After four weeks of testimony and two days of deliberation, jurors in the false price reporting trial of two former natural gas traders rendered a hard-fought split verdict that left defense lawyers scratching their heads.

Former Dynegy Inc. natural gas trader Michelle Valencia was convicted Thursday on seven counts of wire fraud. Former El Paso Energy trader and vice president Greg Singleton, whose case was combined with Valencia’s, was convicted on one count of wire fraud. Neither was convicted on multiple charges of reporting false data to trade publications Inside FERC Gas Market Report and Natural Gas Intelligence. Each wire fraud count is punishable by up to five years in prison and/or a fine of up to $250,000.

Each defendant also was charged with one count of conspiracy, on which jurors deadlocked and failed to reach a verdict. In addition to two other counts of wire fraud, for which she was found not guilty, Valencia also was charged with 13 counts of false reporting. The jury failed to reach a verdict on 10 of those counts and found her not guilty on the other three.

Singleton faced two additional counts of wire fraud, for which he was found not guilty, and four counts of false reporting. He was found not guilty on two of the false reporting counts and the jury failed to reach a verdict on the other two.

Of the eight counts on which the defendants were found guilty, six involved submission of trade data to Inside FERC, and two involved submission of trade data to NGI.

In just over two days of deliberations the seven-man, five-woman struggled with the false reporting charges, asking U.S. District Judge Nancy Atlas for guidance and clarification multiple times. At the end of the day Thursday jurors told the court that they had reached a verdict on some but not all of the charges.

Atlas was seriously considering allowing the lawyers to reopen their closing arguments in an effort to provide some clarity for the jurors in the hope that they might reach a complete verdict in the case, which has plodded along for years, including three weeks of arguments in open court. Valencia was first charged in January 2003 (see Daily GPI, Jan. 28, 2003). Singleton was first charged in November 2004 (see Daily GPI, Nov. 30, 2004).

But upon further consideration of precedent and objection by government lawyers the idea of reopening closing arguments was nixed Friday morning. It was then that lawyers for the prosecution and defense agreed to accept a partial verdict and mistrial on the counts on which the jury had failed to reach agreement.

However, when the jury was brought back to court the foreman said the panel was working through the charges and would like some more time.

“Justice works in mysterious ways,” mused Atlas.

About an hour later jurors returned to the courtroom for the last time with their final say, which still was incomplete, lacking a ruling on 11 of the counts faced by Valencia and three faced by Singleton.

After 23 days of trial and deliberation, jurors declined to talk with reporters and quickly left the Houston court.

“It’s bizarre. I can’t read anything on that verdict until I look at the indictment,” Valencia attorney Chris Flood told reporters immediately after the verdict was read. Singleton attorney Paul Nugent told reporters that the one count on which Singleton was found guilty was for activity that a government witness had conceded there was no corresponding effect on the natural gas market, meaning there was no loss of money by anyone. “I don’t know how that’s going to play at sentencing,” Nugent said.

Flood quickly added that he didn’t think the government was able to prove monetary loss related to any of the counts. While expressing wonder at the verdict, both lawyers credited the trial process. “We received a fair trial,” said Flood. “I’m just puzzled by the verdict.”

Nugent and Flood said they and their clients would be considering their legal options. Both defendants remain free on bond. They are to be sentenced Nov. 7.

An attorney familiar with the case said the next avenue for the defendants might be to try to have the decision thrown out because it was “logically inconsistent.” Also, the defendants could pursue an argument that the verdict was coerced by the judge since Atlas worked so hard to get a verdict.

The attorney said the government had an uphill battle in proving its case because “it was trying to criminalize an action between an individual and a private organization. The government first had to establish that the action was illegal and then prove the impact. We’re not talking about lying to the IRS [Internal Revenue Service] or the SEC [Securities and Exchange Commission].”

“It was a split decision and it’s difficult to understand, but the fact that the jury did not find the defendants guilty on any of the first 14 counts of reporting false prices to publications is significant,” said Ellen Beswick, NGI publisher. “The guilty verdicts all came on charges of wire fraud for false emails and faxes. It is the first actual trial on the subject. While there have been a number of traders and trading companies that have settled allegations of reporting false prices — while admitting no wrongdoing — there has been no court conviction, no precedent.

“The Energy Policy Act of 2005 has made it very clear that it is illegal to attempt to manipulate the market by reporting bad prices to private price surveys. But, it’s something that was not on the books — nor was it general knowledge — previously,” Beswick continued. “It appears the jury may have had a problem with that.”

The trial (see Daily GPI, Aug. 2; July 24; July 20; July 17; July 14; July 12; July 11), which began July 10, included many details of the often complicated natural gas market. It also offered a variety of arguments from the defense and prosecution. Attorneys for Valencia and Singleton argued that the defendants were low-level employees following orders, and that false price reporting was a widespread practice not known by the defendants to be illegal. They said that the defendants’ actions were designed in part to counteract the market manipulating influence of Enron Corp. through its EnronOnline trading system. But they also argued that it could not be proved that the bogus data sent to publishers had an impact on published indexes.

Prosecutors countered that it is only necessary to prove that the false price reporting was intended to manipulate the index. They also said with salaries in the low-six figures in Valencia’s case and $650,000-plus in Singleton’s case, the two defendants were not just low-level employees. But even if they were just following orders, it’s not an adequate defense to say “my boss told me to do it,” government attorney Belinda Beek told the jury. “I guarantee you if your boss told you to go and rob a bank, you would be [found] guilty.”

Three other former El Paso traders are slated to go to trial in Houston in November on charges charges that they submitted false trade data. Another nine former traders from El Paso, Reliant Energy and the Williams Cos. have pleaded guilty to false trade reporting or market manipulation charges in Texas and California.

©Copyright 2006Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.