Defense: Dynegy Deal Not Fraud

Dynegy Inc.’s former director of tax planning relied on advice from accountants and lawyers in what prosecutors say was a scheme to inflate the company’s operating cash flow, a defense attorney told a federal jury Tuesday in Houston.

Arthur Andersen, Dynegy’s auditor, offered guidance in the effort to increase the cash flow, Jamie Olis’ lawyer said in the second day of Olis’ criminal fraud trial.

Andersen, which closed its auditing practice after its conviction on charges that it obstructed a probe into Enron Corp.’s accounting, made millions of dollars off the scheme, lawyer Terry Wayne Yates said.

Olis’ trial is part of a wave of white-collar cases in the wake of accounting scandals that began with Enron’s collapse two years ago. Olis’ defense parallels a strategy employed by other executives who say they were following orders from accountants and lawyers.

“This case is about mismanagement, not fraud,” Yates told the jury. “Jamie Olis never intended to defraud and didn’t get anything out of it. He’s just a tax guy trying to do his job.”

Prosecutors say Olis inflated Dynegy’s cash flow by using an off-the-books partnership to disguise loans from banks as energy trades. The loans, from Citigroup Inc., Deutsche Bank and Credit Suisse First Boston Corp., were called Project Alpha. No bank executives have been charged in the case.

Two other former Dynegy executives -- Gene Foster, who was vice president in charge of tax matters, and Helen Sharkey, an accounting manager -- pleaded guilty in August to fraud and are cooperating with prosecutors.

Project Alpha involved natural gas sales between Dynegy and a partnership called ABG Gas Supply. Olis, Foster and Sharkey labeled $300 million from Citigroup and the other banks as cash flow from operations rather than cash flow from financing, Olis’ indictment says. While Andersen earned $7.8 million for its role in Project Alpha, and the company’s lawyers and bankers took in millions more, Olis received a $5,000 bonus for his role, Yates said.

In opening statements Monday, prosecutors said Olis intentionally kept information from the lawyers and accountants, which led to billions of dollars in losses for investors. The lawyers and accountants agreed to go along with Project Alpha without knowing all the facts, prosecutors said.

ABG bought gas at market prices, then sold the fuel to Dynegy at a discount for nine months, prosecutors claim. Dynegy allegedly then sold the gas at market prices, creating the appearance of cash flow.

Olis has been charged with securities fraud, conspiracy, mail fraud and three counts of wire fraud. A conviction for securities fraud would carry a maximum sentence of 10 years in prison and a $1-million fine. The other charges have maximum penalties of five years in prison and $250,000 fines.