Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Monday, October 1, 2007

Former Dynergy Officers Settle SEC Fraud Charges

The SEC today announced settled enforcement actions against former Dynegy Inc. chief financial officer Robert D. Doty, Jr. and two other former executives at the Houston-based energy company for their roles in a $300 million accounting fraud known as Project Alpha.  According to the Commission's Order, Doty was involved in the decision to proceed with Project Alpha and improperly disguise a loan as operating cash flow in order to minimize the gap between Dynegy's reported net income and cash flow from operations, and to realize as net income a related $79 million tax benefit that was invalid. Furthermore, Doty was involved in the decision not to make any separate disclosure to investors about Alpha's unique, non-commercial pricing characteristics. Doty will pay more than $375,000 to settle the SEC's charges.

Dynegy's former vice president of taxation, Gene S. Foster, and former manager of accounting-deal structure, Helen C. Sharkey, also settled with the Commission regarding their roles in the creation and implementation of Project Alpha. According to the Commission's Orders, both willfully disregarded accounting advice from Dynegy's outside auditor, and concealed critical transaction details from the auditor in violation of federal securities laws. Jamie Olis, Dynegy's former vice president of finance, is currently incarcerated after being convicted in a parallel criminal proceeding of six felony counts relating to his role in Project Alpha. Dynegy previously settled SEC charges in 2002 that it had engaged in accounting improprieties and made misleading disclosures about a financing transaction involving special-purpose entities (SPEs). The Commission had found that Dynegy violated federal securities laws by improperly disguising the $300 million loan as cash flow from operations on its financial statements, thereby misleading investors about the level of its energy trading activity.  In July 2003, the Commission issued a settled cease-and-desist order against Citigroup for its role in Project Alpha.

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