A former Enron trader accused of masterminding a scheme to drive up energy prices during California’s power crisis pleaded guilty Thursday to conspiracy and agreed to cooperate with prosecutors.
Timothy Belden, the former head of trading in Enron’s Portland, Ore., office, admitted to one count of conspiracy to commit wire fraud. He faces up to five years in prison and must forfeit $2.1 million.
“I did it because I was trying to maximize profit for Enron,” Belden told U.S. District Judge Martin Jenkins.
Belden’s plea is the first prosecution of anyone related to the West’s energy crisis. It’s also the first public acknowledgment by the federal government that criminal activity helped drive up power prices, a point California Gov. Gray Davis and other lawmakers have been making since the crisis began two years ago.
The case represents a remarkable evolution in the Bush administration’s attitude about the energy crisis. In May 2001, Vice President Dick Cheney said California was to blame for power shortages and soaring prices. “They caused it themselves,” Cheney said in an interview with The Associated Press.
On Thursday, Republican appointees in the Justice Department said unequivocally that criminal conduct by an Enron trader helped drive up prices.
“These charges answer the question that has long troubled California consumers: whether the energy crisis was spurred in part by criminal activity. The answer is a resounding yes,” U.S. Attorney Kevin Ryan said.
Belden promised to cooperate with state and federal prosecutors as well as any non-criminal effort to investigate the energy industry. He remains free on $500,000 bail pending his sentencing next April 17.
His knowledge should help the government unravel what happened inside other energy trading companies, including Houston-based Enron, the energy giant whose collapse last year has roiled the energy industry, said Matthew Jacobs, the federal prosecutor handling the case.
Belden’s attorney, Cristina Arguedas, said he was following Enron’s instructions as he handled his trades and will “make amends for that by cooperating with the government and telling the complete truth about Enron’s actions in the California energy trading market.”
“Tim Belden is not a high-level executive who was lining his pockets out of greed,” Arguedas said. “He did his job. Tim was always honest with others at Enron about his actions, and was never disciplined by Enron.
Investigators for a state Senate committee looking into the energy market have long considered Belden a key player in Enron’s activities in California.
Belden was “the mastermind behind the strategies described” in memos that spelled out how Enron manipulated the California market, said Chris Schreiber, an attorney working with California’s Senate Select Committee to Investigate Price Manipulation of the Wholesale Energy Market.
“He’s been on our radar for a long time,” Schreiber added.
Belden is the third Enron figure to be prosecuted.
Andrew Fastow, Enron’s former chief financial officer, is accused of devising the company’s complex web of off-the-books partnerships used to hide some $1 billion in debt from shareholders and federal regulators and is charged with money laundering, fraud and conspiracy.
A once-trusted Fastow aide, Michael Kopper, pleaded guilty in August to money laundering and conspiracy to commit wire fraud.
For months, federal investigators have worked with a California Senate panel investigating the state’s energy crisis about evidence uncovered in its long-running investigation of market manipulation. A federal grand jury in San Francisco has been weighing criminal charges related to the energy crisis.
Internal company memos, first released in May, describe how Belden’s trading unit took power out of California at a time of rolling blackouts and shortages and sold it out of state to elude price caps, according to documents obtained by investigators.
Enron bought California power at cheap, capped prices, routed it outside the state, and then sold it back into California at vastly inflated prices, authorities said.
The sham trades were designed to circumvent the California-only price caps on wholesale energy.
The Enron memos detailing the colorfully named trading schemes “ricochet, “death star,” “Get Shorty” and others, provided prosecutors a road map that led to Belden’s prosecution.
The complaint against Belden, while omitting those names, describes some of the same practices. In one strategy, Enron created false congestion on California transmission lines and then was paid to relieve it.
In another, the company misrepresented that power sold in California came from out of state to avoid intrastate price caps. That strategy ended when the Federal Energy Regulatory Commission implemented regional price caps last year.
“The conspiracy charged in this information allowed Enron to exploit and intensify the California energy crisis and prey on energy consumers at their most vulnerable moment,” said Deputy Attorney General Larry Thompson, head of the Justice Department’s Corporate Fraud Task Force.
Thompson said revenues from Belden’s trading unit rose from $50 million in 1999 to $500 million in 2000 to $800 million in 2001.
California Sen. Joe Dunn, D-Santa Ana, who chairs the select committee on price manipulation, called Belden’s plea “the first of many dominoes that will fall, not only at Enron, but within other energy companies within the wholesale energy market. Tim Belden not only knows how Enron played, but how others played as well.”
Belden worked for UBS Warburg, which bought Enron’s power trading operations early this year, but left the company in September, company spokesman David Walker said.