Duke Energy gets subpoenas in trading probe

Saturday July 13, 2002

CHARLOTTE, N.C. — Duke Energy said Friday that it had received subpoenas from federal authorities and was responding to the requests for information about energy trading practices in California and other states. 

Word of the subpoenas pushed down Duke’s stock more than 11 percent, with shares closing Friday on the New York Stock Exchange at $24.75, down $3.20 from a day earlier. 

The subpoenas from the Commodity Futures Trading Commission and the Houston office of the U.S. attorney request documents and information about Duke’s trading activities, including so-called round-trip trading. 

Duke Energy said it is fully cooperating with the investigations, as it has with other government organizations inquiring into the same issues. 

Federal regulators are investigating energy companies for the round-trip trades, in which electricity is bought and sold at the same quantity and price to inflate revenue and trading volume. Last month, a federal securities regulator asked Duke to voluntarily turn over information on what are also called wash trades. The company said it would comply. 

The U.S. Securities and Exchange Commission made an informal request for more details on the trades, Duke said. The company has said that such trades represented about $1.1 billion, or about 1 percent of its trading volume during the period of interest to the SEC. 

Because the sale and buyback is at the same price, wash transactions do not typically affect profits. But the transactions can make market demand appear greater, which can drive up prices. By inflating revenues or other financial results, the trades could also mislead investors, a violation of securities laws. 

Duke spokesman Terry Francisco said the alleged wash trades were done throughout the United States from 1999 to the present. 

Duke told federal regulators its check of natural gas and electricity trades in Western states during 2000 and 2001 found only a few round-trip trades under investigation by the Federal Energy Regulatory Commission. 

“We’ve found a minute amount of trades were done and the ones that were done were either for valid business purposes or natural gas done at the request of the counterparty, and we don’t know what the motivation of the counterparty was,” Francisco said. 

In a sworn affidavit filed with the FERC, Duke said none of the three round-trip trades uncovered after its review of more than 30,000 natural gas trades boosted revenues, volumes or prices.