The New York offices of hedge fund Tower Research Capital are decorated with Buddha statues, "ornate lamps, oriental rugs, pottery, sofas, tables and plenty of plants," says Alternative Investment News. More plants and statues are on the terrace, "creating a Zen garden feel."
It's easy to be mellow when you can force hapless electricity customers to cover your losses.
A Tower affiliate just lost what grid managers estimate to be an $80 million bet on electricity hedges that now must be covered by Baltimore Gas and Electric households and other Mid-Atlantic consumers.
The default by Power Edge LLC, disclosed Dec. 26, is another, particularly ugly demonstration of how flawed wholesale power markets - enabled by Washington - help drive up prices for everybody now that electricity has been deregulated.
Last year PJM Interconnection, which manages the grid from New Jersey to North Carolina, pleaded with Washington for protection from Tower and other Wall Street cowboys.
PJM urged the Federal Energy Regulatory Commission to require ample collateral from financial speculators, so users wouldn't be left holding the bag in case something goes wrong. On Oct. 26 FERC refused, saying that, while it recognized the potential risk, there was no reason to hurry with strict new rules.
A few weeks later Power Edge lost badly on electricity trades and defaulted on payments to PJM. Because Power Edge is a limited liability corporation, PJM has little recourse and must spread losses among members such as BGE and other utilities, generation companies and power sellers.
"This default would not have happened" if FERC hadn't rejected the request, says David M. Kleppinger, a lawyer who represents industrial electricity customers.
Until now Tower founder Mark Gorton, an electrical engineer and Harvard MBA, was more famous for launching LimeWire, the popular music- and video-sharing Web software. But Gorton makes his money other ways, notably by hiring Ivy League math types and turning them loose on the markets.
"Hack Wall Street" says Tower's recruiting come-on. The firm employs "rigorous statistical methodology to identify non-random patterns in the behavior of markets," says its Web site. "Exploiting these inefficiencies allows the firm to earn exceptional returns with very little risk for its clients."
Especially when it can stick others with the losses.
