U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20320 / October 2, 2007
Accounting and Auditing Enforcement Release No. 2739 / October 2, 2007
SEC v. Robert D. Doty, Jr., Civil Action No. 4:07-CV-03186 (S.D. Tex.)
SEC v. Gene S. Foster, et al., Civil Action No. H:03-2044 (S.D. Tex.)
The Securities and Exchange Commission today announced settlement of enforcement proceedings against three former executives of Dynegy Inc. in connection with their roles in Dynegy's Project Alpha, a $300 million loan that disguised the company's true financial condition by appearing on the company's financial statements as a commercial operating activity.
Without admitting or denying the Commission's allegations, former Dynegy CFO Robert D. Doty, Jr. agreed to a settled civil enforcement action 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. In addition, without admitting or denying the Commission's findings, Doty consented to a public administrative and cease-and-desist order (i) directing him 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; (ii) requiring him to pay disgorgement of $200,000 plus prejudgment interest of $56,560; and (iii) suspending him from appearing or practicing before the Commission as an accountant for five years.
The Commission also announced settlement with two of the three former Dynegy executives sued in connection with Project Alpha in June 2003. Without admitting or denying the Commission's allegations, defendants Gene S. Foster and Helen C. Sharkey consented to orders permanently enjoining them from future violations of Section 17(a) of the Securities Act of 1933 and Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5 and 13b2-2 thereunder. Foster and Sharkey also consented to administrative orders barring them from appearing or practicing before the Commission as accountants.
The third defendant in the Commission's civil enforcement action, Jamie Olis, recently asserted a counterclaim for attorney fees and costs. The Court struck his counterclaim on September 7, 2007. Immediately thereafter, the Court granted the Commission's motion to dismiss its claims against Olis, who 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 suspending Olis from appearing or practicing before the Commission as an accountant based on his criminal convictions.
Project Alpha was the subject of a settled cease-and-desist order issued by the Commission on Sept. 24, 2002. In its order, the Commission found that Dynegy violated the antifraud, reporting, record-keeping and internal controls provisions of the federal securities laws by improperly recording Alpha's impact on Dynegy's financial statements as $300 million in operating cash flow and $79 million in net income (from a presumed tax benefit), when instead, the $300 million was actually a loan and the tax benefit was invalid. In settling the Commission's action, Dynegy paid a $3 million penalty.
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.
For additional information, see:
Administrative Proceeding No. 3-12857 (Doty)
For additional information on related Commission actions, see:
SEC v. Gene S. Foster, Jamie Olis and Helen C. Sharkey — Litigation Release No. 18188; Accounting and Auditing Release No. 1800 (June 12, 2003)
In the Matter of Dynegy Inc. — Litigation Release No. 177744; Accounting and Auditing Release No. 1632; Securities Exchange Act of 1934 Release No. 34-46537