Crime Experts Team Up on Energy Fraud Probe
Kevin V. Ryan and Mark J. Mershon know a thing or two about bad guys.
Ryan, U.S. attorney for the Northern District of California, once successfully prosecuted an Oakland man who stabbed his mother 63 times, killed her dog, stole her television and set her apartment on fire.
Mershon, special agent in charge of the San Francisco division of the FBI, was separated by only a van door from the killer of 12-year-old Polly Klaas, whose kidnapping at knifepoint in 1993 helped raise the nation’s awareness of missing children. Mershon demanded to know the identity of Richard Allen Davis, who then was taken quickly and quietly into custody.
Now, Ryan and Mershon have teamed up to track down an altogether different class of criminals: those who manipulated the energy market during California’s 2000-01 electricity crisis.
Already, the 6-month-old investigation has secured a key guilty plea from a former Enron Corp. executive who has promised to cooperate with authorities. And it has produced a flurry of subpoenas to energy companies around the country seeking data on power generation, trading activities and the interaction between market players.
For Ryan and Mershon, their pursuit of electron lawbreakers is part of a broader push to go after more white-collar criminals in Northern California while beefing up the region’s anti-terrorism vigilance. Among their targets are those in Silicon Valley who engaged in accounting that got a little too creative.
In August, Mershon and Ryan started a corporate fraud tip line ([800] 207-7676) and a Web page (sanfrancisco.fbi .gov/securitiesfraud.htm) that have produced more than 1,000 leads and additional casework in California and other parts of the country. The effort has been so successful, Mershon said, that FBI headquarters in Washington is planning to take it over.
Said San Diego plaintiffs’ attorney Michael Aguirre: “The U.S. attorney’s office in San Francisco has become the epicenter of white-collar prosecution on the West Coast.”
But it is the energy probe, above all else, that stands as Ryan and Mershon’s biggest test. The inquiry is considered the most significant corporate crime investigation in recent state history, and there is great pressure to bring to justice those who profited at consumers’ expense.
So far, Ryan and Mershon seem to be relishing the moment.
The day after Timothy Belden, chief of Enron’s Western electricity trading operation, pleaded guilty in October to conspiracy to commit wire fraud, Ryan and Mershon held a news conference in San Francisco to issue an extraordinary warning to others who gamed the energy market: We’re coming to get you.
“To Mr. Belden’s co-conspirators -- and they know who they are -- they should be very concerned about this investigation,” Ryan said. “We’ll go after anyone and everyone who manipulated California’s energy market.”
Said Mershon, “One individual does not make a conspiracy.”
Perhaps not surprisingly, some in the industry are less than pleased by the tenor of the investigation.
“This continued inquisitor approach to looking backward prevents us from moving forward,” said Jan Smutny-Jones, executive director of the Independent Energy Producers Assn., a Sacramento-based trade group of electricity generators.
Certain power traders contend that they operated within the regulations -- albeit flawed ones -- established by the California Independent System Operator and the now-defunct California Power Exchange.
“I feel like the U.S. attorney is rewriting” the rule book after the fact, said Gary Ackerman, executive director of the Western Power Trading Forum, an industry organization for electricity traders.
When asked whether a trader could operate within the rules and yet still commit a federal crime, Ryan and Mershon declined to comment.
Ryan and Mershon are new to their jobs, having started in July after the former U.S. attorney in San Francisco, Robert S. Mueller, became FBI director, creating a vacancy that Ryan filled. Mueller, in turn, selected San Francisco FBI chief Bruce Gebhardt as his deputy director, opening the way for Mershon to take that post.
Ryan, 45, is the Canadian-born son of Irish immigrants who moved to San Francisco when he was 6 months old. After graduation from the University of San Francisco law school, he was hired in 1984 as a prosecutor in the Alameda County district attorney’s office, where he progressed from drunk driving cases to the prosecution of violent criminals.
Gov. Pete Wilson appointed Ryan, a Republican, as a judge in the civil division of the San Francisco Municipal Court in 1996, and two years later Ryan became a Superior Court judge.
“He had all the right stuff right from the start,” said Carol Corrigan, a state appeals court judge who was a supervisor in the Alameda district attorney’s office. “As a judge, Kevin was very highly regarded. He became one of the real go-to guys on the bench.”
For his part, the 51-year-old Mershon dreamed G-man dreams from childhood. But it was his handling of finance, not firearms, that landed him a job with the FBI.
Knowing that the bureau favored numbers crunchers and lawyers in its hiring, Mershon earned an accounting degree at the University of Notre Dame and was studying for his certified public accountant license when the FBI called.
Mershon has spent 27 years with the FBI in New York, Washington, Miami, San Francisco and Denver, where he was in charge of the bureau’s operations in Colorado and Wyoming.
