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Dynegy Ex-Trader Is Indicted on Criminal-Fraud Charges

by Rebecca Smith & Alexei Barrionuevo, Staff Reporters
Wall Street Journal - January 28, 2003

A former natural-gas trader for Dynegy Inc. was indicted on federal criminal-fraud charges, as part of a continuing crackdown against traders who allegedly manipulated gas-price indexes during the height of the California energy crisis.

Michelle Marie Valencia, a 32-year-old former senior trader for Dynegy, pleaded not guilty after being arrested at her Houston home Monday. She faces a fine of as much as $2.75 million and a prison sentence of as long as 35 years, if convicted on four counts of wire fraud and three counts of false reporting under the Commodity Exchange Act.

The case, brought by the U.S. attorney in Houston with the cooperation of the Commodity Futures Trading Commission, is part of a widening probe intended to clean up an energy-trading industry that has been besmirched in recent months by admissions of false trading and false reporting.

It is also important to the state of California, which is assembling a new case to convince regulators to award consumers there billions of dollars in refunds from overcharges during the energy crisis.

"Our markets are the bedrock of the U.S. economy," said Michael Shelby, the U.S. attorney in Houston. "We will hold accountable anyone who intentionally deceives the investing public."

Dynegy, of Houston, dismissed Ms. Valencia and six other traders last year. To date, five big energy-trading firms have acknowledged to federal authorities that their employees gave false data to publishers of gas-price indexes used to settle power contracts.

Ms. Valencia's attorney, Chris Flood, said his client didn't defraud anyone and was "the victim of political prosecution." He said that prosecutors were making her a scapegoat to show they were making progress in cleaning up the scandal-ridden energy industry.

The indictment alleges that Ms. Valencia fabricated 43 trades during a four-month period ending in February 2001. The trader allegedly sent the fictitious trade information by e-mail and telephone to Inside FERC Gas Market Report, an industry publication. The information included volume and price data for gas to be delivered to California, New Mexico and Oregon.

Mr. Shelby didn't say whether the publication actually accepted the allegedly false data. But, he said, "There is no purpose in providing false information except to influence the market in some way."

During the four-month period at issue, electricity sold on California's wholesale electric market cost $16.68 billion, or more than double the cost of electricity for all of 1999. High underlying natural-gas prices, which fueled many California power plants, were used to justify the high electricity prices.

Dynegy in December reached a settlement with the CFTC and agreed to pay a $5 million penalty. The CFTC found that Dynegy traders had tried to "skew those indexes for Dynegy's financial benefit." Dynegy admitted no wrongdoing and said it would cooperate in investigative efforts.

Ms. Valencia's indictment follows an indictment, in early December, of 38-year-old Todd Geiger, a former vice president of Houston energy company El Paso Corp. He was charged with wire-fraud and false-reporting counts that could result in 10 years in prison and fines as much as $750,000.

Rebecca Smith and Alexei Barrionuevo, Staff Reporters
Dynegy Ex-Trader Is Indicted on Criminal-Fraud Charges
Wall Street Journal, January 28, 2003

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