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Former DENA Exec Cleared in Round-Trip Trading Case, Mistrial Declared in Another Trial

January 9, 2006
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Following an eight week trial, Houston jurors last week found a former executive of Duke Energy North America LLC (DENA) not guilty on all counts in a case involving illegal round-trip natural gas and power trades. A mistrial was declared in another DENA executive's trial; both men were accused of falsifying company records beginning in 2001 to receive larger bonuses (see NGI, April 22, 2004).

Todd Reid, 43, a former DENA vice president, on Tuesday was found not guilty on all counts for conspiracy, fraud and falsifying records. A mistrial was declared in the case against Timothy Kramer, 41, also a former vice president for DENA, on Thursday after jurors deadlocked on 12 of the 19 charges against him.

U.S. District Judge Nancy Atlas declared a mistrial on the remaining 12 charges against Kramer and released the jury. Prosecutors have until Jan. 10 to notify the court if they plan to retry him.

In a statement, the U.S. Attorney's Office for the Southern District of Texas noted its staff has successfully investigated and prosecuted several corporate fraud cases, and it said it will continue to do so. The office stated, "in this particular case, the jury has spoken and we respect its verdict. Whether Mr. Kramer will be retried on the outstanding charges is under consideration."

Kramer and Reid declined comment. Former employer Duke Energy also declined to comment.

Reid and Kramer, along with a former DENA energy trader, Brian Lavielle, were charged last year in the wide-ranging investigation by the Enron Task Force, which is being led by the U.S. Attorney's Office. Lavielle pleaded guilty to falsifying DENA's books earlier this year, and he is said to be cooperating with the prosecution (see NGI, Feb. 14). Lavielle may be sentenced this month; he faces up to 20 years in prison and a fine of up to $5 million, but the sentence may be reduced or eliminated based upon his cooperation.

The trio originally were accused of recording profitable gas and power trades in DENA's mark-to-market book while recording unprofitable trades in the accrual book, recognizing profits immediately and deferring losses for the future. They were first charged in April 2004 with racketeering, wire and mail fraud and falsifying corporate books and records. A superseding indictment was issued against Kramer and Reid last February, and prosecutors began laying out their case to the jury in early October.

Prosecutors alleged more than 500 bogus round-trip trades resulted in $50 million in fraudulent profits on the books of DENA between March 2001 to May 2002. According to the original 60-page indictment, the bogus trades allowed Kramer to receive a $4 million bonus, Reid a $5 million bonus and Lavielle a $340,000 bonus in 2001. The defense team never disputed whether the trades had been manipulated. Instead, the defense argued the trading methods were not discouraged by Duke. The defense also claimed the defendants had no criminal intent even if mistakes were made.

As the deliberations on Kramer's case appeared to stall following eight days of deliberation, the court was sent a note by the jurors on Tuesday, which Atlas read aloud. She said the jury was composed of "two groups with diametrically opposed points of view on virtually all counts...Both sides have stated firmly that they cannot in good conscience compromise their positions. We do not believe that more evaluation or discussion will change those positions, as they are not so much differences of fact as differences of principle."

Duke agreed in July to settle charges with the Securities and Exchange Commission (SEC) for violations of the Securities Exchange Act of 1934 (see NGI, July 11). The SEC said Duke's internal accounting control deficiencies allowed Kramer, Reid and Lavielle to misclassify $56.2 million in trading losses. Duke accepted a cease and desist order from the SEC, but it paid no fine in its settlement. Duke neither admitted nor denied the SEC's findings.

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