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Alleged fake trades lead to indictments

By KRISTEN HAYS
The Associated Press

Greg Singleton

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Three of the men named in the latest charges announced by the Justice Department in Houston worked at El Paso Corp., where five former traders already have pleaded guilty to reporting fake trades.

Two of those charged, former Dynegy trader Michelle Valencia, 34, and former El Paso trader Greg Singleton, 37, succeeded in moving the average price of gas in Southern California down by more than 15 cents in August 2000, according to the indictments.

"We have been able to crack the matrix of how an individual report affects the market price" in the monthly reports in Inside FERC Gas Market and Natural Gas Intelligence, said U.S. Attorney Michael Shelby, the chief federal prosecutor in the Southern District of Texas.

	Michelle Valencia

Prosecutors have previously charged six former traders with reporting bogus prices to the industry publications that calculate the indexes used by utilities and gas producers to set prices for billions of dollars worth of fuel.

Fraudulent price reporting was rampant across the industry in 2000 and 2001 and eventually prompted the Federal Energy Regulatory Commission and Commodity Futures Trading Commission to investigate industry practices.

In addition, new charges were filed against Valencia, who has a separate, nearly 2-year-old indictment on another set of false reporting charges on hold pending an appeal concerning their constitutionality.

	Donald E. Burwell

Besides Valencia and Singleton, the indictments yesterday named former El Paso traders Donald E. Burwell, 44; and James P. Phillips, 45.

All were charged with conspiracy, false reporting and wire fraud.

A former Reliant Energy gas trader, Jerry A. Futch Jr., 41, was indicted on four counts of making false reports.

Burwell is from Dallas. The four others are from Houston.

All five pleaded not guilty and were freed on $50,000 bond. Their trials were set for January and February but likely will be postponed, most of their lawyers said.

	James P. Phillips

Earlier this year, as many as 10 former El Paso traders and supervisors received letters from the U.S. Attorney's Office in Houston alerting them they could face charges of manipulating natural-gas prices as a grand jury's investigation expanded.

"The deeper that we dig, the more that we will find of this misconduct," Shelby said yesterday. "Our markets depend on the truthfulness of the information that fuels them."

The penalty for conspiracy and wire fraud on each charge is up to five years in prison and a $250,000 fine. Conviction on each charge of false reporting carries up to five years and up to a $500,000 fine.

According to the indictments, Valencia and Singleton allegedly contacted each other in August and September of 2000 and agreed to report fake trades to industry publications Inside FERC Gas Market Report and Natural Gas Intelligence.

	Jerry A. Futch Jr.

Under federal law, the government needs only to prove fake trades were reported, not whether they were published or affected the markets.

"The people the government charged today are not criminals," said Chris Flood, who represents Valencia and Burwell. "This is no Enron, and we expect the government will owe these people and the energy industry an apology when all is said and done."

Singleton's lawyer, Paul Nugent, also was confident his client would be exonerated.

In January 2003, the government accused Valencia of reporting false natural-gas trades in a separate case.

U.S. District Judge Nancy Atlas threw out those charges, arguing that part of the Commodity Exchange Act — which deals with reporting "false and misleading" information on commodity trades — was unconstitutionally broad.

She later reinstated the charges citing a narrower interpretation of the law, but the case is on hold while the government appeals the judge's finding.

Flood said he anticipated filing similar complaints about the false-reporting charges in the new case.

Futch's lawyer, Gene Tausk, declined comment.

"We're very interested to see what evidence the government has to support these allegations," Phillips' lawyer, David Adler, said.

Information on how false prices affect commodities markets from Reuters.

Copyright © 2004 The Seattle Times Company

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