A former senior trader with the Enron Corporation pleaded guilty yesterday to manipulating the California power market illegally during the state's energy crisis and then lying about his actions to federal law enforcement officials.
The trader, Jeffrey Richter, 33, was the former head of Enron's short-term California energy trading desk. He is the second Enron trader to plead guilty to manipulating the California energy market for the purpose of driving up prices and generating millions of dollars in excess profits for the company.
Mr. Richter entered his plea before Judge Martin J. Jenkins in Federal District Court in San Francisco. He was charged in a criminal information that was filed under seal on Jan. 30 and unsealed yesterday.
In the plea, Mr. Richter admitted that he worked with others on trading tactics that transformed portions of California's complex system for buying and transmitting energy into a fictional world, complete with bogus transmission schedules and imaginary congestion on power lines.
Such trading tactics, however, did not create the energy debacle that hobbled California in 2000 and 2001. Rather, they worsened an already bad situation, with the Enron traders devising ways to take advantage of the chaos in the market and pump up revenue.
In his statements to the court, Mr. Richter admitted to participating in two trading tactics that involved fraud. He also admitted lying to F.B.I. agents during an interview on Sept. 26, when he denied ever trying to mislead anyone through the submission of power schedules that proved to be false.
"I made an error in judgment in my responses," Mr. Richter told Judge Jenkins about his responses in that interview.
Prosecutors hailed the plea, saying that it should teach other potential defendants the danger of trying to mislead investigators. "The most significant thing is that the defendant is admitting that he made false statements," said Matthew J. Jacobs, an assistant United States attorney handling the case. "This should send a message that if anyone impedes or obstructs the investigation they can and will be prosecuted."
The two schemes -- called Get Shorty and Load Shift by Enron traders -- took advantage of the structure in the newly deregulated markets. Under the rules, energy marketers like Enron had to schedule their deliveries of electricity to customers. Within that system, the marketers could be paid for altering their delivery schedules if a particular transmission line became congested. In addition, there were ways to profit from power emergencies -- by making commitments to deliver a fixed percentage of power in such an emergency to prevent the collapse of the system.
But those methods proved to be ways Enron could increase its revenue with little additional work. By filing bogus electricity schedules, Mr. Richter and his co-conspirators could artificially increase congestion on California transmission lines; then, they would be paid to relieve the congestion, which did not exist. Mr. Richter and the others made commitments to deliver energy they did not have and did not intend to supply.
Mr. Richter joins Timothy N. Belden -- the former head of trading in Enron's office in Portland, Ore. -- in admitting that such trading constituted a crime. Mr. Belden, one of Enron's most influential and well-paid energy traders, pleaded guilty in October to manipulating the California market.
Court documents and internal Enron records suggest, however, that Mr. Richter played a far smaller role than Mr. Belden in both the organization and in the scheme. According to the records in Mr. Belden's case, the conspiracy began some time in 1998; the records in Mr. Richter's case say that he first began participating in manipulative schemes two years later.
Moreover, under his plea deal, Mr. Belden agreed to forfeit $2.1 million. No similar forfeiture agreement was included in Mr. Richter's deal; however, his pay was far less than that of Mr. Belden. According to internal Enron records, Mr. Richter received a $450,000 bonus for his work in 2000; Mr. Belden received $5 million.
Enron obtained huge sums from the trading in California. According to the earlier charges filed against Mr. Belden, West Power -- Enron's electric trading arm -- generated about $50 million in revenue in 1999, the year before the California energy crisis. By 2000, the document says, that amount jumped to $500 million. The next year, revenue spiked again, climbing 60 percent, to $800 million. Of course, much of that increase could be attributed to the huge rise in electricity prices in California, which would have taken place even without the criminal activity.
The accusations themselves are not new. They were first made public in May, when the Federal Energy Regulatory Commission disclosed internal Enron documents that showed the company engaged in such practices. The plea yesterday, however, involved only two of those tactics.
Indeed, the criminal cases against both Mr. Belden and Mr. Richter stem in large part from meetings they and another trader held with lawyers for Enron on Oct. 3, 2000. At the time, the meeting was being held to help the company prepare its defense against allegations that it was manipulating the California energy market. During that meeting, the traders described their trading activities. The lawyers' memos from those meetings and subsequent documentation became the basis for the regulatory commission's action and set in motion the continuing criminal inquiry.
Terry W. Bird, a lawyer for Mr. Richter, said after the hearing that his client was only admitting guilt for "the limited offenses" outlined in the charges. He added that his client had "full intention of cooperating with the government as a demonstration of contrition."
According to court documents, Mr. Richter transferred to Enron's West Power trading division in Portland in 1997. In June 1999, he became a trading assistant on West Power's short-term desk, where he managed electricity traders, schedulers and analysts and oversaw the buying and selling of electricity on the California wholesale market.
Mr. Richter faces a maximum penalty on each of the two counts of five years in prison and up to a $250,000 fine, plus restitution. The actual sentence, however, could be less depending on the nature of his cooperation.