Ex-Enron Trader Admits Rigging Energy Market

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SAN FRANCISCO -- A former top Enron Corp. executive pleaded guilty Thursday to a federal conspiracy charge for rigging California’s electricity markets during the power crisis, giving the state powerful ammunition in its claim for $9 billion in refunds from energy companies.

Timothy Belden, 35, Enron’s chief energy trader in the West and a corporate vice president, became the first person convicted of a crime in connection with California’s 2000-01 energy crisis. He also agreed to cooperate with investigators in a widening probe that could lead to charges against executives at Enron and other companies.

The guilty plea -- which also requires Belden to forfeit $2.1 million in “criminally derived” compensation from Enron -- was vindication for California Gov. Gray Davis and other state officials who have alleged criminality was at the root of the crisis. Last year, Vice President Dick Cheney suggested California was to blame.


“These charges answer the question that has long troubled California consumers: whether the energy crisis was spurred in part by criminal activity,” said Kevin Ryan, U.S. attorney for Northern California. “The answer is a resounding yes.”

The investigation is being led from Ryan’s San Francisco office, but in an indication of its importance, the plea agreement was announced at the Justice Department’s headquarters in Washington.

In a scripted proceeding before U.S. District Judge Martin Jenkins in San Francisco, the slight and balding Belden stood flanked by his two attorneys and repeatedly acknowledged his role in schemes with colorful names such as Fat Boy and Get Shorty.

Belden agreed to plead guilty to a single count of conspiracy to commit wire fraud arising from various Enron strategies for manipulating California markets. He hesitated only when Jenkins asked him why he had committed the crime.

“Why did I do it?” Belden repeated. “I did it because I was trying to maximize profit for Enron.”

Exactly how much money Enron made from the schemes was not clear, although Deputy Atty. Gen. Larry Thompson said the revenues brought in by Belden increased sixteenfold over a three-year span ending in 2001.


“During the period of the ... conspiracy, Enron’s revenues from Belden’s trading unit rose from $50 million in 1999, to $500 million in 2000, to $800 million in 2001,” Thompson said. “A portion of these increased revenues was due to the execution of these schemes.” He would not comment on what that amount might be.

Separately, California is seeking $9 billion for alleged overcharges by Enron and other power sellers. Those claims are based on an analysis of market data by the state’s power grid operator done before the extent of Enron’s questionable trading strategies was known.

The initial analysis from May 2001, which tallied more than $6 billion in potential overcharges, blamed Enron for a small portion, about $28 million. The study noted, however, that Enron consistently bid high prices for electricity it was selling into the market, showing it “clearly exercised market power to inflate prices.” The overall claim of market overcharges was later increased by the state, but a new company-by-company breakdown has not been produced.

The criminal plea should bolster the state’s demands for payback.

“We believe it’s another round of ammunition in our battle for refunds,” said Steve Maviglio, Davis’ press secretary. “It’s proof positive that there was market manipulation.”

Enron’s trading schemes were first detailed in Enron memos released this spring by the Federal Energy Regulatory Commission. The memos said other companies had adopted similar tactics, prompting FERC to quickly widen its investigation. Most energy traders denied they used the Enron tactics, and FERC’s investigation is continuing.

Enron’s schemes sought to take advantage of California’s deregulated energy market to boost profits, according to Belden’s plea agreement.


The ploy dubbed Death Star involved creating artificial congestion on the power grid by scheduling electricity service that Enron did not intend to complete. The company would then collect payments to relieve the contrived bottleneck. Another -- dubbed Ricochet -- involved transmitting power out of California and then selling it back at higher prices.

Justice Department investigators concluded that the strategies relied on false information fraudulently submitted by Enron to California regulators. Enron was paid by bank wire transfer, giving rise to the wire fraud charge.

Belden’s guilty plea should be the first of many convictions, suggested Sen. Dianne Feinstein (D-Calif.).

“I do not believe this fraudulent activity begins or ends with this one individual,” Feinstein said. “In fact, we know traders from other companies have engaged in similar behavior.”

Thompson said the federal investigation is “active and ongoing.”

Belden’s plea Thursday triggered speculation about which individuals and companies might be targeted next.

Belden could possibly implicate higher-ranking Enron executives, criminal attorneys said, such as former Chairman Kenneth L. Lay and former Chief Executive Jeffrey K. Skilling. Another possible target is former Enron President Lawrence G. Whalley, who oversaw Enron’s trading operation from Houston.


Court documents filed Thursday said Belden was assisted by “other Enron officers and employees,” but did not name any other individuals. In San Francisco, Belden’s attorney said her client was following corporate policy.

“He learned how to do these trading strategies at Enron, and he was never disciplined,” said lawyer Cristina Arguedas, adding that Belden didn’t mastermind the operations and was not “some kind of Lone Ranger.”

“Clearly, what Belden said today through his attorney is that he was, in the vernacular, only following orders,” said Stephen L. Meagher, a former federal prosecutor who now is a partner with Phillips & Cohen in San Francisco.

“Tim Belden is extremely dangerous to a lot of people,” said Christian Schreiber, an investigator with the state Senate select committee to investigate price manipulation of the wholesale energy market.

“I’m sure there are people across the industry sweating today upon this news.”

Lay’s lawyer could not be reached for comment. Attorneys for Skilling and Whalley said they were not worried.

“Mr. Whalley has been cooperating with all the regulatory agencies in this investigation,” said his attorney Zachary Carter, “and he will continue to do so.”


Meagher also said Belden may help investigators looking at trading practices at other companies, because the Enron memos noted that the trading ploys had been adopted by competitors.

California’s demand for nearly $9 billion in electricity refunds is pending before FERC, separate from the Justice Department investigation. FERC Chairman Patrick Wood said Thursday that he expects a preliminary decision on refunds by an administrative law judge in December and a final determination early next year.

Deflecting questions about how the Belden plea would affect the refund case, Wood said: “We have not said ‘no’ to refunds. We have the judge trying to calculate them.”

Belden could face up to five years in prison and a fine of $250,000, in addition to the $2.1 million he has agreed to pay in restitution.

That money, from his personal accounts at brokerage Charles Schwab, represents the portion of Belden’s salary and bonus attributable to the schemes, said Assistant U.S. Atty. Matthew Jacobs.

Prosecutors promised to recommend leniency only if Belden continues providing “substantial assistance” in the probe.


Dressed in a gray suit and blue shirt, Belden did not respond to reporters’ questions. He was joined at the hearing by his parents, and was released without paying bail. Both sides asked for his sentencing to be delayed at least six months as the government follows the trail he is showing investigators.

After Enron’s collapse, Belden was employed briefly by UBS Warburg, which acquired the firm’s energy trading business. But his lawyer said the former trader now is out of work.


Alonso-Zaldivar reported from Washington, Menn from San Francisco and Rivera Brooks from Los Angeles. Times staff writer Nancy Vogel, in Sacramento, also contributed.