Three former Dynegy executives indicted for conspiracy, fraud
By Kristen Hays Associated Press Writer
HOUSTON (AP) – Three former Dynegy Inc. executives were charged Thursday with creating an Enron-esque deal in 2001 used to boost cash flow and cut taxes improperly to counteract Wall Street worries about the energy company’s financial health.
The three defendants, who were discharged from Dynegy in February, weren’t among top executives who stepped down in 2002 as Dynegy struggled with a falling stock price, low credit ratings and regulatory investigations in the aftermath of rival Enron’s scandal-ridden collapse in 2001.
But U.S. Attorney Michael Shelby and Hal Dagenhardt, director of the Securities and Exchange Commission’s Fort Worth office, said more defendants could be charged as the probe continues.
“We are going down the path of holding everyone responsible who have some role in deceiving the public,” Shelby said. He declined to elaborate.
Dynegy founder and former chief executive Chuck Watson quit the company in May 2002. Former chief financial officer Rob Doty resigned less than a month later and former president and chief operating officer Steve Bergstrom quit in October 2002.
The indicted former executives – Jamie Olis, 37, Dynegy’s former senior director of tax planning and vice president of finance; Gene Shannon Foster, 44, former vice president of tax; and Helen Christine Sharkey, 31, a former member of Dynegy’s risk control and deal structure groups – were charged with conspiracy, securities fraud, mail fraud and wire fraud. Foster and Sharkey were arrested in Houston and Olis was arrested in San Antonio early Thursday.
Foster and Sharkey were freed later Thursday on $100,000 bond and are scheduled to return to court July 1 for arraignment. Olis was scheduled before a San Antonio magistrate later Thursday.
Kyle Sampson, one of the attorneys for Foster and Sharkey, declined comment, noting they received the indictment Thursday morning and needed to review it.
If convicted, they each face up to 35 years in prison and fines of up to $2.2 million.
Last September, Dynegy agreed to pay the SEC $3 million to settle the commission’s investigation of the natural gas deal dubbed Project Alpha that is central to the indictment.
The indictment alleged Alpha involved an April 2001 deal in which an outfit backed by several banks called ABG Gas Supply LLC bought gas at market prices and sold it to Dynegy for the rest of 2001 at a $300 million discount. Dynegy then resold the gas at market prices, booking the $300 million as cash flow on financial statements for the second, third and fourth quarters.
The money should have been booked as debt because the defendants secretly promised to repay the $300 million with interest, the indictment said.
The repayment guarantee was hidden from Arthur Andersen accountants who then audited Dynegy’s books, the SEC and others. The indictment said the defendants agreed the nature of the deal should “never, never, never go to anyone” because they were “the only ones that have complete knowledge of this transaction.”
Accounting for the contract also wrongly resulted in a $79 million cut in Dynegy’s taxes.
The company restated those financial results last year to invalidate the tax cut and count the $300 million as debt.
Dynegy’s stock dipped as low as 49 cents last year, but has risen since former Duke Energy executive Bruce Williamson took over as CEO in October. On Thursday, shares rose 21 cents, or 5 percent, to close at $4.41 in trading on the New York Stock Exchange.
Dynegy, which is cooperating with Shelby’s probe, said the company is working to resolve “past issues” while focusing on its energy delivery businesses.
The company agreed in December to pay $5 million to settle a Commodity Futures Trading Commission investigation into fake trades reported to industry publications. A former Dynegy trader, Michelle Valencia, was charged in January with reporting fake trades to one of those publications.
Dynegy also is working with investigators and regulators to resolve probes of any role the company may have played in manipulation of power and natural gas prices during California’s energy crisis of 2000 and 2001.
AP-ES-06-12-03 1608EDT