Legal Commentary

Guilty verdict in the latest natural gas trader case

By Tom Kirkendall

We in Houston have become so jaded by dubious prosecutions of businesspeople that the guilty verdict in the latest natural gas trader case passed almost unnoticed late last week. The Department of Justice's press release on the verdict is here, and the article of Tom Fowler -- the Chron reporter who has done a good job of following these the trader cases -- is here. My previous posts on the natural gas trader cases are here.

What is particularly troubling about the result in this particular case is that three relatively young men (the oldest of the three defendants is 48) with families and (at least up to this trial) excellent careers are now facing effective life prison sentences for essentially lying to a magazine. The prosecution's alleged that the three traders provided false information to natural gas industry publications such as the Inside FERC Gas Market Report, which uses data from traders to calculate the index price of natural gas. Inasmuch as movement in index prices can theoretically affect the level of profits that traders can generate, the government's theory was that the defendants provided false information so that they and their employer -- El Paso Natural Gas Co. -- could reap higher profits.

However, it remains unclear whether the magazines actually used the false information that the defendants provided to them or that the false trades actually affected the markets at all. No problem for the prosecution, though. The government contended that the market effect of providing the false information was irrelevant and that it only needed to prove that false information was reported to the magazines in order to make a case against the defendants.

So, key point to all of you businesspeople out there -- don't ever provide any false information to a publication. It really doesn't make any difference whether the false information affects your business. The transmittal of false info is the crime.

I wonder if that applies to movie stars and tabloids, too? ;^)

As Fowler reports in his article, this was the second trial in what has been a five-year investigation of natural gas trading practices by Houston-based federal prosecutors and the Commodity Futures Trading Commission. A dozen Houston-area traders have been criminally charged in the trader cases and half of those have plea guilty. Two others -- former Dynegy trader Michelle Valencia and former El Paso trader Greg Singleton -- were convicted on several wire fraud counts but were acquitted on false reporting charges in 2006. They are still awaiting sentencing.

Full post as published by Houston's Clear Thinkers on February 12, 2008 (boomark / email).