A federal grand jury handed up a 20-count superseding indictment last Monday against Todd Reid and Timothy Kramer, two of the three former Duke Energy employees charged last spring with using bogus round-trip gas and power trades to inflate profits and doctor company books in order to boost their cash and stock bonuses.
The third defendant, Brian Lavielle, 34, of Houston, pleaded guilty to a criminal information charge last week in a plea bargain that will result in his cooperation with the government in exchange for his dismissal from the indictment on Monday.
Reid and Kramer are charged with devising a scheme to defraud Duke Energy and its shareholders of millions of dollars through wire fraud (counts 14-18) and mail fraud (counts 19-20), said Nancy Herrera, assistant to U.S. Attorney Michael Shelby. They are further charged with circumventing internal accounting controls of Duke and falsifying the books and records of the corporation, allegedly resulting in an adjustment by the company in its financial statements of millions of dollars (counts 2-13). The first count of the indictment accuses both men of conspiring to do all of those things.
This superseding indictment replaces a similar set of charges handed up last April by a grand jury (see NGI, April 26, 2004). In the prior indictment prosecutors alleged that there were more than 400 trades that resulted in $50 million in fraudulent profits in a period beginning in 2000. Because of those profits, Duke allegedly paid cash and stock bonuses totaling more than $9 million to the men, including $5 million to Reid, $4 million to Kramer and $340,000 to Lavielle.
Last week, Lavielle, who was a trader with Duke assigned to the financial portfolio management group in Houston, said during a hearing that his former supervisor and alleged co-conspirator asked him to break up portions of trades into smaller portions when entering them into the books (see NGI, Feb. 14).
Specifically, he said on Nov. 8, 2001, pursuant to a similar request, he arranged three round-trip or "wash" trades of a certain volume for calendar year 2003 gas at three different prices -- $3.59, $3.585, and $3.58. At his supervisor's instructions, he entered the three transactions into the books as nine transactions in smaller volumes and at slightly different prices. As such, the entries did not truly reflect the transactions that had taken place. The pending indictment alleges that part of the conspiracy included this activity for the purpose of concealing the alleged scheme.
Lavielle still faces a maximum sentence of 10 years imprisonment and a fine of $1 million at his sentencing which as been set for Dec. 9, 2005.
Reid and Kramer pleaded innocent to running the scheme. Herrera said the 12 counts against them of falsifying records in the latest indictment carry a maximum prison term of 10 years and a $1 million fine. A conviction on any one of the remaining counts carries a maximum prison term of five years and a $250,000 fine. The court should set a trial date in 45-60 days.
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