Alberta, Canada’s Justice Department said last Wednesday that it has been cooperating with a Royal Canadian Mounted Police investigation into allegations that an ex-trader with Merrill Lynch & Co.’s energy trading arm laundered $42 million of funds stolen from the investment firm through a Canadian offshore banking company.

The Mounties’ year-long investigation has centered on Daniel Gordon, who formerly oversaw trading for Merrill Lynch’s Global Energy Markets (GEM) in the United States, and Michael Ritter, president of Newport Pacific Financial Group SA, an Edmonton, Alberta-based company that deals in offshore financing, according to Greg Lepp of Alberta Justice, which handles all criminal prosecution for the province and has been assisting the police in their probe. The two men are suspected of laundering the money through Newport Pacific, he said.

Canadian authorities are interested solely in the alleged laundering activities, Lepp told NGI, noting that the suspected fraud was out of their jurisdiction. “No one has been charged with anything yet,” he said. He declined to say when, or if, charges in Canada might be forthcoming.

This case has been “vigorously litigated” in Canada over the past months, Lepp said. Alberta Justice has provided the Mounties with legal advice and made court applications on their behalf. Search warrants have been executed for the Newport Pacific business, Ritter (an Edmonton resident), and former employees of Newport Pacific, he noted.

Allegheny Energy of Hagerstown, MD, bought the GEM unit from Merrill Lynch in early 2001 for $490 million, and Gordon was kept on to head up the new division for Allegheny. He was fired in September 2002 after the company discovered that he allegedly “had caused Allegheny Energy to enter into contracts with other entities controlled by him, or in which he had an interest,” the company said (see Power Market Today, Sept. 6, 2002).

At about the same time, Allegheny Energy filed a complaint in a New York Court seeking to reverse the sale of the GEM unit, and force Merrill Lynch to return the money it paid for GEM.

In court papers, Allegheny Energy said it had been “disturbed” by published reports of “improprieties in the deals of Merrill’s energy trading business with Enron Corp. prior to the sale of that business to Allegheny Energy, as well as by other matters relating to Merrill Lynch’s conduct of that business (see Power Market Today, Sept. 27, 2002).

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