In the government’s highest profile case targeting false energy price reporting, a former Dynegy Inc. trader and a former El Paso Corp. trader are being tried this week in Houston on charges that they reported bogus transactions to industry publications. The case, which culminates more than three years of work by the government, is being closely watched because it’s believed to be the first time the Depression-era Commodity Exchange Act has been used against a member of the energy industry in a criminal court.
Michelle Valencia, a former Dynegy Inc. trader, and Greg Singleton, who had worked for El Paso Merchant Energy, were indicted in November 2004 on charges of conspiracy, false reporting and wire fraud related to the transmission of allegedly bogus trading data to Inside FERC Gas Market Report and/or Natural Gas Intelligence (see Daily GPI, Nov. 30, 2004).
Superseding indictments were handed down in March (No. 4:06 CR-00080). Valencia is charged with 22 conspiracy and fraud counts; Singleton faces 10 counts. Both face one overarching conspiracy charge alleging they worked together and with others “known and unknown” to report inaccurate gas trades. U.S. District Judge Nancy Atlas is presiding over the case in Houston.
Singleton and Valencia are accused together and separately of conspiring to transmit and knowingly causing the transmission of reports that included inaccurate volume and price data for natural gas trades by Dynegy and El Paso. A year earlier, Valencia had been charged with three counts of false reporting and wire fraud while she worked at Dynegy, but her trial was stayed because of the complex wording of the original charges (see Daily GPI, Oct. 6, 2004; Nov. 18, 2003).
The government claims Valencia and Singleton contacted one another in August 2000 and agreed to transmit false price reports from Dynegy and El Paso to both Inside FERC in Washington, DC and NGI in Portland, OR on Aug. 31, 2000. Allegedly, the transmitted false reports could have lowered the volume-weighted average price of all Southern California border baseload natural gas trades reported to the two industry newsletters in late August 2000 by more than 15 cents.
Valencia and Singleton pleaded innocent, and the government agrees that some or none of the false trades submitted were actually part of the publications’ calculations. However, under federal law, the government only has to prove that false trades were reported; whether they were published or whether they affected the markets is irrelevant. According to the indictment, the two violated the Commodity Exchange Act, which prohibits reporting inaccurate data “that affect or tend to affect the price of any commodity in interstate commerce.”
Defense lawyers have denied the allegations. Valencia lawyer Chris Flood of Houston said, “The evidence will show Michelle never intended to defraud anyone or create an artificial price for natural gas.” Singleton’s lawyer Paul Nugent also said his client did not violate any law.
According to court filings, the defense teams’ experts may testify that they believe the government cannot prove the prices reported to the price index publishers were inaccurate. The filings allege no analysis has been done by the government to verify the validity of information submitted by energy companies other than Dynegy and El Paso for the incidents central to the charges.
Prosecutors have declined to comment. However, court insiders said the government likely will use the trading data submitted to the industry publications along with telephone recordings of Valencia and Singleton to support the allegations.
So far, the investigation by the Department of Justice and the Commodity Futures Trading Commission (CFTC) has resulted in the collection of nearly $300 million in fines from individuals and energy firms. The CFTC also has civil lawsuits pending against 12 ex-traders. Thirteen former gas traders from El Paso, Reliant Energy and Williams Cos. already have pleaded guilty to reporting false trades or market manipulation in Texas and California.
All of the ex-traders are awaiting sentencing except for ex-Reliant trader Jerry Futch Jr. Futch pleaded guilty last year to one count of wire fraud, and in March, U.S. District Judge David Hittner sentenced Futch to four years and nine months in prison, just short of the five-year maximum sentence (see Daily GPI, March 15). Futch is appealing the sentence.
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