ nonetheless claims such partial 

disgorgement will ‘‘send a message of 

deterrence[,]’’ thereby ‘‘deterring 

Morgan and other parties from entering 

into similar financial agreements ... or 

from otherwise engaging in similar 

anticompetitive conduct in the future.’’ 

76 Federal Register, at 62848. While 

these claims are central to DOJ’s 

contention that the settlement would be 

in the public interest, DOJ has not 

offered any evidence to support the 

proposition that this settlement will act 

as a deterrent. This lack of evidence 

showing the settlement would prevent 

and deter such conduct is a critical 

omission. As DOJ acknowledges, 

preventing and restraining antitrust 

violations are ‘‘the remedial goals’’ of 

the Sherman Antitrust Act. 76 Federal 

Register; at 62848. Yet the absence of 

any evidence supporting these claims 

makes it virtually impossible for the 

Court to meaningfully evaluate whether 

a $4.8 million settlement ‘‘represents a 

reasonable method of eliminating the 

consequences of the illegal conduct.’’ 

National Soc. of Professional Engineers 

v. United States, 435 U.S. 679, 698 

(1978). This holds true both with 

respect to depriving Morgan Stanley of 

its unjust enrichment, and with respect 

to evaluating whether the settlement 

will deter such wrongful conduct in the 

future. Thus, on the current record, the 

Court has no basis for finding the 

proposed settlement would be ‘‘in the 

public interest.’’ 

Given what DOJ has presented, the 

settlement would not be in the public 

interest. DOJ seeks only partial 

disgorgement, so the settlement would 

not prevent Morgan Stanley’s unjust 

enrichment, since anything less than 

full disgorgement would not fully strip 

Morgan Stanley of its wrongful gains. 

The proposed settlement amount, 

however, is only a minor fraction 

(22.2%) of Morgan Stanley’s unjust 

enrichment.1 Why would such a penalty 

deter similar violations of the antitrust 

law in the future? Common sense 

suggests that such an amount will 

instead be viewed as merely a cost of 

doing business. S.E.C. v. Citigroup 

Global Markets, Inc., Slip Op. at 10 

(S.D.N.Y. Nov. 28, 2011) (‘‘[A] consent 

judgment that does not involve any 

admissions and that results in only very 

modest penalties is just as frequently 

viewed, particularly in the business 

community, as a cost of doing business 

imposed by having to maintain a 

working relationship with a regulatory 

agency * * *’’). Allowing Morgan 

Stanley to retain almost 80 percent of its 

ill-gotten gains can hardly be 

characterized as an effective deterrent 

without something more to support 


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2Arguably, even total disgorgement would have 

only a limited deterrent effect. ‘‘[T]o ’limit the 

penalty * * * to disgorgement is to tell a violator 

that he may [break the law] with virtual impunity; 

if he gets away undetected, he can keep the 

proceeds, but if caught, he simply has to be give 

back the profits of his wrong.’’ SEC v. Bear, Stearns 

& Co., 626 F. Supp. 2d 402,406 (S.D.N.Y. 2009) 

(quoting SE.C. v. Rabinovich & Assoc., 2008 U.S. 

Dist. LEXIS 93595, 2008 WL 4937360, at *6 

(S.D.N.Y. Nov. 18, 2008)). 

3Cf. United States v. SBC Communs., Inc., 489 F. 

Supp. 2d 1, 17 (D.D.C. 2007) (‘‘the court should be 

concerned with any allegations that the proposed 

settlement will injure a third party’’). 

such a claim.2 Thus, the proposed $4.8 

million settlement would not satisfy 

either of DOJ’s rationales (i.e., 

preventing Morgan Stanley’s unjust 

enrichment, and deterring such 

wrongful conduct in the future) for a 

judicial finding that the settlement is in 

the public interest. 

POINT II 

THE COURT SHOULD DIRECT DOJ TO 

SUPPLEMENT THE RECORD ON THE 

DETERRENT EFFECT(S) OF THE 

PROPOSED SETTLEMENT 

The Morgan/KeySpan Swap, in both 

purpose and effect, violated the antitrust 

law. Its purpose was to ‘‘effectively 

eliminate[] KeySpan’s incentive to 

compete for sales in the same way a 

purchase of Astoria or a direct 

agreement between KeySpan and 

Astoria would have done.’’ 76 Federal 

Register, at 62848. Thus, regardless of 

its effect on the market, the Morgan/ 

KeySpan Swap violated the Sherman 

Act. Cf. Summit Health v. Pinhas, 500 

U.S. 322, 330 (1991) (1131ecause the 

essence of any violation of § 1 [of the 

Sherman Act] is the illegal agreement 

itself[,] rather than the overt acts 

performed in furtherance of it, * * * 

proper analysis focuses, not upon actual 

consequences, but rather upon the 

potential harm that would ensue if the 

conspiracy were successful’’). 

