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Former El Paso, Dynegy Traders Sentenced

Eight years after their crimes were committed and two years after their convictions, two former natural gas traders were sentenced to prison terms by a Houston judge on Aug. 21 for reporting false price data to energy industry price index publishers.

Former Dynegy Inc. natural gas trader Michelle Valencia was sentenced to 57 months in prison and two years of supervised release for her conviction on seven counts of wire fraud. The sentence is at the top of the range of federal guidelines. Her attorney promptly filed a notice of appeal. El Paso Energy natural gas trader and vice president Greg Singleton was sentenced to 28 months in prison and two years of supervised release for his conviction on one count of wire fraud.

"I actually felt like I was on a mission; "I had a cause," Valencia told U.S. District Court Judge Nancy Atlas of her job at Dynegy when she was a trader on the firm's west desk. "If I had known...I wish I would have known better...I understand now that the picture is so much bigger than I thought it was then."

Prior to sentencing Valencia attorney Chris Flood repeated his client's career history for the judge. She worked her way up from a secretary at KN Energy to eventually become a trader at Dynegy, all the time a single mother without a college degree. Valencia, who with her husband, a former trader, recently gave birth to a daughter, said tearfully that she never expected to be separated from her children by her actions at Dynegy.

Indeed, back in 2002 when she first became a client of Flood's, the lawyer couldn't have imagined it either. "I can remember telling Michelle, 'Don't worry. It's not a crime. You lied to a newspaper [price index newsletter] reporter...Believe me, there's plenty of lawyers that do it every day,'" Flood recounted telling Valencia. He conceded that he soon became aware of the gravity of what Valencia and others were charged with.

Atlas heard the government argue that Valencia had plenty of opportunities to come clean and assist with its prosecutorial efforts, but she didn't. Atlas said she was particularly troubled that Valencia had a hand in orchestrating the submission of false price reports by Dynegy and also by its affiliate Westcoast Energy LLC. Atlas said she was unaware of any other traders charged with submitting false reports on behalf of two companies.

"Those tapes make it so clear that she is the one leading the charge...there's very damaging evidence on those tapes," Atlas said of recorded trader phone calls in which Valencia is heard to discuss the submission of price reports on behalf of Dynegy and Westcoast. "She took on the responsibility and implemented the scheme. In this case she did two companies' reports, made sure they matched, talked to the reporter..."

During sentencing Singleton was tearful as well. "All I can do is try to rebuild and go on with my life...I can't go back and change what's in the past."

Singleton attorney Paul Nugent -- who said he's watched his client's hair turn gray during the years leading up to sentencing -- told Atlas that Singleton and his wife are essentially broke with just his 401(k) remaining from the days when he made more than half a million dollars a year. Singleton has been working in a bicycle shop, and his wife brings home $42,000 a year. The couple now lives in a $900 a month apartment on the outskirts of Houston where rent is less, Nugent said.

Two summers ago, after four weeks of testimony and two days of deliberation, jurors in the trial of Valencia and Singleton rendered a split verdict (see NGI, Aug. 7, 2006). Valencia was convicted on seven counts of wire fraud. Singleton was convicted on one count of wire fraud. Neither was convicted on multiple charges of reporting false data to trade publications Inside FERC Gas Market Report and Natural Gas Intelligence (NGI).

Each defendant also had been charged with one count of conspiracy, on which jurors deadlocked and failed to reach a verdict. In addition to two other counts of wire fraud, for which she was found not guilty, Valencia also had been charged with 13 counts of false reporting. The jury failed to reach a verdict on 10 of those counts and found her not guilty on the other three. Singleton faced two additional counts of wire fraud, for which he was found not guilty, and four counts of false reporting. He was found not guilty on two of the false reporting counts and the jury failed to reach a verdict on the other two. Of the eight counts on which the defendants were found guilty, six involved submission of trade data to Inside FERC, and two involved submission of trade data to NGI.

Counts against Singleton and Valencia on which the jury failed to reach a verdict were dismissed at sentencing. During the sentencing hearing, which took two days, the case of former El Paso trader Todd Geiger was mentioned frequently. Geiger was one of the first traders to be indicted for false trade/price reporting and was sentenced by Atlas to two years in prison (see NGI, Oct. 9, 2006). He was arrested in December 2002, and he pleaded guilty a year later to reporting inaccurate information under the Commodity Exchange Act to Inside FERC's Gas Market Report (see NGI, Dec. 15, 2003).

Geiger, who was not fined but was given two years of probation to begin upon his release, had faced up to five years in prison and a fine of up to $500,000. However, his sentencing was delayed several times while he cooperated with federal authorities in their investigation into other former energy traders.

Geiger's cooperation was considered key in Atlas' mind when she considered a sentence for Singleton. Although Singleton testified on behalf of the government in another false reporting case, the cooperation came too late to have as big of an effect on sentencing as Geiger's cooperation had.

"I can't give any trader less time than I gave Todd Geiger because Todd Geiger stood up," Atlas told Singleton. The judge said that had Singleton cooperated with the government and provided testimony sooner than he did, the government might have been able to build a case against others who are believed to have committed similar crimes.

Singleton and Valencia agreed to a deal with the government that set the amount of market loss resulting from their crimes at $515,000. The amount of loss is one of several criteria weighed as part of sentencing guidelines, which is at Atlas's discretion to follow. Atlas told Singleton that the deal he and Valencia had made with the government did indeed help him during sentencing.

The government had recommended that Singleton receive a sentence of 36 months, and sentencing guidelines specified a sentence of 33-41 months plus two-three years of supervised release and a fine of $7,500-75,000. The government recommended a sentence of 70 months for Valencia, and federal sentencing guidelines specified a term of 46-57 months. Atlas waived the fine in the case of both defendants because of their inability to pay.

The court recommended Valencia be imprisoned in Bryan, TX. Singleton asked to be imprisoned in Bastrop, TX, or in a facility as close to Houston as possible. Flood said he was going to file a motion to postpone surrender so Valencia could continue to breast feed her newborn. "I'll work with you on a surrender date within reason," Atlas allowed.

A little cooperation with the government helped to reduce Singleton's sentence, according to Atlas, and a failure to cooperate on Valencia's part left the judge no choice but to impose a sentence at the top of the federal guidelines, she said. Had Singleton cooperated earlier in his case and had Valencia done likewise their sentences would have been less, according to Atlas' remarks.

"Fundamentally, this case has always been about egregious lies," Atlas said before sentencing Valencia.

Earlier this year, in a case similar to that of Valencia-Singleton, three former El Paso Corp. natural gas traders were found guilty of conspiracy, as well as some charges of wire fraud and false price reporting in an attempt to influence published price indexes from about April 2000 to about May 2002. Former traders James Brooks, 48, Wesley Walton, 45, and Pat Phillips, 48, were charged with submitting or directing colleagues to submit false trade information to publications Inside FERC's Gas Market Report and Natural Gas Intelligence. They each faced one count of conspiracy, 24 counts of false reporting and 24 counts of wire fraud. Prosecutors contended that Brooks ordered the false reporting, Walton directed it and Phillips and other traders carried it out. After deliberating for two and a half days, jurors found Brooks guilty of 45 counts; Walton was found guilty of 23 counts, and Phillips was found guilty of 21 counts (see NGI, Feb. 11). The trio is scheduled to be sentenced Jan. 23.

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