Dynegy Inc. has agreed to pay a $3 million fine to settle the Securities and Exchange Commission’s fraud investigation into the company’s accounting and financial-reporting practices, under a pact that requires the embattled Houston energy trader to cooperate with the commission’s probe into actions by individual executives at the company and others.
In an administrative order filed Tuesday, under which Dynegy neither admitted nor denied wrongdoing, the SEC said the settlement involved two areas: Dynegy’s “materially misleading” use of special-purpose entities and “round-trip” energy transactions that improperly inflated the company’s revenue. In the order, the SEC accused Dynegy of violating federal antifraud laws in a series of transactions named Project Alpha “to report as cash flow from operations what was in actuality nothing more than a loan.” The transactions underlying Project Alpha, which weren’t disclosed by the company until after they became the subject of a critical article in the Wall Street Journal in April, improperly boosted Dynegy’s cash flow from operations by $300 million in 2001.
Additionally, the SEC said that Dynegy misled investors by reporting revenue and volume on its DynegyDirect online trading platform that resulted from undisclosed round-trip trades. The SEC settlement includes only the company itself as a party. It doesn’t include current and former executives of the company, or officials from Dynegy’s former auditor, Arthur Andersen LLP, which was replaced this spring by PricewaterhouseCoopers LLP. While the SEC has now reached a settlement with the company, the transactions at issue in the order filed Tuesday remain the subject of a criminal investigation by the Justice Department.