The Morgan/KeySpan Swap also 

violated the Sherman Act because of its 

effect on the market. Its ‘‘clear 

tendency’’ was to alter KeySpan’s 

bidding, in order to prevent competition 

and keep prices high. 76 Federal 

Register, at 62848. CI United States v. 

Stasztcuk, 517 F.2d 53, 60 & n.17 (7th 

Cir. Ill. 1975) (‘‘The federal power to 

protect the free market may be exercised 

to punish conduct which threatens to 

impair competition even when no actual 

harm results’’). 

However, because, as discussed in 

POINT I, DOJ has not proffered evidence 

sufficient to enable the Court to evaluate 

whether the proposed settlement is in 

the public interest, DOJ should be 

directed to do so. Under-the Tunney 

Act, ‘‘[t]he court may ‘take testimony of 

Government officials or experts’ as it 

deems appropriate, 15 U.S.C. 16(f)(1); 

authorize participation by interested 

persons, including appearances by 

amici curiae, id. § 16(f)(3); review 

comments and objections filed with the 

Government concerning the proposed 

judgment, as well as the Government’s 

response thereto, id. § 16(f)(4); and ‘take 

such other action in the public interest 

as the court may deem appropriate,’ id. 

§ 16(f)(5).’’ Massachusetts v. Microsoft 

Corp., 373 F.3d 1199, 1206 (DC Cir. 

2004). 

Requiring DOJ to adduce facts relating 

to whether such a minimal penalty will 

prevent and deter such anti-competitive 

conduct will provide a record basis for 

any public interest determination made 

by the Court. Cf. SE.0 v. Bank Of 

America Corp., llll F. 

Supp.2dllll, 2010 U.S. Dist. LEXIS 

15460 (S.D.N.Y. Feb. 22, 2010) 

(approving a proposed consent 

judgment because, inter alia, after the 

court rejected an earlier proposed 

settlement, the parties conducted 

extensive discovery which established 

facts supporting the new proposal). 

POINT III 

THE REASONABLENESS OF THE 

PROPOSED SETTLEMENT SHOULD BE 

EVALUATED IN LIGHT OF THE 

RATEPAYER HARM CAUSED BY 

MORGAN STANLEY 

In determining whether the settlement 

is in ‘‘the public interest,’’ the Court 

should consider the impact of the 

proposed settlement on the ratepayers 

that were harmed by Morgan Stanley’s 

anti-competitive conduct. See 15 U.S.C. 

§ 16(e)(1)(B) (‘‘the court shall consider 

the impact of entry of such judgment 

upon * * * the public generally 

* * *’’).3 DOJ acknowledges ratepayers 

were harmed, in the form of inflated 

capacity prices, because of Morgan 

Stanley’s conduct. According to DOJ, 

‘‘[w]ithout the Morgan/KeySpan Swap, 

KeySpan likely would have chosen from 

a range of potentially profitable 

competitive strategies in response to the 

entry of new capacity. Had it done so, 

the price of capacity would have 

declined.’’ 76 Federal Register; at 

62846. Because KeySpan decided to 

withhold capacity rather than compete, 

ratepayers were harmed in amounts far 

exceeding Morgan Stanley’s $21.6 

million in wrongful profit. 

Yet, in its earlier settlement with 

KeySpan, DOJ indicated ratepayers may 

have no recourse under the antitrust law 

because of the ‘‘filed rate’’ doctrine. See 

75 Federal Register, at 9951. Moreover, 

ratepayers may not be able to obtain any 

relief from FERC because, in early 2008, 

well before DOJ brought its civil 

antitrust action against KeySpan, 

FERC’s Staff concluded there was no 

evidence that KeySpan’s bidding 

behavior violated FERC’s AntiManipulation Rule, 18 C.F.R. § 1c2(a). 

