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August 5, 2004
The United States Attorney's Office for the Northern District of California announced that John M. Forney, one of Enron's former top energy executives and the inventor of the Death Star trading scheme, pled guilty this morning to having conspired to commit wire fraud for the purpose of manipulating California's energy markets during the height of California's energy crisis. As part of his guilty plea, Mr. Forney and two other convicted Enron executives will be required to assist the citizens of California in obtaining restitution for the losses they suffered during the energy crisis.
This marks the third conviction the U.S. Attorney's Office has obtained in its investigation into the illegal manipulation by Enron of California's energy markets from 1999 to 2001. In addition to these three convictions as part of the criminal investigation into the illegal manipulation of California's energy markets during 1999 to 2001, the U.S. Attorney's Office is prosecuting Reliant Corporation and four officers and employees of that corporation on charges that the company deliberately shut down power plants in order to affect the price of electricity in California.
As part of his guilty plea, Mr. Forney agreed to cooperate in the government's ongoing investigation into Enron and other companies' actions during the energy crisis. Mr. Forney and the other convicted defendants will be required, as part of their guilty pleas, to cooperate with the government's investigation in a number of respects. First, they will assist the government in determining whether other individuals at Enron should be charged in connection with the illegal manipulation of the energy markets in California and the Western states. Second, they will assist the government in determining whether other companies carried out schemes similar to Enron's for the purpose of manipulating the energy markets. Third, the defendants will, at the direction of the Department of Justice, assist in other federal and state investigations of Enron's actions during the energy crisis and assist the California parties who are trying to recover money for the victims of the crime: the citizens of California and other Western states.
U.S. Attorney Kevin V. Ryan, a member of President Bush's Corporate Fraud Task Force, said, "With the guilty plea of John Forney, we have now obtained convictions of the top three Enron executives most directly responsible for manipulating the energy markets in California at a time unique in our history, when the lights were going off and the grid was in danger of shutting down. These executives will now be required to help obtain restitution for the same victims they defrauded, namely the citizens of California and the other Western states."
Mr. Forney, age 42, of Upper Arlington, Ohio, was first arrested on June 3, 2003 on charges that he conspired to commit wire fraud in connection with the energy crisis. He was subsequently indicted by the grand jury on charges of conspiracy and wire fraud. Under terms of his guilty plea, Mr. Forney admitted that he conspired to commit wire fraud in violation of 18 U.S.C. § 371.
From approximately 1997 to 2000, Mr. Forney was employed by Enron in its West Power Trading Division in Portland, Oregon. West Power marketed and supplied electricity to California wholesale customers through a number of energy and energy service markets run by the California Power Exchange and the California Independent System Operator (the California ISO). Mr. Forney was Manager of the West Power Real Time Trading Desk and reported to Tim Belden, who was Vice President and later Managing Director of Enron's West Power division.
In the plea agreement, Mr. Forney admitted that as part of the conspiracy, he and others at Enron fictitiously relieved congestion on California transmission lines and otherwise improperly collected congestion management fees; misrepresented the origin of energy; misrepresented that Enron intended to supply types of energy it did not have; and did so for the purpose of maximizing the profit Enron would receive from its energy trading operations. Mr. Forney agreed in the plea that the acts of Enron energy traders affected the price of electricity. In particular, the conspiracy was carried out through a series of schemes known within Enron as Death Star, Get Shorty, Ricochet and others. Mr. Forney admitted that he was the inventor of the Death Star scheme, which was allegedly also known within Enron as the "Forney loop."
Mr. Forney entered his guilty plea in San Francisco federal court this morning before the Hon. Martin J. Jenkins, United States District Judge. No date has been set for his sentencing. In addition to Mr. Forney, Timothy Belden and Jeffrey Richter also pled guilty to charges of conspiracy, and Mr. Richter pled guilty to charges that he made false statements to federal agents during the investigation. All of these cases were before Judge Jenkins.
In announcing the guilty plea, Mark Mershon, the Special Agent in Charge of the San Francisco Division of the FBI, said, "Today's guilty plea is one of many important steps into uncovering the criminal actions perpetrated by Enron against the people of California. The
FBI is committed to the thorough investigation of the criminal activity that occurred during the California energy crisis. Mr. Forney's decision further illustrates that we have not and will not allow the passing of time to limit our determination in the pursuit of justice in this matter."
"The CFTC's Division of Enforcement congratulates the Office of the U.S. Attorney for the Northern District of California for today's fine result. The prosecutors' hard work in this and related cases has successfully placed accountability squarely on the individuals who created a roadmap for fraud in the California electricity markets. The Division
appreciated the opportunity to provide assistance to the U.S. Attorney's Office in this matter, and will continue to work with law enforcement organizations to bring energy industry predators to justice." Vincent McGonagle, Sr. Deputy Director, Enforcement Division, Commodity Futures Trading Commission.
The investigation into criminal activity during the energy crisis is being led by the U.S. Attorney's Office in San Francisco and Special Agents of the San Francisco division of the FBI, working cooperatively with the U.S. Justice Department Criminal Division's Enron Task Force. This case was prosecuted by Assistant U.S. Attorneys Matthew J. Jacobs and Laurel Beeler, as well as Special Assistant U.S. Attorney Kim Bruno. U.S. Attorney Ryan extended his particular thanks to the CFTC which detailed Mr. Bruno to the U.S. Attorney's Office to work on this case.
A copy of this press release may be found on the U.S. Attorney's Office's website at www.usdoj.gov/usao/can. Related court documents and information may be found on the District Court website at www.cand.uscourts.gov or on http://pacer.cand.uscourts/gov.
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.
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