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3 Dynegy Execs Accused of Fraud

The former accounting employees allegedly disguised a loan as a gas trade to polish finances.

June 13, 2003|From Reuters

Three former Dynegy Inc. executives were charged with criminal and civil fraud Thursday, accused of illegally disguising a $300-million loan as a gas trade to burnish the company's finances.

Federal prosecutors charged the three, all certified public accountants licensed by the state of Texas, with criminal conspiracy, securities fraud, mail fraud and wire fraud. The Securities and Exchange Commission also filed civil securities fraud charges against them.

Former finance Vice President Jamie Olis, 37; former tax Vice President Gene Shannon Foster, 44; and accounting manager Helen Christine Sharkey, 31, were arrested Thursday.

Sharkey and Foster were freed on $100,000 bond each after a brief hearing in Houston federal court. .

Sharkey's lawyer, Kyle Sampson, and Foster's lawyer, Edward McDonough, both said they had not had enough time to fully review the indictment. Olis, who appeared in federal court in San Antonio without a lawyer, declined to comment.

"It's something of a surprise. We had offered cooperation to the government in the past, and all this came about in the past few days," McDonough said.

The indictment alleges that the trio created a scheme, dubbed Project Alpha, to camouflage a $300-million loan from several banks as a five-year natural gas contract with a dummy company created to make the deal work.

That allowed Dynegy to improperly book the money as cash flow from operations in 2001 and gain an undeserved $79-million tax benefit, prosecutors said.

Accounting and financial disclosure rules prohibit a risk-free loan -- the banks were guaranteed their money back plus interest -- from being passed off as income, said Michael Shelby, U.S. attorney for the southern district of Texas.

"To hide that circular quality is an illegal act," Shelby said. "That's the modern-day alchemy of taking red ink and making it into black ink."

The indictment alleges that the three hid the true nature of the deal from investors, bank lenders, others within Dynegy and the company's auditors, now-defunct Andersen.

That included hiding documents from Andersen after the auditor warned the bank loan could not be booked as operational cash flow, according to the indictment.

Additional charges might be forthcoming against other individuals and entities, said Harold Degenhardt, regional director for the SEC.

Late last year, Dynegy paid $3 million to settle an SEC complaint against the company over Project Alpha. The company admitted no wrongdoing.

Shares of Dynegy closed up 21 cents at $4.41 on the New York Stock Exchange.

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