By Leslie Wayne –
Five former traders were indicted yesterday in Houston on charges of reporting false trades to industry newsletters to manipulate natural gas prices.
Federal prosecutors charged former traders for the El Paso Corporation, Dynegy Inc. and the Reliant Energy Corporation with conspiracy, wire fraud and false reporting, accusing them of providing bogus pricing data to industry newsletters that calculate indexes used as the basis for future natural gas supply contracts.
The charges are part of a larger investigation into possible manipulation of the natural gas markets that began with the collapse of Enron in 2001 and its role in the California energy market. Several government agencies have been investigating for more than three years, and the Commodity Futures Trading Commission has collected more than $215 million in fines from companies including El Paso and Enron for false trade reports.
In issuing the indictments, the United States attorney for the Southern District of Texas, Michael Shelby, was quoted by Reuters saying his office was able “to crack the matrix” of how the false data affected the monthly price indexes in two industry newsletters.
“Our markets depend on the truthfulness of the information that fuels them,” Mr. Shelby said in a news conference. “Most of these companies don’t engage in this type of trading anymore because it was so rife with these types of shenanigans.”
Named in the indictment were Michelle Marie Valencia, a former gas trader at Dynegy; Donald E. Burwell, James P. Phillips and Greg Singleton, former El Paso traders; and Jerry A. Futch Jr., formerly of Reliant Energy. All five pleaded not guilty and were released on bond.
Chris Flood, a lawyer for Ms. Valencia and Mr. Burwell, disputed the charges.
“The government misunderstands the process and impact of index reporting and has unfairly derided the energy industry,” said Mr. Flood, who was quoted by Reuters. “This misunderstanding has hurt the energy industry as a whole. This is no Enron, and we expect the government will owe these people in the energy industry an apology when all is said and done.”
The indictment said that bogus data was provided to Inside FERC Gas Market and to Natural Gas Intelligence, two industry publications that provide indexes of prices that are used to value billions of dollars in natural gas contracts and energy derivatives. The indictment accused the defendants of reporting fake trades in 2000 and 2001.
Thomas E. Wallin, president of the Energy Intelligence Group, the New York-based publisher of Natural Gas Week, an industry newsletter, said, “There is a probability that there was a lot more going on than investigators will ever uncover.
“This underscores the responsibility of the price reports to come up with accurate and valid numbers,” Mr. Wallin said. “This has been a wake-up call for everyone. They’re finally bringing these people to justice.”
Congressional hearings have examined the question of price manipulation, and the Commodity Futures Trading Commission and newsletter publishers have taken steps to improve the quality of price reports.
Source: New York Times