'Flash Boys' investors step up fight against U.S. enforcer

Powhatan Energy Fund LLC, a West Chester hedge fund operated by brothers Kevin and Rich Gates and their partners, are campaigning to stop Federal Energy Regulatory Commission enforcement chief Norman Bay from becoming the agency's next chairman, writes Bloomberg here.

Their fund has been under investigation by FERC for hiring a trader who was allegedly "rigging" the Audubon, Montgomery County-based PJM Interconnection electric-power market to make millions at the market's or power-buyers' expense, as I wrote here last month. (Rich Gates is also a protagonist in Michael Lewis' new book, Flash Boys, which is, ironically, about stock market manipulation by high-speed traders.)

The brothers, Bloomberg notes, have started the FERClitigation.com Web site "to argue that the firm is being wrongly targeted and that the agency, under Bay's leadership as enforcement director, is going too far. His rise to the FERC's top job would cement the agency's decade-long transformation from a sleepy regulator with a soft touch to an aggressive enforcer doling out steep penalties. He would be the first former federal prosecutor to hold the post."

"The government wields tremendous power when they swing around the charge of market manipulation," Rich Gates told Bloomberg. Going public "was an insurance policy against our personal and professional reputations," added Kevin Gates.

"William McSwain, a lawyer for Powhatan at Drinker Biddle & Reath LLP, said they're lobbying to block Bay's nomination," Bloomberg adds. "We're out there actively trying to talk to senators and staffers about our story and spreading the word about the website and trying to get his nomination defeated." Bay and FERC officials declined to talk about the nomination or the Gates.