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Former Dynegy Employees are Indicted for Fraud by WSJ Staff Wall Street Journal - June 12, 2003

HOUSTON -- Three former Dynegy employees were indicted on federal fraud and conspiracy charges for their alleged roles in a complex transaction used to exaggerate the energy trader's financial health. The Securities and Exchange Commission also filed a civil lawsuit against the trio.

"These defendants are accused of withholding the truth about Dynegy's true fiscal condition from the SEC, shareholders and the public," U.S. Attorney Michael Shelby said Thursday at news conference after the indictment was unsealed.

Named in the indictment were Jamie Olis, 37 years old, Dynegy's former senior director of tax planning; Gene Shannon Foster, 44, former vice president of tax; and Helen Christine Sharkey, 31, a former member of Dynegy's risk-control and deal-structure group. Each is charged with conspiracy, securities fraud, mail fraud and wire fraud connected with the transaction, known as Project Alpha. They were to appear later Thursday before a federal magistrate here.

The Houston-based energy company said it is committed to complete cooperation with the U.S. Attorney and other governmental agencies.

The SEC is suing to force the three to return their allegedly ill-gotten gains, including bonuses and trading profits, and to pay fines.

According to the SEC, the three ignored accounting advice from Dynegy's outside auditors and made secret side agreements to conceal trading details from the company, its auditors and its investors.

Dynegy in the fall agreed to pay $3 million to settle an SEC investigation into its use of special purpose entities and "round-trip" energy trades that allegedly inflated the firm's revenue. The company didn't admit to or deny the SEC's claims.

The SEC said Dynegy reported $300 million in cash flow from Project Alpha, when the amount was actually a loan. Net income from related tax benefits also were invalid, according to the SEC. The company restated financial results for 1999 through 2001 earlier this year, after a reaudit by PricewaterhouseCoopers LLC.

Thursday's charges are another step in restoring investor confidence, said Harold Degenhardt, district administrator in the SEC's Fort Worth Office. "Those who betray the public trust will be pursued and punished," Mr. Degenhardt said. "Investors deserve this commitment and the markets require it."

Investigations into others involved in Project Alpha is continuing and further action is likely, he said.