US v. Valencia

Decision Date10 March 2010
Docket Number08-20573.,No. 08-20546,08-20546
Citation600 F.3d 389
PartiesUNITED STATES of America, Plaintiff-Appellee, v. Michelle M. VALENCIA, Defendant-Appellant. United States of America, Plaintiff-Appellee, v. Greg Singleton, Defendant-Appellant.
CourtU.S. Court of Appeals — Fifth Circuit

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Eileen K. Wilson (argued), John Richard Berry and James Lee Turner, Asst. U.S. Attys., Houston, TX, for U.S.

Samuel J. Buffone (argued), Buckley-Sandler, L.L.P., Washington, DC, Chris Flood, Flood & Flood, Houston, TX, for Valencia.

Matt Edward Hennessy (argued), Houston, TX, for Singleton.

Before JOLLY, DeMOSS and PRADO, Circuit Judges.

PER CURIAM:

Michelle Valencia and Greg Singleton appeal wire fraud convictions arising from alleged efforts to manipulate natural gas markets. Each defendant raises myriad issues on appeal, which we have considered carefully, along with an exhaustive review of the trial court's record. Confident that each defendant received a fair trial and that the convictions rest on solid evidence, we affirm.

I.

We start with a factual overview of this case before delving into the particulars of the issues on appeal. We first describe the nature of defendants' job duties and give a sketch of the industry's relevant practices. We then describe the course of proceedings brought against the defendants and the salient details of their four-week trial, which took place in July and August of 2006. After documenting the facts and procedure, we consider the issues raised on appeal.

A.

The acts relevant to this appeal occurred in 2000 and 2001. During that time, Valencia was employed by Dynegy Marketing and Trade ("Dynegy") in Houston, Texas, as a natural gas trader on Dynegy's "West Desk." Singleton was employed by El Paso Corporation ("El Paso") as a natural gas trader for El Paso's Merchant Energy segment in Houston. Natural gas is transported to consumers throughout North America via a network of pipelines. Natural gas produced in one region is interchangeable with gas produced elsewhere; the significant difference among regions is the cost of transport. Contracts for future delivery are traded on the New York Mercantile Exchange, or NYMEX. The most basic type of natural gas trade is a "physical" trade. A physical trade calls for delivery of a set volume of gas to the buyer at a particular delivery location. A "baseload" trade is a kind of physical trade. It calls for delivery of natural gas each day for an entire month. Most baseload trades are negotiated during a period at the end of the preceding month called "bidweek." The most common unit of volume is one million British thermal units ("MMBtu"). Traders often buy or sell tens of thousands of MMBtu in a given transaction.

The price of a trade can be set if traders agree upon a dollar amount at the time of trade; this is called a "fixed" price. However, traders can also opt to use prices which will be set in the future, called "index prices." Commonly, traders use a price published either daily or monthly in a privately owned newsletter. These index prices also affect other natural gas transactions, such as swaps, where two traders agree to buy the same volume of gas from each other at the same time, but at different prices. In essence, swaps are financial transactions in which traders bet on, or hedge against, changes to an index price. Index prices also affect long-term supply contracts tied to index prices, options contracts, royalty payments, "tariffs" charged by pipelines, and futures contracts.

The index prices published in two newsletters are relevant to this case: Inside FERC Gas Market Report ("Inside FERC") and Natural Gas Intelligence ("NGI"). Each publication is privately owned and is not affiliated with any state or federal governmental entity. Inside FERC and NGI independently determine and publish index prices at the beginning of the month for natural gas delivered at dozens of different "hubs" across the country. The publications gather monthly price data through surveys of natural gas traders. Inside FERC provides a Microsoft-Excel form for making reports, and instructs traders: "Only report FIXED-PRICE, BASELOAD DEALS negotiated during bidweek." Traders must indicate the delivery points, prices, volumes, and dates of each trade. At the time of the acts alleged in this case, the publications requested, but did not require, identification of the other contracting party, or "counterparty." After receiving bidweek trades from market participants, each publication publishes indices which purport to represent the price of natural gas at delivery points across the country. It was the policy of both Dynegy and El Paso to require its natural gas traders to submit such information each month.