During his first stint in San Francisco, Mershon supervised the FBI’s investigation in the Klaas case. It was an evidence team that Mershon created to respond to a rash of Bay Area kidnappings that discovered the crucial piece of evidence: a palm print in Polly’s bedroom that led investigators to her murderer.
Police had information that Richard Allen Davis was holed up in his home on the Coyote Valley Indian Reservation near Ukiah, Calif. The FBI was preparing a raid when Davis unexpectedly pulled up to a nearby police checkpoint where Mershon and other officers were standing.
“Mark recognized him,” recalled FBI spokesman Andrew Black. “He walked right up to the vehicle.” Davis surrendered.
“That was an unusual day,” Mershon said with characteristic understatement, acknowledging that going alone to the suspect’s van with his gun still holstered strayed somewhat from standard FBI procedure.
In Colorado, Mershon was involved with several other high-profile cases, including a string of mailbox pipe bombings this year. About two years ago, he spearheaded the peaceful capture of six of seven Texas prison inmates, whose escape and subsequent murder of a police officer sparked a massive manhunt. The seventh inmate committed suicide.
“The myth of the FBI is they come in and take over the case from local law enforcement,” said John Anderson, sheriff of El Paso County, Colo., whose department was involved in catching the escapees. “That didn’t happen with Mark. It was, ‘Leave all egos at the door.’
“The real value of a person’s character is how they walk the talk,” Anderson said. “During the 48 hours that we spent, part of it on the side of a hill and in the cold, Mark was there during the whole time, not grandstanding in any way, but very aware that his people were on the front line, as were mine.”
In the course of their careers, Ryan and Mershon have been touched by controversy.
As an Alameda prosecutor, Ryan was accused in 1994 of unfairly removing as potential jurors two African Americans in a murder trial in which the defendant also was black. Ryan was cleared in 1999 by a federal appeals court, which said he had legitimate reasons and did not discriminate because of race.
After the deadly April 1999 shooting spree at Columbine High School, the FBI was accused of being slow to react. Mershon defended his SWAT team’s work, saying that the response was timely and that the squad acted properly by first forming a corridor to protect fleeing students and teachers before entering the school.
The investigation of energy market manipulation in California began in June with a referral from the Enron task force, headed by Leslie Caldwell, who also is attached to the U.S. attorney’s office in San Francisco.
The probe is being run day to day by Assistant U.S. Attys. Patrick D. Robbins and Matthew J. Jacobs, with assistance from antitrust trial attorney Lisa Tenorio-Kutzkey. The FBI team, led by B.J. Sullivan, head of the white-collar-crime squad, has expertise in the most complicated cases.
“The focus of the Enron task force is primarily securities fraud. The focus of our group is on the criminal manipulation of the California energy market,” Robbins said, carefully avoiding singling out Enron.
Investigators are looking at the behavior of several market participants, which have received broad subpoenas seeking details about how they ran their power plants, how they traded electricity, what kinds of payments they received under California’s complex system for relieving congestion on electricity transmission lines and what kinds of contact the companies had with others making and trading electricity in the state.
Ryan, Mershon and crew declined to divulge new details of the inquiry.
“It’s fair to say that we have a very aggressive team working here,” Ryan said.
Investigators have been talking to traders who worked for Belden, and some evidently are trying to cut deals for themselves. Belden has promised cooperation with various state and federal probes, which will be taken into account when he is sentenced in April.
California Public Utilities Commission President Loretta Lynch, herself a lawyer, said she was happy to see a criminal investigation of market manipulation making headway.
Lynch and other California officials have been sharply critical of federal regulators and politicians, saying they acted too slowly as the state’s energy crisis exploded.
“I am really heartened that Kevin Ryan is taking this on, because the PUC has no criminal jurisdiction,” Lynch said.
“The fact that we now have a prosecutor going after all the troublemakers -- well, it’s about time. There’s nothing like getting people in front of a grand jury.”
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(BEGIN TEXT OF INFOBOX)
The Energy Investigators
Kevin V. Ryan
Title: U.S. attorney for the Northern District of California
Age: 45
Education: Dartmouth College, bachelor’s degree in history, 1980; University of San Francisco School of Law, 1984
Work history: Alameda County deputy district attorney, 1984-1996; judge, San Francisco Municipal Court, civil division, 1996-1998; judge, San Francisco County Superior Court, 1998-2002
Personal: Married, two children
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Mark J. Mershon
Title: Special agent in charge of the San Francisco division of the FBI
Age: 51
Education: University of Notre Dame, bachelor’s degree in accounting, early 1970s
Work history: 27 years with the FBI in New York, Miami, Washington, Denver and San Francisco
Personal: Married, two children
