Daniel Gordon, 29, who formerly headed energy trading for Merrill Lynch & Co. and then Allegheny Energy, on Friday was sentenced to three and a half years in prison for embezzling $43 million from the investment banker.

Gordon had already pleaded guilty in U.S. District Court for the Southern District of New York in 2003 on charges of wire fraud, money laundering and conspiracy for falsifying books and records, and he agreed at that time to forfeit $43 million from illegal profits. Gordon also was fined an additional $100,000 on Friday.

Gordon was running Merrill's trading unit, Global Energy Markets (GEM), when it was sold to Allegheny in early 2001 for $490 million. As part of the transaction, Allegheny gave Merrill a 2% equity interest in the trading unit.

Gordon ran GEM for Allegheny until July 2002, when he was fired after Allegheny discovered his involvement in certain transactions that violated the company's conflict of interest policies. Following Gordon's dismissal, Allegheny sued Merrill, and asked the New York Supreme Court to rescind the purchase agreement for GEM. It also asked the court to require Merrill to give it back the money it had paid for GEM. Merrill countersued, and the case has been in court ever since.

In July, U.S. District Court Judge Harold Baer Jr. confirmed a summary judgment and rejected Allegheny's claims about a breach of contract with Merrill, ruling Allegheny had to pay Merrill $115 million plus interest for its repurchase of the 2% equity interest in GEM. Allegheny had used Gordon's confession to boost its case, but Bauer ruled Allegheny was not harmed by Gordon's fraud. Allegheny is still appealing the case.

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