The U.S. Fifth Circuit Court of Appeals has upheld a law used to charge a former natural gas trader with manipulating prices by reporting false information, moving the ex-Dynegy Inc. gas trader closer to trial.

In a 10-page opinion issued by a three-judge panel in New Orleans earlier this month, the court reversed an earlier ruling by U.S. District Court Judge Nancy Atlas, who in 2003 narrowed the language prosecutors could use under the Commodity Exchange Act (CEA) to charge Michelle Valencia, an ex-Dynegy gas trader, and former El Paso trader Todd Geiger (see NGI, Sept. 1, 2003). Geiger has since pleaded guilty.

Atlas had ruled that the Commodity Exchange Act was overly broad and unconstitutional, and said that a person could be charged with delivering “false and misleading” information even if the person did not know the information was false. However, the appeals court ruled that even though Atlas’ conclusion was possible, the law should not be interpreted so literally.

Valencia was charged in January 2003 with three counts of false reporting under the CEA and four counts of wire fraud (see NGI, Feb. 3, 2003). The original indictment alleged that Valencia, who had worked on Dynegy’s “West desk,” reported price and volume information on 43 bogus gas trades over a four-month period to Inside FERC’s Gas Market Report between November 2000 and February 2001. She pleaded not guilty to the charges and remains free on bond.

Valencia also was charged last month along with several former El Paso Merchant Energy traders with conspiracy, false reporting and wire fraud related to the transmission of allegedly inaccurate trade reports to industry newsletters, including Natural Gas Intelligence (see NGI, Dec. 6).

The U.S. Attorney’s Office in Houston, headed by Michael Shelby, issued a prepared statement that said Shelby and his staff were pleased by the decision and said they had been confident that the appeals court would rule in their favor.

“From the beginning, we have been confident in the position we have advocated before both the trial court and the Fifth Circuit Court of Appeals,” said Shelby. “We are extremely pleased with (Friday’s) decision, and are prepared to move forward toward a final disposition of the case in the district court.”

However, attorney Chris Flood, who is representing Valencia, said even if the “false and misleading” language is allowed into the indictment against his client, it will not prove Valencia “is guilty of anything.”

In related news, Thomas Pool, a former gas trader for the Williams Cos. has pleaded guilty to reporting bogus energy trades to manipulate prices, according to the U.S. Attorney’s Office in San Francisco. He was charged with one count of manipulation of the price of a commodity in violation of the Commodity Exchange Act.

Pool, who worked for Williams’ Energy Marketing and Trading subsidiary, admitted adding false trades to a spreadsheet to set a gas price reported to Inside FERC’s Gas Market Report and NGI’s Bidweek Survey to manipulate index prices between June 1998 and June 2002. He agreed to cooperate with the ongoing federal investigation, and he faces up to five years in prison and a $500,000 fine.

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