Three former Nicor Energy executives pleaded guilty late last week to federal fraud charges of inflating revenues and understating expenses in an effort to meet profit goals and boost bonuses in 2001.

Michael Munson, Nicor Energy’s former outside counsel, pled not guilty at his arraignment Tuesday. U.S. District Judge James B. Zagel set sentencing for Feb. 23, but that may be held up by the Munson case.

Kevin Stoffer, 45, of Naperville, IL, former president and CEO, pleaded guilty to two counts of wire fraud and faces up to 31 months in prison, according to Assistant U.S. Attorney Carolyn McNiven. Andrew Johnson, 43, of Elmhurst, former director of financial services, and John Fringer, 43, of Naperville, a former vice president, pleaded guilty to one wire fraud count each. Johnson faces 1 to 2 years in prison, while Fringer faces less than 2.5 years in prison or possibly probation.

Prosecutors said that when it appeared likely that Nicor Energy would not meet its profit targets in 2001, which were necessary for bonuses to be paid to about 120 employees, the defendants caused the reporting of false financial figures on Nicor Energy’s 2001 financial statements, which were provided to representatives of parent companies Dynegy and Nicor Inc, and to Nicor Energy’s outside auditors. At times during 2001, Stoffer and Johnson caused Nicor Energy’s unbilled revenue figures to be inflated by as much as $6 million (see Daily GPI, Dec. 12).

Munson, together with his co-defendants, also allegedly made and attempted to make it appear that Nicor Energy had lower expenses in 2001 by causing false information about a legal settlement of a power supply agreement with Commonwealth Edison Co. The false information was provided to Nicor Energy’s parent companies and outside auditor.

“One of the things that is significant for us is that this was a clear example of what we have called cooking the books; they literally changed the bottom lines from red to black,” said Assistant U.S. Attorney Carolyn McNiven.

The cooked books were incorporated into financial reports that Nicor Inc. and Dynegy filed with the SEC and as a result, investors and potential investors were deprived of accurate financial information. After disclosing accounting irregularities at Nicor Energy in July 2002, Nicor Inc.’s stock price plummeted 40%, according to a lawsuit by the Securities and Exchange Commission.

As part of their plea agreements, the three former executives admitted that their wrongdoing created a risk of substantial losses to investors, which could increase their potential sentences, said McNiven.

“One of the things that is significant about the plea deals that is different for our district is that we have gotten the defendants to agree to what is called an upward departure, which basically means an increased sentence for the risks of substantial losses to the investor,” she said in an interview. “For people in this area, that is a significant thing. If you look at the market capitalization [of Nicor Inc.] you will see that it was significant.”

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