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El Paso Trading Probe Targets Ex-Employees As many as 10 former El Paso Corp. traders and supervisors could face charges of manipulating natural gas prices as the scope of a grand jury investigation into the matter expands. The U.S. Attorney's office in Houston last week began sending letters to potential defendants alerting them that they are targets in a probe that so far has netted a single guilty plea from a former trader, said sources close to the case, who had seen the letters but spoke on condition of anonymity. The former trader, Todd Geiger, pleaded guilty in December to reporting fake trades to an industry publication that uses the data to calculate the index price of natural gas. He agreed to cooperate with prosecutors in the ongoing investigation. Geiger, 39, was charged in December 2002 with wire fraud and reporting fake trade information for reporting 48 fake trades in November 2001 to the "Inside FERC Gas Market Report." The newsletter uses such information submitted each month to calculate index prices for the subsequent month, and movement in index prices often affect the level of profits traders can generate. The newsletter didn't include Geiger's fake trades in its calculations. But under federal law, the government needs only to prove that fake trades were reported - not whether they were published or affected the markets. The sources said the additional targeted former employees could face similar charges of wire fraud, conspiracy and manipulating commodity prices, confirming a story in Wednesday's editions of The Houston Chronicle. In January 2003 - a month after Geiger was charged - Assistant U.S. Attorney John Lewis told U.S. District Judge Nancy Atlas in a hearing that Geiger was part of a conspiracy to supply the market with fraudulent information. Lewis said at that hearing that, although Geiger was not charged with conspiracy, prosecutors believed his actions were part of a coordinated effort that went back two years. Lewis declined comment Wednesday. In the last two years, the Commodity Futures Trading Commission has filed civil charges against several companies and subsidiaries, alleging their traders knowingly reported bogus data to industry publications, some with intent to manipulate natural gas prices. The agency has settled such allegations against more than two dozen companies for a collective $252 million. El Paso ponied up $20 million to settle such allegations in March 2003. Other companies that have paid millions to settle similar cases include Duke Energy, the Williams Cos., Dynegy Inc. and most recently, Royal Dutch/Shell affiliate Coral Energy Resources. In August last year, Atlas ruled that the section of the Commodity Exchange Act used to charge Geiger and Michelle Valencia, a former Dynegy trader charged in January 2003 with wire fraud and reporting bogus trades, was constitutionally overbroad and knocked out the false trade reporting counts. Three months later, in November, Atlas allowed prosecutors to reinstate those counts. The judge had determined the law prohibited the release of "false and misleading" information that could impact markets without a requirement that a defendant did so knowingly. The same law also prohibits someone from reporting "knowingly inaccurate" data, and Atlas said that portion passes muster. The 5th U.S. Circuit Court of Appeals in October will hear arguments on Valencia's appeal to dismiss her case. El Paso shares fell 10 cents to close at $7.55 Wednesday on the New York Stock Exchange.
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