Daniel Gordon, the former head energy trader for Merrill Lynch who pleaded guilty on Friday to charges that he stole $43 million from the firm, also alleged that his bosses had cooked the books of the Global Energy Markets division (GEM) in order to make it look more profitable to a potential buyer, Allegheny Energy. A Merrill spokesman said the allegation was “the first we have heard beyond his theft, so we cannot comment on it, other than to say he has stolen from our firm in the past and lied to people about it.” The 27-year-old Gordon, who appeared in court on crutches, pleaded guilty in a Manhattan federal court to charges of wire fraud, money laundering and conspiracy to falsify books and records. The three charges against him carry a maximum prison term of 55 years and fines of over $1.25 million, but under a plea agreement Gordon has agreed to forfeit $43 million, and can expect his co-operation with the investigation to be taken into account when he is sentenced.
In a related move, the US Securities and Exchange Commission (SEC) has filed a civil suit against Gordon in a federal court in Houston, alleging that he aided fraud at Enron by helping it overstate income. The SEC said Gordon agreed to settle the suit without admitting or denying guilt. Under the deal, he agreed to be barred from being an officer of a publicly traded company.
In the criminal case, conspiracy charges allege that Gordon and other Merrill Lynch managing directors began to plan the sale of GEM to Allegheny in 2000. To make GEM more attractive to Allegheny, Gordon and his co-conspirators are alleged to have removed expenses and increased revenue by several million dollars. Allegheny agreed to buy GEM for $490 million in January 2001, Gordon became president of Allegheny Energy’s trading division. Allegheny fired Gordon in September 2002 after an internal investigation found some of his business dealings violated conflict-of-interest policies. Merrill and Allegheny are also fighting a court battle over the GEM deal.
The money laundering and wire fraud charges involved a scheme in which Gordon admitted embezzling $43 million from Merrill by persuading Merrill to pay that amount to Falcon Energy Financial, a phoney Caribbean company he controlled. The charges state he falsely represented to Merrill that Falcon was affiliated with a large, French energy conglomerate that was willing and able to provide energy insurance to Merrill. Gordon claimed to have negotiated the insurance terms with Falcon and provided Merrill with bogus supporting documents.