Brian Lavielle, one of three former Duke Energy Corp. natural gas traders who were indicted last April for booking phony trades to increase bonus compensation, pleaded guilty in Houston Thursday to falsifying books and agreed to cooperate in the federal prosecution of his other two co-defendants.
Lavielle, who is 34, faces a maximum sentence of twenty years and a fine of $5 million, although the cooperation deal and the recent Supreme Court rejection of mandatory federal sentencing guidelines probably mean that his sentence will be far less than the maximum. Sentencing is scheduled for December 9.
As noted in the previous post on the indictment, Lavielle and fellow Duke traders Timothy Kramer and Todd Reid were indicted for racketeering, conspiracy, wire and mail fraud, money laundering and falsifying corporate books in connection with booking phony electricity and natural-gas trades to boost trading volumes and inflate profits in a trading book that was the basis of their annual bonuses. The indictment alleges that the three rigged 400 phony trades that produced a $50 million profit in the trade book used for bonus calculations between March 2001 and May 2002. The schemes are alleged to have inflated bonuses for the three by a total of at least $7 million.
This is one of the first criminal cases of which I am aware in which senior-level executives have been accused of devising schemes to generate profits in a trading book by using “mark-to-market” accounting in calculating bonuses, on one hand, and to enter losses in an “accrual book” that had no bearing on bonuses, on the other. Duke and many other energy trades commonly used mark-to-market accounting to record profit and loss for energy contracts that might not settle for many years. However, mark to market accounting method has come under intense scrutiny since the demise of Enron Corp. in late 2001 because of the latitude that the method allows in recording profitable results in trading operations.