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Trial of ex-Dynegy exec set to begin

/ Source: The Associated Press

The wave of corporate scandals in Houston started with Enron. The criminal trials that follow will start with a former executive of one-time Enron wannabe Dynegy Inc.

Jury selection is scheduled to begin Monday in the fraud and conspiracy case against Jamie Olis, 37, a former senior director of tax planning. He is charged with securities fraud, mail fraud, wire fraud and conspiracy in relation to an alleged scheme to cut taxes and improperly boost Dynegy’s cash flow by $300 million.

“While this is not Enron, it certainly has shades of Enron,” said Neil Getnick, a New York business fraud attorney and former prosecutor.

Olis was charged with two other former Dynegy executives, Helen C. Sharkey and Gene S. Foster, related to the deal, dubbed “Project Alpha.”

Prosecutors allege the trio created Project Alpha in April 2001 to manipulate financials to ward off Wall Street concerns that cash flow wasn’t keeping pace with earnings growth.

In the deal, an entity called ABG Gas Supply LLC, backed by several banks, bought gas at market prices and sold it to Dynegy for the rest of 2001 at a $300 million discount. Dynegy then resold the gas at market prices, booking the $300 million as cash flow on financial statements for the second, third and fourth quarters. Dynegy also wrongly booked a $79 million tax benefit.

The $300 million should have been booked as debt because the defendants, prosecutors allege, secretly promised to repay it with interest.

Sharkey and Foster pleaded guilty in August to a single count of conspiracy and agreed to cooperate with investigators. Olis’ attorney, Terry Yates of Houston, has said Olis never discussed a plea with prosecutors and maintains his innocence.

Dynegy, like many of its peers in the energy sector, emulated Enron with forays into trading and telecommunications and the establishment of an online trading platform before its larger rival imploded in late 2001 amid revelations of hidden debt, inflated profits and accounting shenanigans.

The company paid $3 million in September 2002 to settle a Securities and Exchange Commission probe into Project Alpha. The company later restated the financial statements to correctly account for the $300 million and erase the tax benefit. Dynegy continues to cooperating with investigators.

The ongoing Enron investigation has spawned a series of criminal cases slated for trial next year that allege executives created or participated in schemes to manipulate the company’s finances and, in some instances, skim millions of dollars for themselves.

“This case walks and talks like Enron,” said David Berg, a Houston attorney who specializes in white collar and commercial law. “It will be a real litmus test with what happens with these white collar cases.”