Indictment names trio Criminal charges for former Duke executives

[lewislynn]

April 22, 2004, 12:34AM

Indictment names trio

Criminal charges for former Duke executives

By LAURA GOLDBERG

Copyright 2004 Houston Chronicle

	THE CASES
	Three former Duke Energy employees were indicted on: • one count of racketeering conspiracy • nine counts of wire fraud • three counts of mail fraud • one count of falsifying Duke's books. Two of the three were also charged with: • four counts of money laundering.

Two former Duke Energy executives and a former Duke trader were hit with federal criminal charges Wednesday alleging they inflated certain trading results and, in turn, pumped up their bonuses.

The trio worked for the "east" trading division of Duke Energy North America, a Houston-based subsidiary of Duke Energy, according to the indictment.

Timothy Kramer, 40, former vice president of financial portfolio management; Todd Reid, 41, former senior vice president; and Brian Lavielle, 33, director of the southeast region and an energy trader, were named. They all live in Houston, prosecutors said.

Each was indicted by a Houston grand jury on one count of racketeering conspiracy, nine counts of wire fraud, three counts of mail fraud and one count of falsifying Duke's books. Kramer and Reid were also each charged with four counts of money laundering. Each pleaded not guilty Wednesday afternoon before a magistrate and was released on $100,000 bond.

Prosecutors explained that companies involved in energy trading must record some deals using one set of accounting rules and other deals with another kind of accounting. The two kinds of trades are kept in separate "books."

At Duke, bonuses were determined in part on profits recorded in just one of the books, the government said. Prosecutors say the defendants used various methods to record profitable trades in that book and unprofitable trades in the other.

"This is a very bad shell game, where you simply move something from one account to another account, hoping that people only pay attention to your left hand and not to your right," said Michael Shelby, U.S. attorney for the Southern District of Texas.

The government alleges that more than 400 trades were done, resulting in about $50 million worth of fraudulent profits recorded in the trading book used to help calculate a bonus pool.

The government says the conspiracy ran from March 2001 to May 2002.

For 2001, the indictment said, Kramer received a $4 million bonus, Reid a $5 million bonus and Lavielle a $340,000 bonus.

The amounts were in cash and stock. The indictment doesn't say how much of the total prosecutors believe was illegally obtained.

"This was a sophisticated, well-conceived, shrewdly executed fraud that generated millions of dollars of profits for the participants," Shelby said.

Duke, he said, was a victim, along with Duke's shareholders.

Attorneys for each of the men spoke after the court appearance.

Tom Hagemann, a Houston attorney and former federal prosecutor representing Reid, said in a prepared statement that prosecutorial zeal overtook good judgment and common sense in the wake of Enron Corp.'s collapse.

"This case is and should be nothing more than a civil dispute between Mr. Reid and his former employer, Duke Energy," he said. "We must now look to a federal judge and jury to restore Mr. Reid's good name."

Jim Lavine, a Houston attorney representing Kramer, called the indictment a disappointment, noting that his client had cooperated with various government investigations, including that of the U.S. attorney's office.

He said his client didn't violate the law.

Charles Meadows Jr., a Dallas attorney for Lavielle, said in a prepared statement that his client has "refused to modify his truthful understanding of the facts, despite intense pressure."

Lavielle, he said, passed a lie detector test confirming he didn't knowingly participate in efforts to falsify Duke's books and records. The results, he said, were given to the government.

For its part, Charlotte, N.C.-based Duke said it was reviewing options for restitution.

In 2002, Duke said it identified "issues" related to the trading operations and brought them to the attention of government officials. And, it said, the company made changes to its financial records that year, saying the impact was "not material to Duke Energy."

The indictment said Reid and Kramer were terminated by Duke in August 2002. It didn't say when or how Lavielle left.

If convicted on all charges, the three face potentially stiff sentences.

The maximum prison time for the racketeering charge alone is 20 years, while the falsifying of corporate books charge has a maximum prison sentence of 10 years. The 12 wire and mail fraud counts have maximum prison sentences of five years each.

The money laundering counts have maximum prison sentences of 10 years each.

The charges also bring potential fines. Prosecutors are also seeking forfeitures of money.

This is the latest energy company-related indictment from Shelby's office.

One involved Dynegy's so-called Project Alpha deal. In that instance, three former Dynegy employees were indicted on securities fraud and other charges. Two of them struck plea deals, and the third, Jamie Olis, went to trial. Olis was convicted and last month sentenced to just over 24 years in prison.

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