Department of Justice Seal
Prepared Remarks of Attorney General John Ashcroft
Reliant Indictment Announcement
Thursday, April 8, 2004

Good afternoon. I am joined today by:

Today, in the Northern District of California, a federal grand jury in San Francisco returned a six-count indictment against Reliant Energy Services, Inc., and four of its officers and employees.

According to the criminal indictment, the defendants engaged in a conspiracy and scheme to defraud the California electricity market and its participants, and to manipulate and attempt to manipulate the price of electricity in California at the commencement of the energy crisis in 2000.

In this case we are prosecuting not only individuals, but also a corporation for which they worked. Reliant Energy Services is the first corporate entity to be charged for alleged illegal activities during the California energy crisis of 2000-2001.

The individual defendants named in the indictment are Jackie Thomas, a former vice president of Reliant's Power Trading Division; Reggie Howard, a former director of Reliant's West Power Trading Division; Lisa Flowers, a term trader for Reliant's West Power Trading Division; and Kevin Frankeny, Reliant's manager of Western Operations. All of the defendants are residents of Texas.

The indictment discussed today contains allegations and, as with all defendants, Reliant Energy Services, Mr. Thomas, Mr. Howard, Mr. Frankeny, and Ms. Flowers are presumed not guilty unless and until convicted.

The charges against each of the individuals and against the corporate defendant are:

Reliant was one of the so-called "Big 5" electricity generators that purchased power plants in California after deregulation forced utilities to divest their plants between 1997 and 1999. Reliant not only operated the plants, but also bought and sold electricity in California through its wholly-owned subsidiary, Reliant Energy Services, Inc., the corporate defendant named in today's indictment.

The indictment alleges that in June 2000, Reliant Energy Services held a long trading position, wagering that the future price of power would rise. But on Monday, June 19, 2000, prices in the relevant California electricity markets fell dramatically. Based on then current market prices, Reliant's West Power Trading Division faced a multi-million dollar financial loss.

The indictment alleges that in order to reverse Reliant's losing financial position, the defendants devised a plan to drive up the price of electricity in California. They allegedly did so by shutting off four of the five Reliant Energy Services' power plants in California, and creating the appearance of an electricity shortage. The indictment also alleges that the defendants disseminated false and misleading information to the market about the reason for the shutdowns.

According to the indictment, Reliant Energy Services' alleged manipulation worked. Prices for wholesale electricity rose across California, and Reliant allegedly reaped millions in illegal profits.

The indictment alleges that once the defendants achieved the artificially-inflated prices, Reliant Energy Services then turned some of its plants back on to sell power in California for as much as $750 per megawatt hour, the federally-imposed price cap at the time.

Today's charges are the latest in a sustained series of law enforcement actions aimed at prosecuting corporate law-breakers and protecting investors and consumers. To date, more than 300 corporate fraud cases have been brought, involving more than 700 defendants charged.

A thriving free market depends on a marketplace of integrity - a marketplace that is transparent and free of intentional manipulation. When the market is manipulated, trust is abused, and the corrupt profit at the expense of the law-abiding.

The vast majority of American companies are businesses of integrity. The vast majority of corporate executives are honest, hard-working people. But when a company conducts itself in the manner Reliant Energy Services is alleged to have acted here, it will face severe consequences. When evidence shows that a company's corporate culture disrespects the law by illegally attempting to control the market, the Department of Justice will not hesitate to bring criminal charges against the company itself.

With each arrest, indictment and prosecution, the Department of Justice sends this clear, unmistakable message: corrupt corporations and their executives who manipulate the marketplace and thereby betray the public trust will face the judgment they fear and receive the punishment they deserve.

I thank U.S. Attorney for the Northern District of California, Kevin V. Ryan and his Securities Fraud Section for overseeing and directing the 17-month investigation that developed today's indictments. I also thank the head of the Criminal Division, Chris Wray and the head of the Antitrust Division, Hew Pate, for their leadership in this case.

I also thank the trial attorneys detailed from the Antitrust Division and the Commodity Futures Trading Commission, as well as the special agents of the Federal Bureau of Investigation in San Francisco. In addition, the Federal Energy Regulatory Commission has provided on going assistance in connection with the investigation.

This prosecution represents the broad participation of several key members of the President's Corporate Fraud Task Force. I commend the work of its leader, Deputy Attorney General James Comey. The Corporate Fraud Task Force continues to accomplish the difficult work necessary to investigate, prosecute and punish corporate corruption.