Bloomberg News

Former Gas Traders Convicted in Split Houston Verdict

August 04, 2006

A Houston jury convicted two former natural gas traders of some charges, acquitting or deadlocking on others, in a trial over claims they tried to rig energy prices by reporting false trading data to industry publications.

Michelle Valencia, 36, was convicted today in federal court of seven counts of wire fraud and acquitted of five others. Greg Singleton, 39, was convicted of one wire fraud count and acquitted of four. The jury couldn't decide on 14 conspiracy and false reporting charges against the two.

Valencia, formerly of Dynegy Inc., and Singleton, formerly of El Paso Corp., are the first of more than a dozen traders to be tried on charges they fed false information to publishers of trade indexes widely used to set contract prices.

``It is an inconsistent verdict, and I have trouble reconciling it,'' said Wendell Odom, a lawyer for another gas trader facing similar charges. ``It looks like the defense won the battle, but the government snuck in a couple of counts anyway. Now the defendants have to pay the consequences.''

At least seven Houston traders have pleaded guilty to similar price-rigging charges. One was sentenced to five years in prison.

Whether the government will retry Valencia and Singleton on the deadlocked charges will be decided later, Assistant U.S. Attorney Belinda Beek said. She said prosecutors were pleased with the verdicts.

Nov. 7 Sentencing

U.S. District Judge Nancy Atlas set sentencing for Nov. 7. Valencia and Singleton remained free on bail, and defense lawyers said they were exploring the possibility of appeals. Each count of wire fraud is punishable by as much as five years in prison.

``The government's theory of the case was false reporting, and there were no false reporting convictions for anyone,'' Chris Flood, Valencia's lawyer, said after the verdicts. ``The jurors weren't convinced there was a conspiracy, and they weren't convinced that reporting false numbers to the trade publications was a crime.''

Paul Nugent, Singleton's lawyer, said the jury ``rejected the government's contention there was false reporting.''

``The jury also found that disregarding the instructions of trade journals was not a crime,'' the lawyer said. His client couldn't logically have been convicted of wire fraud if he didn't make false trading reports, the lawyer said.

Beek, the prosecutor, rejected the idea that the wire fraud charges depended on false reporting. Companies that based contract prices on rigged indexes were defrauded, prosecutors argued.

Contracts and Fraud

The sentence for wire fraud depends on the amount of loss, under U.S. sentencing guidelines, Nugent noted, with five years the maximum for Singleton's single conviction.

``The one count he was convicted on, the government's expert said there was no loss, no effect on the market,'' Nugent said. ``So we don't know how that will play out at sentencing.''

The jury deliberated just two days before telling Atlas yesterday it was hopelessly deadlocked on the conspiracy and false reporting charges.

The judge said jurors were having trouble grasping those parts of the case, and she considered letting lawyers present clarifying arguments. This morning she decided instead to accept partial verdicts, saying she would grant the defense's unopposed motion for mistrials on the deadlocked counts. Members of the jury left after declining to comment on their deliberations.

Trade Publications

Valencia and Singleton were accused of feeding false information to Natural Gas Intelligence, published by Intelligence Press in Oregon, and Inside FERC Gas Market Report, published by Platts, a New York division of McGraw-Hill Cos.

Prosecutors introduced evidence the publications took Valencia's and Singleton's false data into consideration in calculating price indexes. That put the traders in violation of a law designed to prevent the rigging of commodity prices, the government said.

Defense lawyers argued that manipulating trading data was common in the energy industry in 2000 and 2001 and regulators hadn't cared before.

``What Michelle did was no different than any other trader employed at the time,'' Flood said after the verdicts. ``Everybody's scared. What was an industrywide practice the government now says was a crime.''

Regulators began scrutinizing the industry more closely after the December 2001 collapse of Enron Corp., then the world's largest energy trader.

Enron's Impact

Flood told jurors in closing arguments Valencia reported false data to offset market distortions created by Enron Online, the company's trading unit. Valencia feared the energy giant's market dominance was pushing up prices during the California power crisis, her lawyer said.

Beek, the prosecutor, urged jurors to ignore defense arguments that the traders were doing what their bosses expected.

``If your boss told you to go and rob a bank, I guarantee you'd be guilty,'' Beek said. ``It is not a good faith defense to say my boss told me to do it.''

Houston is the hub of U.S. natural gas trading and the home of most of the traders charged in the price reporting investigation. It is the headquarters city of Dynegy, owner of power plants in 11 U.S. states; El Paso Corp., owner of the largest U.S. network of natural gas pipelines; and Enron, once the seventh-largest U.S. corporation.

``Since this issue occurred in 2002, Dynegy successfully completed a self-restructuring program focused on repairing the company and resolving issues related to the past,'' David Byford, a company spokesman, said today in an e-mailed statement.

Richard Wheatley, an El Paso spokesman, declined to comment.

The cases are U.S. v. Valencia, 4:04-cr-00514, and U.S. v. Singleton, 4:06-cr-00080, U.S. District Court, Southern District of Texas (Houston).

To contact the reporter on this story: Laurel Brubaker Calkins in Houston at

To contact the editor responsible for this story: Patrick Oster at

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