John M. Forney, one of Enron's former top energy executives, was arrested this morning on charges related to Enron's criminal manipulation of the western energy markets during the height of California's energy crisis in 1999 through 2001.  The arrest was announced by Kevin V. Ryan, United States Attorney for the Northern District of California, Leslie Caldwell, Director of the Justice Department's Enron Task Force, and Mark Mershon, Special Agent in Charge of the San Francisco Field Office of the Federal Bureau of Investigation.

Mr. Forney is the third former Enron energy executive to be charged with a federal crime for manipulating the California energy market.  Two other executives have pled guilty.  They are Timothy Belden and Jeffrey Richter.  According to an affidavit filed in connection with the criminal complaint, Mr. Forney was employed by Enron from approximately 1993 until 2002.  Near the end of 1997, Enron transferred him to Enron's West Power Trading office in Portland, Oregon.  All of Enron's California energy trading was based in Portland.  In June 1999, Mr. Forney became the manager of the Enron Real Time trading desk.  Mr. Forney remained the manager of the Real Time desk until he moved to Houston at the end of 2000.  

The charges allege that Mr. Forney was the architect of several of the illegal trading strategies employed by Enron in order to manipulate California's energy markets.  According to the complaint, many of Enron's schemes were originated and implemented by Mr. Forney's Real Time desk at Enron's West Power office.   Enron traders on the Real Time desk gave many of the schemes names so that they could easily refer to them on Enron's trading floor.  These names included "Ricochet," "Death Star," "Black Widow," "Red Congo," and "Get Shorty." 

According to the complaint, the Ricochet Scheme, also known within Enron as "Ping Pong," was designed to evade federally approved price caps on California energy.  Ricochet involved buying energy generated in California in a forward market, and then selling it back to the Independent Service Operator ("ISO") in the real time market shortly before the power was actually generated.  The ISO was one of the California entities responsible for operating the California energy markets and maintaining reliability of the power grid.  When selling the power to the ISO, Enron's traders, acting at Mr. Forney's direction, fraudulently misled the ISO about the origin of energy in order to avoid the price caps and reap huge profits.  The general idea was to buy energy in an earlier market, "park it" with a power company outside of California, buy it back for a small fee in the hour ahead market, and then sell it to the ISO inside California.  In doing so, Enron was able to pretend that the energy it was selling to California at an inflated rate was generated outside the state, when in fact it was located in California the entire time.

The complaint also describes another of Enron's schemes known as Death Star.  The Death Star scheme was a strategy designed to earn revenue for Enron by exploiting the ISO's congestion management system.  Enrons traders, also acting at Mr. Forney's direction, scheduled energy to flow in a looping pattern.  This allowed Enron to schedule energy flows without actually putting any energy onto the transmission lines.  In other words, Enron submitted schedules to the ISO that pretended to move electrons owned by Enron, but in reality did not.  Because the scheduled energy appeared to relieve congestion, the ISO awarded Enron congestion relief payments.  The ISO was deceived because part of the looping schedule was outside of California, and it therefore could not detect the looping path of the energy schedule.

According to the Complaint, Death Star was also known within Enron as the Forney Loop, or Forney's Perpetual Loop.

In addition to the Death Star and Ricochet schemes, the Complaint alleges that Mr. Forney was deeply involved in other schemes designed to collect congestion payments by making fraudulent statements to the ISO, including by scheduling energy to a transmission hub that Enron knew was off line, and by falsely promising to deliver a certain type of energy-known as firm energy.  Firm energy is energy that has guaranteed reliability because, even if the generation falls off, it is backed by another generation source.  Enron pretended to sell firm energy when, in fact, it was selling non-firm energy.

Mr. Forney made an initial appearance in United States District Court in Columbus, Ohio this morning.  He was released on a bond secured by his home.  He is scheduled to make another appearance in District Court in Columbus on June 9, 2003 for an identity hearing.  When those proceedings are completed, Mr. Forney will be ordered to appear in San Francisco federal court to face the charges spelled out in the complaint.  However, no date has yet been set for that appearance.

U.S. Attorney Kevin V. Ryan, a member of President Bush's Corporate Fraud Task Force, said in announcing the charges, "While California consumers were suffering through blackouts and Stage III alerts, Enron was manipulating western energy markets for profit through illegal, fraudulent means.  Our investigation of illegal activities during the energy crisis is active and continuing, and remains one of this office's and the Department of Justice Department's top priorities."

Special Agent in Charge of the San Francisco division of the FBI, Mark Mershon, said "This arrest shows that the FBI will remain vigilant in its pursuit of those individuals who capitalized on the manipulation of the California energy markets.  The citizens of California can be assured that the FBI will continue to investigate any person or company that was involved in this criminal activity that affected millions of Californians and their families."

The investigation is being led by the U.S. Attorney's Office in San Francisco along with the Enron Task Force, the Antitrust and Fraud Divisions of the Department of Justice, and the San Francisco division of the FBI.  The cases are being prosecuted by Assistant U.S. Attorneys Patrick D. Robbins and Matthew J. Jacobs, as well as Lisa Tenorio-Kutzkey and Keslie Stewart, both trial attorneys with the Antitrust Division of the Department of Justice based in San Francisco.  A criminal complaint simply contains allegations against an individual and, as with all defendants, Mr. Forney must be presumed not guilty unless and until convicted.

All press inquiries to the U.S. Attorney's Office should be directed to Assistant U.S. Attorney Matthew J. Jacobs at (415) 436-7181.