FERC Docket Nos. IN08–2–000 & EL07– 

39–000, Enforcement Staff Report, 

Findings of a Non-Public Investigation 

of Potential Market Manipulation by 

Suppliers in the New York City 

Capacity Market, p. 17 (February 28, 

2008). Thus, in this case ratepayers 

harmed by KeySpan’s anti-competitive 

conduct may have no meaningful 

recourse under either the antitrust law 

or the Federal Power Act. 

Even if DOJ could not recover 

damages under the Sherman Antitrust 

Act for harm suffered by ratepayers, and 

is limited to Morgan Stanley’s $21.6 

million total net revenues, the Court 

should, when weighing the 

reasonableness of settling for roughly 20 

cents on the dollar, consider the larger 

consumer harm Morgan Stanley caused, 

and the apparent lack of any other 

effective remedy for consumers that 

were harmed. This lack of a remedy for 

customers is highly significant given the 

potential size of the consumer harm 

Morgan Stanley caused by violating the 

antitrust law. Yet DOJ has not offered 

any evidence of how much Morgan 

Stanley’s alleged illegal conduct 

increased electricity capacity market 

prices. 

If Morgan Stanley’s illegal conduct 

harmed consumers by preventing price 

declines that could have totaled tens of 

millions of dollars, then the proposed 

$4.8 million settlement is so low it 

would not be fair, reasonable, adequate 

or in the public interest. Cf. S.E.C. v. 

Bank Of America Corp., 653 F. Supp.2d 

507 (S.D.N.Y. 2009) (disapproving a 

proposed settlement in part because the 

proposed $33 million fine was ‘‘a trivial 

penalty for a false statement that 

materially infected a multi-billion-dollar 

merger’’). But 4: S.E.C. v. Bank Of 

America Corp., llll F. 

Supp.2dllll, 2010 U.S. Dist. LEXIS 

15460 (S.D.N.Y. Feb. 22, 2010) 

(approving a $150 million fine even 

though it would have only ‘‘a very 

modest impact on corporate practices or 

victim compensation’’). 

Accordingly, the Court should direct 

DOJ to address this defect in the 

settlement proposal. Although 

exactitude is not required, some 

evidence should be proffered on this 

point. See New York v. Julius Nasso 

Concrete corp., 202 F.3d 82, 88–89 (2d 

Cir. 2000) (‘‘Where * * * there is a 

dearth of market information unaffected 

by the collusive action of the 


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Federal Register / Vol. 77, No. 50 / Wednesday, March 14, 2012 / Notices 15139 

defendants, the plaintiff’s burden of 

proving damages, is, to an extent, 

lightened[,] [and] the State need only 

provide the court with some relevant 

data from which the district court can 

make a reasonable estimated calculation 

of the harm suffered.* * *’’) (citations 

and internal quotations omitted); id, 202 

F.3d at 89 rino do otherwise would be 

a perversion of fundamental principles 

of justice [and would] deny all relief to 

the injured person, and thereby relieve 

the wrongdoer from making any amends 

for his acts’’); New York v. Hendrickson 

Bros., Inc., 840 F.2d 1065, 1078 (2d Cir. 

1988) (‘‘The most elementary 

conceptions of justice and public policy 

require that the wrongdoer shall bear 

the risk of the uncertainty which his 

own wrong has created’) (quoting 

Bigelow v. RKO Radio Pictures, Inc., 

327 U.S. 251, 264 (1946)); Fishman v. 

Estate of Wirtz, 807 F.2d 520, 551 (7th 

Cir. Ill. 1986) (‘‘The concept of a 

‘yardstick’ measure of damages, that is, 

linking the plaintiffs experience in a 

hypothetical free market to the 

experience of a comparable firm in an 

actual free market, is also well 

accepted’’). 

CONCLUSION 

For the reasons stated above, the 

Court should direct DOJ to supplement 

the record to demonstrate why this 

settlement will prevent such violations 

in the future. 

Respectfully submitted, 

Peter McGowan 

General Counsel 

By: Sean Mullany, Assistant Counsel Of 

Counsel, Public Service Commission, 

Of the State of New York, Three 

Empire State Plaza, Albany, New York 

12223–1350. 

Dated: December 30, 2011, Albany, New 

York 

[FR Doc. 2012–5952 Filed 3–13–12; 8:45 am] 

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project implementation characteristics 

(also necessary for future use to identify 


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