Three of the seven criminal charges against ex-Dynegy Corp. natural gas trader Michelle Valencia were dismissed Wednesday by a district judge in Houston who ruled that the charges were too broad. U.S. District Judge Nancy Atlas granted a motion to drop the charges of false-price reporting because she said they were “unconstitutionally over broad.”

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, LA; file a motion for the Houston court to reconsider the opinion and provide additional reasoning for the decision; or just proceed on the remaining four wire fraud charges, said Don DeGabrielle, first Assistant U.S. Attorney.

He noted prosecutors will notify the court before Sept. 8, when parties are to meet to set a trial date in the Valencia case, of which option they will pursue.

DeGabrielle said he didn’t believe the Valencia ruling 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 were based, and which apparently troubled Atlas, he noted.

Prosecutors brought the false price reporting charges against Valencia under Title 7 of the United States 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 against Valencia, declined to speculate on whether the judge’s decision could affect other similarly-situated 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. He indicated the CFTC would comment on the ruling either late Wednesday or Thursday.

Valencia was indicted in January on charges of reporting false natural gas trades on three separate occasions in late 2000 and early 2001 to Inside FERC Natural Gas Market Report (see Daily GPI, Jan. 28). The former Dynegy Marketing and Trade employee originally was indicted on three counts of knowingly causing the transmission of false trade reports and four counts of wire fraud.

However, Chris Flood, her attorney, argued that the three charges concerning the transmission of false trade reports should be dismissed. Flood told the court that the charges against Valencia and a former El Paso Corp. trader, Todd Geiger, were made under the Commodities Exchange Act, 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.”

However, while Atlas denied defense motions to dismiss the false-reporting charges under the Commodities Exchange Act because they were too vague or had been incorrectly applied, she agreed that the charges were too broad regarding Valencia’s case.

Valencia faced a maximum of five years in prison and a fine of $500,000 for each report of false market information “affecting or tending to affect the price of natural gas.” She still could be sentenced to five years in prison and fined $250,000 if convicted of wire fraud.

Valencia, who has pleaded innocent, was one of seven employees fired by Dynegy in late 2002 following an internal investigation that found several instances of false gas price reporting to industry publications.

What affect the judge’s ruling will have on Geiger’s case was uncertain, as there were no related filings in connection with Geiger’s case Wednesday. Geiger, a former vice president of El Paso Merchant Energy, was charged last December on one count of wire fraud and one count of knowingly reporting 48 bogus gas trades to the Inside FERC price survey, although the publisher said it did not use the bogus trades in computing its index. He faces up to 10 years in prison and $500,000 in fines (See Daily GPI, Dec. 5, 2002). Geiger has pleaded innocent.

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