Following on this earlier post on the subject, four former Houston-based El Paso Corp. natural gas traders have agreed to plead guillty under cooperation agreements with the Justice Department after being been charged with making false reports used to calculate the index price of natural gas.
Industry publications, such as the Inside FERC Gas Market Report, use data from traders to calculate the index price of natural gas. Accordingly, movement in index prices often affects the level of profits traders can generate. In this particular case, it remains unclear whether the publication actually used the false information provided, but the government needs only to prove that fake trades were reported and not not that they were actually published or affected the markets.
Each of the traders worked for the Houston company’s El Paso Merchant Energy division and were charged with one count of false reporting. They will enter their guilty pleas later this month. The four who were released on personal recognizance bonds were Christopher Bakkenist, 41; Dallas Dean III, 60; Donald J. Guilbault, 51; and William L. Hamm, 45.
Wednesday’s indictments came nearly two years after former El Paso trader Todd Geiger was indicted for wire fraud and reporting fake trades to an industry publication. He pleaded guilty in 2003 to the fake-trade-reporting charge and agreed to cooperate with prosecutors in the probe.
Earlier this year, ten former El Paso Corp. traders and supervisors received targe letters from the U.S. Attorney’s Office in Houston alerting them that they were targets of a criminal investigation into manipulation of natural gas prices. Moreover, in the last two years, the Commodity Futures Trading Commission has filed civil charges against several companies and subsidiaries in which the CFTC alleges that traders knowingly reported false data to industry publications in an effort to manipulate natural gas prices. So far, the CFTC has settled such allegations against approximately 25 companies for more than $250 million, and El Paso settled such CFTC charges for $20 million in March 2003.
However, in a recent case involving another trader who had been charged with false reporting, a federal district judge threw out the charges after ruling that the part of the Commodity Exchange Act that deals with reporting of false and misleading information on on commodity trades is unconstitutionally broad. That ruling is currently on appeal, and the Fifth Circuit Court of Appeals in New Orleans conducted oral argument on the case earlier this week.