U. S. Department of Justice
United States Attorney
Northern District of Illinois
Patrick J. Fitzgerald Federal Building
United States Attorney
219 South Dearborn Street, Fifth Floor
Chicago, Illinois 60604
(312) 353-5300
FOR IMMEDIATE RELEASE PRESS CONTACTS:
WEDNESDAY DECEMBER 10, 2003 AUSA Carolyn McNiven (312)353-5159
AUSA/PIO Randall Samborn (312) 353-5318
THREE FORMER NICOR ENERGY EXECUTIVES AND OUTSIDE
LAWYER INDICTED IN ALLEGED CORPORATE FRAUD SCHEME
CHICAGO -- Three former executives of Nicor Energy L.L.C. and an outside
lawyer for the Lisle, Ill.-based company were indicted today for allegedly
engaging in a corporate fraud scheme to obtain $400,000 in bonuses
and other benefits for themselves by inflating revenues - at times
by as much as $6 million - and understating expenses to make the company
appear more profitable than it actually was in 2001. The defendants
allegedly fraudulently deprived Nicor Energy - a retail energy marketing
company established in 1997 as a 50/50 joint venture by Nicor Inc.
and Dynegy Inc. - of their honest services and caused a loss to investors
in publicly-traded Nicor, Inc. and Dynegy. On July 18, 2002, Nicor
Inc. issued a press release announcing that its financial results for
the second quarter and first half of 2002 were negatively affected
by several factors, including irregularities in accounting at Nicor
Energy, and the following day, the stock price of Nicor Inc. fell approximately
40 percent. Nicor Energy is currently in the process of final liquidation.
The five-count indictment returned by a federal grand jury charges Kevin
Stoffer, formerly Nicor Energy's President and Chief Executive Officer;
Andrew Johnson, former Director of Financial Services; John Fringer,
former Vice President of Major Markets and Power Services; and outside
counsel Michael Munson, announced Patrick J. Fitzgerald, United States
Attorney for the Northern District of Illinois.
Mr. Fitzgerald, a member of the President's Corporate Fraud Task Force,
announced the charges together with Thomas J. Kneir, Special Agent-in-Charge
of the Chicago Office of the Federal Bureau of Investigation; Anita L.
Davidson, Inspector-in-Charge of the U.S. Postal Inspection Service in
Chicago; and Mary E. Keefe, Regional Director of the Securities and Exchange
Commission. The Corporate Fraud Task Force, chaired by Deputy Attorney
General James B. Comey, Jr., was created by President Bush in July 2002
to oversee and direct federal law enforcement actions against fraud and
corruption at American corporations.
Separately, the SEC today filed its own civil enforcement action against
former executives of Nicor Energy.
"
These charges demonstrate our continuing commitment to investigating
and prosecuting corporate executives who distort financial information
that is relied upon by outside auditors and, most importantly, the investing
public," Mr. Fitzgerald said. "If the evidence leads to the
top executives of a company - or to lawyers or other professionals who
participate in their fraud schemes - as it did in this case, we will
not hesitate to pursue criminal charges. Corporate officials who lie
in financial reports and filings put at risk both the assets and the
confidence of investors. They also put themselves at the very real risk
of prosecution."
Deputy Attorney General Comey said: "Today's charges represent the
Justice Department's continued commitment to root out those who allegedly
mislead shareholders and cook the books in order to make a quick buck.
We in law enforcement have a duty and obligation to investigate fraud
in corporate America, whether it is in the boiler room or the board room,
and we will continue to hold those who choose to break the law accountable
for their actions."
Stoffer, 45, of Naperville, who was responsible for day-to-day operations
of Nicor Energy and reported to Nicor Energy's governing Executive Committee,
and Johnson, 43, of Elmhurst, a certified public accountant who was responsible
for Nicor Energy's accounting, finances and back office functions, including
billing and accounts receivable, were each charged with five counts of
wire fraud. Fringer, 43, of Naperville, who was responsible for the company's
electric power business, and Munson, 38, of Chicago, a solo-practice
attorney in Chicago who represented Nicor Energy and allegedly had an
incentive to please its managers so he would receive additional legal
work and also because he wanted to be hired as the company's in-house
general counsel, were each charged with four counts of wire fraud.
