Third Man Named in Coastal Fraud Complaint
The Commodity Futures Trading Commission (CFTC) and the U.S.
Department of Justice are now after three people for allegedly
misappropriating energy futures trades from Coastal, defrauding the
company of millions of dollars. Robert C. Rossi joins former
Coastal States Trading Corp. employee Steven G. Soule; and Kyler F.
Lunman II, owner of Hold-Trade Inc. (Ltd.) as a respondent in the
A federal grand jury in Houston has returned an 18-count
indictment against Rossi, Soule, and Lunman, charging them with
conspiracy, commodity fraud, wire fraud and money laundering in
connection with the scheme.
According to a CFTC complaint, filed Dec. 22, Soule and a
telephone clerk on the New York Mercantile Exchange (NYMEX) carried
out wrongful allocations, and Lunman and Hold Trade furthered the
scheme. The wrongdoing, which came to light in early 1997, is said
to have occurred from at least Sept. 4, 1993 through about Dec. 31,
1995. The amended complaint alleges that Rossi committed fraud in
two fashions. One, by aiding and abetting the other respondents;
and two, as controlling person of floor broker entities known as
Refined Energy Executions Inc. and Refined Executions Inc.,
knowingly inducing Refined to violate the Commodity Exchange Act
(CEA). Rossi is alleged to have assisted the scheme by permitting
the use of Refined's facilities and telephone clerk.
The original complaint says Soule entered most of Coastal's
crude oil, heating oil, and natural gas futures orders, which he
gave to telephone clerk Thomas F. DeMarco at Refined. "Soule and
DeMarco together ensured the successful completion of the wrongful
allocations by creating doctored floor order tickets and entering
into additional transactions to replace those transactions that
were misappropriated. Lunman and Hold Trade completed the scheme by
providing the accounts into which the misappropriated Coastal
trades were placed, monitoring the movement of Coastal's profitable
trades into those accounts, and disbursing the ill-gotten gains
among the scheme's participants. All respondents benefited
financially from their roles in the scheme."
Soule was employed by Coastal, first as a futures trading
coordinator and later as a manager of futures trading, from about
Sept. 4, 1990 to about Dec. 20, 1994. Before that, between January
and September 19990, he worked as a telephone clerk for Refined on
the floor of the NYMEX.
The amended complaint institutes a public administrative
proceeding to determine if the allegations are true and whether
sanctions should be imposed. Possible sanctions include a cease and
desist order, a permanent trading prohibition, civil monetary
penalties not exceeding $100,000 for each violation, and
restitution. At press time Friday, Coastal had not returned a call
for comment. Joe Fisher, Houston
Georgia PSC Taking More Aggressive Approach to Deregulation
Concerned that a threshold number of Atlanta Gas Light (AGL)
customers in certain warmer regions of Georgia may not switch to
alternative suppliers by the next winter heating season, the
Georgia Public Service Commission is taking action to change
Georgia's gas competition law, SB 216, to get AGL out of the
merchant function possibly by next fall.
"We're contemplating an aggressive move on being able to get
Atlanta Gas Light out of the consumer sales," Commissioner Lauren
(Bubba) McDonald told NGI. The legislation that is being crafted by
the commission and is expected to be introduced this week would
change the current law and "escalate the commission's authority as
far as moving AGL's customers into the competitive marketplace," he
There are nine gas consumer regions in the state that were
separated because of differing supply mixes and upstream
transportation. Under the current law when 33% of the customers in
a given region, or pool, have switched to alternative suppliers,
the others are notified and given 100 days to choose a marketer. If
they haven't chosen a marketer by the end of that 100 days, the law
calls for the commission to randomly assign them to one.
Currently some areas are very close to reaching the 33%
threshold. A total of 397,000 customers, or 28% of AGL's 1.45
million customers, have switched to alternative suppliers since
customer choice began four months ago. The Athens pool has the
highest participation rate at 27.3%. The other most active areas
include Macon, with 25.2%; Augusta, 23.6%; Newnan, 23.2%; Atlanta,
which has 968,000 customers making it the largest pool, with 21.7%;
and Rome, with 20.8%. However, customer choice hasn't caught on as
well in the regions farther south where winter heating isn't much
of an issue. Customer participation in Savannah is at 16%. In
Valdosta, it's 17.4%, and in Brunswick, which is the farthest south
of all nine areas, participation is at only 12.9%. With the end of
the heating season approaching, the PSC is concerned several of the
pools in Georgia could go through at least one more heating season
under AGL's wing.
"This could go on for a long period of time and we would still
have AGL in the consumer sales," said McDonald. "I'm concerned that
we'll have some 200,000 customers out there still with AGL after a
million have already switched over. Are there going to be stranded
costs that those 200,000 are going to have to eat? We don't know.
"If we move forward with this legislation, we would initiate an
effort with timely notice to all consumers that we would expedite
random assignment prior to some point in time." He said that point
in time could coincide with the expiration of AGL's volumetric
transportation pricing program. AGL was forced by the commission
earlier this month to return to volumetric pricing and refund $14.5
million to customers because of a public uproar over AGL's decision
to switch to demand-based billing last November. The PSC said the
demand-based billing program was on track to overcharge customers
$300 million by September. AGL's volumetric pricing ends Sept. 30,
when it will return to a demand-based billing method.
AGL Likes the Idea
An Atlanta Gas Light spokesman said the company has not seen the
legislation and therefore could not comment accurately on any
details of the PSC's plans. However, AGL generally is in favor of
switching all its customers at one time rather than on nine
"One thing that has happened over the last months has been
confusion about gas rates, confusion about gas deregulation. If
your company was faced with imposing a deadline for when 1.45
million customers must choose a marketer or be assigned one and
communicating that to all your customers, you would want to do it
all at once," said AGL's Ross Willis. "[Otherwise] you are going to
have a lot of confusion about what the deadline is."
The legislation, however, also may take some freedom away from
AGL. McDonald said it also will include language that would give
the PSC more power to regulate daily balancing. The PSC would like
to be able to step in when there is a question about balancing
penalties, he said. "We would rather have a better grasp on that
rather than it being left out there for the company to handle all
by itself. It's basically supposed to be a pass through right now.
It would continue to be so, but if it got out of hand, i.e.,
through excessive penalties or some of the directions maybe that
the company would like to take, we just wouldn't have to go through
all the hearing processes to be able to take action. We would just
have a little firmer handhold on it.
"Since we are responsible for making this work, we think we
should stick our neck out a little bit more and take a stronger
approach and a heavier hand and see if we can't do what Atlanta Gas
Light Co. wanted to do in 1997 through the legislative process and
get out of consumer sales.
"I told Atlanta Gas Light's new president this is what you asked
for now you're going to get it," said McDonald. "Now that's pretty
blunt but sometimes they get a little blunt with us too."
He said the PSC is working with the leadership of both the house
and the senate and expects the legislation to be introduced this
week. "If it's not introduced [this] week then there probably will
be no legislation because we are presently just a day over half of
the Georgia legislative session."