Dan Gordon, 27, who once headed Merrill Lynch’s global energy markets group and then went on to run the unit when it was sold to Allegheny Energy last year, on Friday pleaded guilty to criminal charges of money laundering, wire fraud and conspiracy to falsify books and records.

He agreed to forfeit $43 million from illegal profits and is cooperating with prosecutors in their continuing investigation. Gordon, who will be sentenced next year, faces up to 55 years in prison and fines of up to $1.25 million.

Gordon admitted in U.S. District Court for the Southern District of New York that he had set up a phony trade between Merrill Lynch and an offshore company to embezzle $43 million from Merrill Lynch. In August 2000, Gordon apparently set up a transaction where Merrill Lynch wired $43 million to Falcon Energy Holdings, a shell company in Anguilla, British Virgin Islands.

Prosecutors also claimed that Gordon falsified earnings for Merrill’s global energy markets to make the business appear more attractive to potential buyers. Court papers indicated he inflated the global trading unit’s earnings by $40 million.

Gordon said Friday he would testify against others, if necessary, as part of a continuing probe. “The decision was made by my superiors to make the business look more profitable by altering certain of the data,” he said in court. “I deeply regret my actions that led to the filing of these charges. I apologize to all those who have been hurt by my actions. My plea today is the beginning of a long process of making amends to those I have harmed.”

Merrill Lynch spokesman Mark Herr said the company was cooperating with the government. He said he had not heard about Gordon’s allegations that Merrill Lynch employees had assisted him in inflating the value of the company’s energy business.

“We cannot comment on it other than to say he has stolen from our firm in the past and lied to people about it,” Herr said. The spokesman said that Gordon’s “deception” had victimized Merrill Lynch, and he added that “we have put a number of procedures in place to prevent this type of fraud in the future.”

The unit was sold to Allegheny Energy in January 2001, and Gordon was named president of the unit (see Daily GPI, Jan. 9, 2001). Gordon was fired by Allegheny last year (see Power Market Today, Sept. 6, 2002). Since then, Allegheny Energy has been involved in lawsuits with Merrill Lynch over Gordon and apparent misrepresentation of the true worth of the company (see Daily GPI, Nov. 26).

The Securities and Exchange Commission (SEC) on Friday also settled with Gordon for civil violations for several other energy schemes and for a transaction that the SEC alleges inflated Enron Corp.’s income by $50 million. Gordon neither admitted nor denied guilt on the charges.

According to the SEC, in December 1999, Gordon and unnamed others at Merrill Lynch entered into a transaction, which they knew would inflate Enron’s income. The transaction involved two off-setting electricity call options that Gordon knew were a “wash” trade. According to prosecutors, Gordon and others demanded a fee from Enron for the deal, and Enron ultimately paid Merrill Lynch $8.5 million in June 2000 to terminate the transaction.

The SEC also alleged that Gordon aided and abetted Enron’s violations of federal securities laws. The transaction also partly formed the basis for SEC’s actions against Merrill and two of its executives in March, the SEC said.

Gordon agreed to a final judgment enjoining him from future violations of certain securities law provisions. Gordon is also barred from serving as an officer and director of a public company, the SEC said.

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