Duffbert's Random Musings

By C. Bryson Hull

HOUSTON (Reuters) - A federal judge on Thursday sentenced former Dynegy Inc. (NYSE:DYN - news) tax executive Jamie Olis to 24 years in prison for his role in an Enron-style scheme to burnish the company's finances by disguising a $300 million debt. The 38-year-old lawyer and accountant was convicted in a November trial of six counts of criminal conspiracy and securities, wire and mail fraud for his role in the complicated 2001 financial transaction dubbed "Project Alpha." U.S. District Judge Sim Lake also fined Olis $25,000.

Lake, who presided over Olis' trial, said he took no pleasure following the federal laws that dictated such a stiff sentence for a first-time white collar offender.

"Sometimes good people commit bad acts, and that is what happened in this case," Lake told Olis. He permitted Olis to remain free on bond and turn himself in to prison.

The judge said he was required to give Olis a sentence of between 24 and 30 years, five years shy of the maximum, based on the massive losses Dynegy shareholders suffered as a result of Project Alpha's repercussions.

Olis, who was already choked up as he stood before the judge, had no visible reaction to the sentence, read in a courtroom filled to capacity with his family, supporters and ex-Dynegy colleagues.

New laws enacted last year in response to a wave of corporate chicanery, and in 2001, stiffened the penalty range for white collar crimes, putting them equal with offenses like bank robbery.

Michael Shelby, U.S. Attorney for the Southern District of Texas said Olis' harsh punishment was deserved, since thousands of investors lost their savings over Project Alpha.

Shelby said the investigation into Alpha is active, but would not say if the probe was focusing on six unindicted co-conspirators named during the Olis trial, including Dynegy's former chief financial officer.

Olis' attorney, David Gerger, criticized prosecutors for focusing on a lower-level executive like Olis instead of on his bosses.

"The government is on a witch hunt, and today the witch hunt netted a very small fish," Gerger told reporters. He said he had not yet decided whether to appeal.

NO SLAP ON WRIST

The fate of Olis, one of the first executives to go to trial and be sentenced in an Enron-style fraud case, demonstrated that the days of a slap on the wrist for business crime are over.

David Adler, a Houston criminal defense lawyer, said the sentence was "far beyond the average for white collar crime."

"But the other tragedy of this case is that it may convince people who have done nothing wrong to plead guilty instead of go to trial, as the lesser of two evils," he said.

Adler said he expected Olis would serve at least 20 years, with time off for good behavior.

Olis, who worked in the Houston-based energy merchant's tax department, was a key engineer of Alpha. The deal dressed up a $300 million loan as a five-year gas trade to help boost cash flow and hopefully, Dynegy's stock.

Dynegy's cash flow had been lagging earnings, causing consternation -- and a lower share price -- on Wall Street. The deal also helped Dynegy claim an improper $79 million tax benefit, later rescinded.

Dynegy's stock lost more than half its value on April 26, 2002, the day after the Houston company disclosed a U.S. Securities and Exchange Commission (news - web sites) investigation into Alpha.

It also had to reclassify the $300 million as debt, pay the SEC a $3 million fine and restate its 2001 earnings downward by 12 percent. The total losses to investors were in the billions.

Two other Dynegy employees, Helen Sharkey and Gene Shannon Foster, Olis' boss, each pleaded guilty to conspiracy to commit securities fraud and agreed to cooperate with prosecutors. Lake is due to sentence both on Aug. 19, and each faces a maximum of five years in prison.