Three Former Dynegy Executives Settle SEC Charges for Manipulating Financial Statements
Former CFO to Pay More Than $375,000 to Settle Charges
FOR IMMEDIATE RELEASE
Washington, D.C., October 1, 2007 - The Securities and Exchange Commission 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.
"This case demonstrates that we will hold accountable anyone involved in manipulating a public company's financial statements," said Rose Romero, Regional Director of the SEC's Fort Worth Regional Office. "The enforcement actions announced today reflect the Commission's commitment to ensuring that both companies and the individuals who work for them are honest and straightforward with investors."
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. Without admitting or denying the Commission's findings, Foster and Sharkey consented to orders permanently enjoining them from future violations of the antifraud and internal controls provisions of federal securities laws. They also consented to administrative orders barring them from appearing or practicing before the Commission as accountants.
A third defendant in the Commission's civil enforcement action, Jamie Olis, recently asserted a counterclaim for attorney fees and costs. The Court struck down his counterclaim on September 7, 2007, and then granted the Commission's motion to dismiss its claims against Olis, Dynegy's former vice president of finance. Olis is currently incarcerated after being convicted in a parallel criminal proceeding of six felony counts relating to his role in Project Alpha. The Commission also issued an administrative order permanently suspending Olis from appearing or practicing before the Commission based on his criminal convictions.
Doty, without admitting or denying the Commission's findings, agreed to a federal district court judgment requiring him to pay a civil penalty of $120,000 and prohibiting him from serving as an officer or director of a public company for a period of five years. Doty also consented to a public administrative and cease-and-desist order requiring him to pay disgorgement of $200,000 and prejudgment interest of $56,560, and suspending him from appearing or practicing before the Commission as an accountant for five years. The order also directs Doty to cease and desist from committing or causing future violations of the antifraud and internal controls provisions of the federal securities laws, or aiding and abetting or causing violations of the record-keeping and reporting provisions.
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. In its order, the Commission found that Citigroup was a cause of Dynegy's violations. Citigroup paid $19 million to settle the proceeding.
The Commission acknowledges the assistance of the United States Attorney's Office for the Southern District of Texas, the Federal Bureau of Investigation and the United States Postal Inspection Service.
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For more information, contact:
SEC's Fort Worth Regional Office
SEC's Fort Worth Regional Office