Michelle Valencia and her attorney Chris Flood in 2003.
More than five years after the first indictment and two years since conviction, former Dynegy trader Michelle Valencia and former El Paso trader Greg Singleton were sentenced Thursday for their roles in what many had called a long-lived and widespread problem in the natural gas markets.
Valencia was sentenced to 57 months — nearly five years — in prison and Singleton to 28 months for sending false natural gas trading data to trade publications that would use the data to create widely cited price indexes.
These cases are part of a large body of both criminal and civil cases brought against natural gas traders that was focused largely in Houston. The claim was that throughout the industry there was rampant false reporting of trading data to publications that used those numbers to create the indexes. Here’s a bit of background:
• How widespread was the problem?
It seems most of the companies involved in natural gas trading were somehow involved. The Commodity Futures Trading Commission hauled in $445 million in fines from dozens of companies that took part in the false reporting. About a dozen traders, most of them in Houston, were charged by the federal prosecutors. More faced civil charges. Most entered into plea agreements, but some chose to fight.
• Were these clear-cut cases?
At first it wasn’t even clear the law most were charged under was constitutional, and a judge threw out some of the charges on those grounds. An appeals court later overturned that decision. In most cases there were recorded phone calls and e-mails between the traders where many said quite plainly they were reporting false data. But the lengthy trials and split jury verdicts reflected the complexity of the issues.
• How much money was involved?
It’s hard to say. So many companies submitted false numbers (and the publications used inconsistent methods to analyze the data) that finding out what numbers were real and who lost/gained money from each deal was next to impossible.
The long run-up to Thursday’s sentencing in part reflects that complexity. U.S. District Judge Nancy Atlas let the sides file many briefs and bring in expert witnesses to dispute how much money companies lost — a key factor considered in setting sentences. At one point the judge indicated she would use the amount companies earned off the transactions to calculate damages, but ultimately the parties agreed to stop arguing and let particular loss figures stand, both of which were around $500,000.
• How high up the corporate ladder did the cases go?
With the exception of former El Paso manager Jim Brooks, most of those charged were low-level workers. Not exactly file clerks, but not supervisors eligible for seven-figure bonuses.
On Thursday Valencia’s defense attorney Chris Flood repeated an oft-heard refrain in these cases: “I think it’s another case of the subordinates going to jail while the supervisors get away.”
To put the sentences in perspective:
• Former Enron CFO Andrew Fastow received a 6-year sentence (which will be closer to four years) for essentially masterminding millions upon millions of dollars in fraud.
• Former Enron Chief Accounting Officer Richard Causey was sentenced to five-years, six-months for helping move the schemes along.
• Former Enron division head Ken Rice was sentenced to two-years, 3-months for lying about the performance of the company to keep its stock price up.
Here’s how Platts covered the sentencing.