US prosecutors said the 24-year prison sentence given to ex-Dynegy Inc finance executive Jamie Olis, who was convicted for his role in a US$300 million accounting fraud, was based on a proper evaluation of investor losses.
In papers filed on Friday in US federal court in Houston, Texas, prosecutors argued that losses suffered by Dynegy shareholders were due to a complex accounting transaction known as Project Alpha.
Olis conceived of the plan with colleagues to disguise a US$300 million loan as cash flow, which allowed Dynegy to report inflated operating results in 2001, prosecutors said.
Prosecutors defended the sentence after Olis's attorneys asked for a reduction in the term, which is 14 years longer than the 10-year sentence Enron Corp's former chief financial officer Andrew Fastow received after pleading guilty to accounting fraud.
Olis's co-defendants Gene Foster and Helen Sharkey pleaded guilty in exchange for five-year prison terms.
"The symmetry of the rise and fall of Dynegy's stock price is striking," said assistant US attorney Jimmy Sledge, in the filing.
"It clearly demonstrates the motivation for Project Alpha, its importance in justifying an over-US$5 stock price, what happened when Project Alpha operating cash flows were required to be removed from the company's books, and why Jamie Olis should be held accountable for all $105 million in losses," he said.
Last week, Olis's lawyer David Gerger filed papers saying prose-cutors improperly calculated the damages, which resulted in a quadrupling of Olis's sentence.
Olis was found guilty of securities fraud, conspiracy, mail fraud and wire fraud by a jury last year and sentenced last month.
Gerger claimed the judge couldn't rely upon the testimony of Jeff Heil, who said during the trial that the University of California's pension fund lost US$105 million because it had bought and held Dynegy stock based on the false financial reports.
With a lower calculation, Olis might have qualified for a sentence as low as 15 to 21 months.
"Mr. Heil did not testify that the offense caused the stock drop," Gerger said in the filing.
And "most of the university's loss actually occurred before April 24, 2002, or after May 1, 2002, time periods that should not be attributed to Project Alpha in any event," he said.
During a sentencing hearing on Jan. 30, US District Judge Sim Lake stated he was relying solely upon Heil's testimony to calculate damages.
Prosecutors said the judge's reliance on Heil's testimony was proper.
"As with any victim of a stock swindle, Mr. Heil quite naturally held on to shares after April 25, 2002, expecting -- hoping -- that the stock would recover," Sledge said in his filing.
"Mr. Olis' scheme to swindle his shareholders into believing that the stock was worth more than it was worked all too well with Mr. Heil," Sledge said.
Olis remains free on bond for another three to seven weeks.
Dynegy, which is cooperated with prosecutors, agreed to pay US$3 million in September 2002 to settle Securities and Exchange Commission charges that the company deceived investors with Project Alpha energy trades.
The company agreed to pay a US$5 million civil fine to the US Commodity Futures Trading Com-mission in December for giving false data for use in compiling natural-gas prices.
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