Two Ex-Dynegy Executives Change Pleas
Aug. 05, 2003
HOUSTON (AP) _ Two former Dynegy Inc. executives on Tuesday each pleaded guilty to a conspiracy charge related to a scheme to disguise a $300 million debt as cash flow, which helped burnish the energy trader's books.
Gene Shannon Foster, 44, and Helen Christine Sharkey, 31, appeared before U.S. District Judge Sim Lake for re-arraignment on charges related to an April 2001 deal dubbed ``Project Alpha.'' The scheme wrongly booked debt as cash flow and recorded an invalid tax benefit.
Both withdrew their June 12 innocent pleas to three counts each of wire fraud and one count each of securities fraud, mail fraud and conspiracy. As part of their plea to conspiracy to commit securities fraud, prosecutors will ask Lake to drop the other charges at the Oct. 24 sentencing.
``No one knows today what your sentence will be,'' Lake told them. The maximum penalty is five years in prison and a $250,000 fine.
Prosecutors said they and a third former executive, Jamie Olis, cooked up the deal to counteract Wall Street worries about Dynegy's finances. Olis, 37, pleaded innocent and has a hearing Friday to set a trial date.
All three remain free on bond.
``They deceived the public to the tune of $300 million and made what was actually red ink appear to be black,'' U.S. Attorney Michael Shelby said.
Also as part of the plea arrangement, Foster and Sharkey will cooperate with the probe and prosecutors agreed not to charge the pair with perjury for possibly lying to SEC investigators.
Last September, Houston-based Dynegy, without admitting or denying the agency's findings, agreed to pay $3 million to settle an SEC investigation of Project Alpha. The energy company was the first of several under federal investigation to settle.
Shelby declined comment when asked if three top executives who left the company last year were a focus of the federal probe. Company founder and chief executive Chuck Watson quit 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.
Sharkey's lawyer, Jim Lavine, and Foster's attorney, Edward McDonough, declined to comment as they left the federal courthouse Tuesday.
Foster and Sharkey, both certified public accountants, also agreed to surrender their accounting licenses as part of the agreement.
According to the indictment, Project Alpha involved a deal in which ABG Gas Supply LLC, an outfit backed by several banks, bought gas at market prices and sold it to Dynegy at a $300 million discount. Dynegy then resold the gas at market prices and booked the $300 million as cash flow for the second, third and fourth quarters of 2001.
The money should have been booked as debt because the defendants promised secretly to repay it with interest, the indictment said.
The executives also hid the payback agreement from outside auditors and others at Dynegy, citing an e-mail circulated among the trio that said 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.
Dynegy fired all three in February. Olis was Dynegy's senior director of tax planning and vice president of finance, while Foster was vice president of tax and Sharkey was in Dynegy's risk control and deal structure groups.
The company acknowledged the problem in 2002 and restated financial results to exclude the $300 million gain and erase the tax benefit.
In a statement, Dynegy said it would continue to cooperate with investigators.