2 Dynegy Execs to Change Pleas

Two of the three former Dynegy Inc. executives who had denied illegally hiding a $300-million loan under a scheme dubbed Project Alpha will change their pleas, federal prosecutors said Monday.

Gene Shannon Foster, former tax vice president for Houston-based Dynegy, and accounting manager Helen Christine Sharkey had pleaded not guilty at a July 1 hearing to federal charges of criminal conspiracy, securities fraud, mail fraud and wire fraud.

It was not immediately clear if the pair would change their pleas to “guilty” or “no contest.”

A source close to the case said lawyers for Foster and Sharkey were negotiating a plea deal with prosecutors and expected to finalize it before a court hearing today.

Prosecutors declined to talk about the possibility of a plea bargain, but the U.S. attorney’s office for the Southern District of Texas said a new arraignment for the two to change their pleas in federal court had been scheduled for today.

A third defendant, Jamie Olis, 37, Dynegy’s former finance vice president, is facing the same charges as Foster and Sharkey.

The Securities and Exchange Commission has also filed civil securities fraud charges against the three. If convicted on the criminal charges, they could face jail terms of up to 35 years and $2 million in fines. But under plea deals, prosecutors typically recommend reduced sentences.

Prosecutors have said the three illegally disguised a $300-million, risk-free loan from several banks as a five-year natural gas contract with a dummy company created to make the deal work.

The company recorded the loan as cash flow from operations in 2001 and booked a $79-million tax benefit from it.

Late last year Dynegy paid a $3-million fine to settle a complaint lodged by the SEC over Project Alpha, but admitted no wrongdoing. It later restated its 2001 earnings downward by 12% because of the deal.