|Will Justice eventually catch a big fish, or merely pursue only the minnows?|
The Associated Press State & Local Wire November 3, 2003
HEADLINE: Fraud trial of former Dynegy executive starts
A former Dynegy Inc. executive went on trial Monday, accused of fraud and conspiracy for participating in a 2001 scheme to improperly boost the company's cash flow to ward off Wall Street concerns.
"The case is not about auditing, the case is about lying," Assistant U.S. Attorney Belinda Beek told a jury of seven women and five men, plus two women alternates, who were selected to consider evidence against Jamie Olis.
The former senior director of tax planning at Houston-based Dynegy is charged with securities fraud, mail fraud, wire fraud and conspiracy in relation to the Enronesque deal dubbed "Project Alpha."
Olis, 37, was charged in June along with two other former midlevel Dynegy executives in a scheme in which prosecutors allege they manipulated financial statements after analysts had expressed concerns that cash flow wasn't keeping up with reported earnings growth.
The deal came to light in early April 2002 as Dynegy and others in the energy sector tried to distance themselves from scandal-ridden Enron Corp., which imploded in December 2001 amid revelations of hidden debt, inflated profits and accounting shenanigans.
On April 25, 2002, the company noted in a filing to the Securities and Exchange Commission that reported profits should have been reported as debt, and the next day Dynegy's stock fell 52 percent, costing investors billions of dollars.
"In the end, nobody comes out of this looking pretty," Beek told jurors in her opening statement.
Olis' lawyer, Terry Yates, was to deliver his opening remarks Tuesday.
"We look forward to presenting the case," he said, adding that Olis was being prepared to testify but a decision on whether to do so would be made later.
Questioning of the 50-person jury pool Monday revealed one of them was a former Enron employee who worked as a contractor there after the company went bankrupt in December 2001. That potential juror was not selected.
When asked if anyone lost money in market, all but two people in the jury pool raised their hands.
"I was looking at retirement in a few years, and I'll never be able to retire," one potential juror, who was not selected, said in response to questioning.
In Project Alpha, an entity called ABG Gas Supply LLC, backed by several banks, 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 deal also allowed Dynegy to wrongly book a $79 million tax benefit.
The $300 million should have been booked as debt because the defendants, prosecutors allege, secretly promised to repay it with interest. That meant the tax benefit wasn't valid.
Olis' co-defendants, Helen Christine Sharkey and Gene Shannon Foster, who was Olis' boss, pleaded guilty in August to a single count of conspiracy and agreed to cooperate with investigators. Yates has said Olis never discussed a plea with prosecutors and maintains his innocence.
U.S. District Judge Sim Lake said the list of 20 possible witnesses included former Dynegy chairman and chief executive Chuck Watson, Dynegy spokesman John Sousa, bankers, analysts and former Arthur Andersen LLP accountants that weren't told of the secret repayment deal.
Former Dynegy finance chief Rob Doty wasn't among possible witnesses Lake mentioned. But Beek told jurors Foster would testify that he and Olis told Doty that Project Alpha wouldn't go through without guarantees that it would be invalidated should Dynegy run into trouble, to which Doty told Foster, "I understand."
Doty resigned under pressure in June 2002, a month after Watson stepped down.
In September 2002 Dynegy paid $3 million to settle an SEC probe into Project Alpha. The company later restated the financial statements to correctly account for the $300 million and erase the tax benefit.
Project Alpha, a five-year deal, still exists and is accounted for properly, said Bruce Williamson, who became Dynegy's chief executive in October 2002. He said the company will continue to cooperate with investigators.
"I think (U.S. Attorney Michael Shelby of Houston) is interested in restoring credibility and trust in companies, in particular energy companies. I share that goal," Williamson said.