The Justice Department announced Thursday that it has filed a superseding indictment alleging additional counts of wire fraud and reporting fake trades against former El Paso Corp. trader Donald Burwell. The superseding indictment is the latest development in a series of criminal cases that the U.S. Attorney’s office for the Southern District of Texas has been pursuing against former traders of natural gas who worked for various Houston-based companies. Previous posts on the trader cases are here, here, here, here, here, here, here and here.

Mr. Burwell was previously charged in November 2004 with one count each of conspiracy, false reporting and wire fraud relating to his involvement in the transmission of allegedly inaccurate trade reports to an industry newsletter in July 2000. The latest superseding indictment incorporates the pending charges and adds two counts of false reporting and two counts of wire fraud relating to allegedly inaccurate trade reports that Burwell was allegedly involved in transmitting to trade publications in August and October, 2000.
The case against Mr. Burwell is one of 10 that the Justice Department is pursuing in regard to alleged manipulation of natural gas trading indexes, which are used to value billions of dollars in gas contracts and derivatives. Industry publications such as Inside FERC Gas Market Report use data from traders to calculate the index price of natural gas, which affects the level of profits that traders can generate. In Mr. Burwell’s case and in the related trader cases, it remains unclear in what context the allegedly false information was transmitted or whether the publication even used any false information. However, the government’s theory of criminal liability is that it needs only to prove that fake trades were reported to the publications and not that the trades were actually published or affected the markets.
As noted in previous posts here and here, this superseding indictment appears to be a transparent effort by the government to increase the alleged market loss attributable to the alleged false reporting for purposes of seeking a longer jail term for Mr. Burwell. Inasmuch as Justice Department lawyers have been making some rather absurd positions on that particular issue in other cases recently, it remains to be seen whether the Justice Department’s attempt to increase the stakes in the prosecution will bludgeon yet another defendant to cop a plea in the hopes of avoiding a Jamie Olis-like prison sentence.
Nine other former traders have been charged in similar cases. Six of those traders (five from El Paso and one formerly of Reliant Energy) have pleaded guilty to the fake reporting charges, while three others are awaiting trial, including former Dynegy trader Michelle Valencia, former El Paso trader Greg Singleton, and former El Paso trader James Phillips, whose trial is tentatively scheduled to commence next month.