Three criminal charges against an ex-Dynegy Corp. natural gas trader and one criminal charge against a former El Paso Merchant Energy executive were thrown out last week by a district judge in Houston who ruled that the charges, which all related to reporting false natural gas price information to an industry publication, were too broad.

Geiger was indicted late last year on felony charges that he submitted price and volume information for 48 false natural gas trades to Inside FERC Gas Market Report to use in calculating its index price for gas (see NGI, Dec. 9, 2002). Valencia was indicted in late January on felony charges for submitting false trade information on three separate occasions in late 2000 and early 2001 to Inside FERC (see NGI, Feb. 3). Platts, which publishes Inside FERC, said it did not use either of the ex-traders’ data in calculating prices.

Attorneys for both Geiger and Valencia had argued in court that the false reporting charges should not have been brought under the federal Commodities Exchange Act. Chris Flood, Valencia’s attorney, said the Act was a federal statute directed strictly at the futures market rather than to physical gas trades.

“They’re using a statute clearly designed for futures trading and stretching it to apply to wholesale trading,” Flood said in court. “The only similarity between wholesale trading and futures trading is that a commodity is traded.”

In both rulings, Atlas said that the Act, as written, does not require a person to know that information he or she provided was false or misleading. Atlas wrote that “the court concludes that Congress’ failure to require a defendant be aware that the information she provided was false or misleading renders the statute over broad on its face.” The 55-page ruling noted that a literal interpretation of the law “could subject citizens to strict liability for inadvertently providing false or misleading information.”

Atlas said that the “government’s offer to prove that Valencia knew she was delivering false information, as alleged in the indictment, and its willingness to bear that burden at trial do not save the statute from a…legal overbreadth attack.” The same language was used in the Geiger ruling.

Federal prosecutors in Houston now have three choices: either appeal the ruling to the U.S. Court of Appeals for the Fifth Circuit in New Orleans; file a motion for the Houston court to reconsider the opinion and provide additional reasoning for the decision; or only proceed on the remaining four wire fraud charges, said Don DeGabrielle, first Assistant U.S. Attorney. Prosecutors are expected to notify the court early this month how they will proceed. Geiger has a court date Sept. 3; Valencia’s is Sept. 8. Both have pleaded not guilty.

DeGabrielle said he didn’t believe the rulings would have broad implications for other federal investigations and/or charges pending against energy officials for reporting bogus information on natural gas trades to price index publishers. “This won’t affect any of our investigations that are ongoing,” he told NGI. “There’s not anything that’s wholly dependent on that statute” on which the fake reporting charges against Valencia and Geiger were based, and which apparently troubled Atlas, he noted.

Prosecutors brought the false price reporting charges against Valencia under Title 7 of the U.S. Code (Section 13), which deals with the reporting of information about a commodity that is traded on an open market, he said. Atlas, in her 58-page opinion, cited the statute as “not clearly defining what conduct is unlawful,” according to DeGabrielle.

The Commodity Futures Trading Commission (CFTC), which participated in an investigation that led to the false-reporting charges, declined to speculate on whether the judge’s decision could affect similar cases. “We’re analyzing the language of the opinion, and at this point we don’t have a comment on it,” said Gregory Mocek, director of enforcement for the CFTC.

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