Former El Paso Trader Indicted
A former El Paso Corp. energy trader was indicted for allegedly reporting fictitious natural gas transactions to an industry publication in an effort to boost prices and company profit.
The action came as part of a broad investigation into whether energy companies hoodwinked investors and energy ratepayers, including those in California.
A two-count indictment by a Houston grand jury was unsealed Wednesday against Todd Geiger, a vice president on the Canadian natural gas trading desk for El Paso Merchant Energy, a subsidiary of Houston-based El Paso Corp.
Geiger, 38, was charged with wire fraud and filing a false report after allegedly telling a trade publication, Inside FERC Gas Market Report, that he had made 48 natural gas trades Nov. 30, 2001. The trades turned out to be nonexistent, according to the indictment.
The charges arose from information gathered by the Federal Energy Regulatory Commission, or FERC, as part of its inquiry into market manipulation.
Several firms, including El Paso, have revealed that employees lied to trade publications that assemble indexes of natural gas and electricity trades. Such indexes, compiled by publications through interviews with traders, directly influence billions of dollars of contracts for natural gas and electricity.
These indexes also were used by regulators to help determine prices of electricity -- much of which is generated from natural gas -- in California during the 2000-01 energy crisis and its aftermath.
“Traders who reported false information to Inside FERC, if not detected, pushed index prices up and down, and potentially cost consumers of natural gas and electricity throughout the country great sums of money,” the indictment said.
An energy industry whistle-blower last month told a state Senate hearing in Sacramento that natural gas traders routinely lied to industry newsletters about their transactions to drive up index prices and that the private publications were aware of the scheme.
Geiger’s indictment “is just the start,” said California Lt. Gov. Cruz Bustamante, who last month filed a civil lawsuit charging index price manipulation by El Paso, several other natural gas firms and two newsletter publishers, including Inside FERC owner McGraw-Hill Cos. All of them have denied being involved in the conspiracy alleged by Bustamante.
The suit, filed in Los Angeles County Superior Court, is the second class-action case Bustamante has brought as a private citizen against energy suppliers. The first suit, filed in May 2001, accused electricity generators and traders of market manipulation.
“I wish we could move these lawsuits faster and get the billions of dollars back for the consumers of California,” Bustamante said in an interview. “If you connect the dots, you can see that people were ‘gaming’ and manipulating the markets.”
Michael Shelby, U.S. attorney for the southern district of Texas, characterized the Geiger indictment as cutting “literally to the heart of American busi- ness.”
“Free markets are based on truthful information, period,” he said. “You can’t have free markets when there is deception in the marketplace.”
Shelby declined to say if other indictments would be forthcoming, but he noted: “This is one very narrow investigation in a very broad front. We’re looking into the methods by which energy companies in Houston have conducted their business, internally and externally, and all that this entails.”
The California energy crisis and the financial collapse of Enron Corp., the world’s largest energy trader until a quick downward spiral last year left it in Bankruptcy Court, have sparked a host of investigations by federal and state regulators, the Justice Department and several state attorneys general.
Guilty pleas have been extracted from two Enron executives in exchange for cooperation. Michael J. Kopper is guiding federal prosecutors through Enron’s accounting machinations, and Timothy N. Belden is shedding light on tactics used by electricity traders in California and the West.
El Paso Corp. said it was cooperating with the investigation into false reports to trade publications. The company last month hired a law firm to conduct an internal review after it discovered “at least one incident” in which “inaccurate pricing information may have been provided to a trade publication.”
A company spokeswoman acknowledged Wednesday that the incident was that involving Geiger.
Platts, a McGraw-Hill unit that publishes Inside FERC, said the trades reported by Geiger were not used in its monthly natural gas index because they were “outside of the market price and could not be verified.”
Geiger, who resigned from El Paso on Nov. 12, was arrested Tuesday night. Geiger did not enter a plea when he appeared Wednesday in U.S. District Court in Houston, although his lawyer said Gieger would plead not guilty during a court appearance scheduled for Monday. If convicted of both counts, Geiger faces up to 10 years in prison and fines of as much as $750,000.
A FERC report issued in August questioned the accuracy of the indexes being used to determine whether electricity prices during California’s energy crisis were fair. That preliminary finding was viewed as potentially helping the state recoup refunds for electricity overcharges.
Bloomberg News was used in compiling this report.