Both Valencia and Singleton bought and sold natural gas in order to fulfill long-term contracts, to utilize capacity, and ultimately, to bring profits to his respective employer. Each defendant was authorized to execute trades for physical delivery of gas throughout much of the western United States, as well as financially oriented trades based upon the same trading nodes. In addition to trading, Valencia and Singleton (along with other natural gas traders at their respective companies) were required to gather and submit bidweek trade information to Inside FERC and NGI. The government alleged that defendants submitted, or caused to be submitted, reports with false information to the publications in a scheme to manipulate the price of natural gas. Each defendant allegedly sought to raise the index price if the trader or his company had a net long position, i.e., had excess gas to sell, or lower the index price if he had a net short position, i.e., needed to purchase additional gas to meet contractual obligations. Valencia's and Singleton's alleged misrepresentations included reporting trades which never occurred, misstating the price or volume of real trades, and omitting real trades. By swaying gas indices one way or another at certain locations, Valencia and Singleton could allegedly boost their monthly performance and increase profits for their respective companies. Better performance would redound to the benefit of the trader in the form of promotions or higher year-end bonuses.

B.

Michelle Valencia was indicted on January 22, 2003. She was initially charged with three counts of false reporting under the Commodities Exchange Act ("CEA"), in violation of 7 U.S.C. § 13(a)(2), and four counts of wire fraud, in violation of 18 U.S.C. §§ 2 and 1343. Upon Valencia's pre-trial motion, the district court dismissed certain portions of the indictment charging Valencia with delivering or causing to be delivered false or misleading reports under the CEA. See United States v. Valencia, 2003 WL 23174749, at *19-21 (S.D.Tex. Aug. 25, 2003), vacated and modified upon reconsideration, 2003 WL 23675402, at *4-5 (S.D.Tex. Nov. 13, 2003). The court ultimately reasoned that the false reporting provision of the CEA was unconstitutionally overbroad because it did not contain a sufficient mens rea requirement. See 2003 WL 23675402, at *4-5. In an interlocutory appeal, a panel of this Court held that the statute could be construed so as to avoid constitutional infirmity, and reversed. United States v. Valencia, 394 F.3d 352, 355 (5th Cir.2004). The Supreme Court denied Valencia's petition for writ of certiorari. Valencia v. United States, 544 U.S. 1034, 125 S.Ct. 2286, 161 L.Ed.2d 1062 (2005).

A second superseding indictment was filed as to Valencia on March 8, 2006. It alleged that she conspired with Singleton from July to September of the year 2000 to violate the CEA. Valencia was also alleged to have emailed over twenty reports to Inside FERC and NGI between December 30, 1999, and January 31, 2002, and also caused other employees to email such reports. The reports "affected and tended to affect index prices, and thereby, the price of natural gas." False information in the reports would affect the indices, increasing the profitability of Valencia's trades. Valencia was charged with one count of conspiracy to violate the false reporting provision of the CEA, thirteen counts of false reporting under the CEA, and nine counts of wire fraud.

Singleton was indicted on November 17, 2004. Like Valencia, Singleton was accused of having sent reports with false information to Inside FERC and NGI about trade volumes and prices between July and September of 2000. In a superseding indictment filed March 8, 2006, Singleton was charged with one count of conspiracy to violate the false reporting provision of the CEA, five counts of false reporting under the CEA, three counts of wire fraud, and one count of obstruction of justice for impeding an investigation concerning the false trades. In light of the nexus of common acts alleged, the defendants and government agreed to a joint trial. After numerous continuances, trial was set for July 2006.

Pretrial discovery involved production and analysis of vast amounts of data. Thousands of hours of telephone calls and other voice recordings, emails from scores of individuals, reams of paper records, and multiple electronic databases comprised the universe of potentially relevant material obtained from Dynegy, El Paso, the corporate parents of Inside FERC and NGI, governmental agencies, and other players or stakeholders in the natural gas markets. Before trial commenced, and during the trial itself, the parties often disagreed as to whether the government had turned over all relevant and discoverable information. In addition, the government consulted with and retained witnesses to analyze the potential effects of the acts alleged in the indictments on Dynegy's and El Paso's respective profitability.

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