Attorneys for Stoffer, Johnson and Fringer have authorized the government
to disclose that they will plead guilty to the charges and are cooperating
in the government's investigation. All four defendants will be arraigned
at a later date in U.S. District Court in Chicago.
According to the indictment, Nicor Energy had a bonus and profit sharing
plan that made the payment of any bonuses in 2002 directly dependent
on the company meeting or exceeding a target profit at the end of 2001.
Between March 2001 and July 2002, the defendants allegedly caused the
reporting of false financial figures on Nicor Energy's 2001 financial
statements, including balance sheets and income statements, and caused
false information concerning Nicor Energy's revenue and expenses for
2001 to be provided to representatives of Nicor Energy's parent companies
and Nicor Energy's outside auditors. At times during 2001, Stoffer and
Johnson allegedly caused Nicor Energy's unbilled revenue figures to be
inflated by as much as $6 million.
Munson, together with his co-defendants, allegedly made and attempted
to make it appear that Nicor Energy had lower expenses in 2001 by causing
false information about a legal settlement with Commonwealth Edison Co.
to be provided to Nicor Energy's parent companies and outside auditor.
Specifically, Nicor Energy settled a 2001 billing dispute with ComEd
relating to a ComEd program called "full requirements profile" or
FRP, in which ComEd sold electricity to Nicor Energy at a discount and
Nicor Energy had to provide ComEd with the identities of Nicor Energy's
customers that it wanted to be switched into the program during specified
time periods. The settlement called for Nicor Energy to pay ComEd approximately
$1.25 million, which Nicor Energy paid in 2002. Although the settlement
was paid in 2002, it related to a 2001 expense, and therefore, Nicor
Energy was required to treat all of the money paid to settle the dispute
as a 2001 expense. While all four defendants well-knew the true settlement
figure, they caused a fraudulently reduced settlement expense figure
of approximately $740,000 to be reported on Nicor Energy's 2001 financial
statements, the indictment alleges. The defendants also allegedly caused
the remainder of the true settlement amount, approximately $510,000,
to be treated as a 2002 expense, effectively understating Nicor Energy's
expenses and overstating its profits for 2001. The indictment does not
accuse ComEd of any wrongdoing.
As part of the fraud scheme, the defendants allegedly caused the written
settlement agreement with ComEd to refer only to the $740,000 that defendants
intended to treat as a 2001 expense; the settlement agreement did not
refer to the $510,000 that the defendants fraudulently caused to be treated
as a 2002 expense. The defendants also caused to be created certain false
and misleading documents, including an altered ComEd invoice, to make
it appear that the $510,000 expense related to energy delivered in 2002
rather than 2001, the indictment alleges, and they caused the $740,000
and the $510,000 to be paid separately. Nicor Energy paid the $740,000
by company check dated April 5, 2002, and at the same time, Nicor Energy
paid approximately $515,000 - the original $510,000 plus interest - by
means of a wire transfer.
It was further part of the alleged fraud scheme that all four defendants
caused materially false and fraudulent financial statements to be sent
to members of the Executive Committee of Nicor Energy, who were employees
of Nicor Energy's parent companies, Nicor Inc. and Dynegy Inc. This allegedly
false material financial information regarding Nicor Energy was incorporated
into financial reports that Nicor Inc. and Dynegy filed with the SEC.
As a result, investors and potential investors in Nicor Inc. and Dynegy
Inc. were deprived of accurate financial information regarding these
companies and risked substantial losses, the indictment alleges.
The government is being represented by Assistant U.S. Attorneys Carolyn
McNiven and Thomas Szromba.
If convicted, each wire fraud count carries a maximum penalty of five
years in prison and a $250,000 fine. As an alternative maximum fine,
the Court may order a fine totaling twice the gross loss of any victim
or twice the gain to the defendant, whichever is greater. Restitution
is mandatory. The Court, however, would determine the appropriate sentence
to be imposed under the United States Sentencing Guidelines.
The public is reminded that an indictment contains only charges and is
not evidence of guilt. The defendants are presumed innocent and are entitled
to a fair trial at which the United States has the burden of proving
guilt beyond a reasonable doubt.
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