United States v. James Brooks
2012 U.S. App. LEXIS 10093
| 5th Cir. | 2012Background
- Defendants-Appellants Phillips, Walton, and Brooks, former El Paso Merchant Energy (EPME) employees, were convicted of false reporting under the CEA and wire fraud; trial evidence showed they submitted false gas-trade data to industry publications Inside FERC and NGI to influence price indexes and benefit EPME.
- Industry context: natural gas moves through hubs; both physical and financial trades exist, including NYMEX Henry Hub-based futures and various basis/EFP trades; indexes published by Inside FERC and NGI guide market prices and royalties.
- During 2000–2002, internal investigations and subpoenas occurred; EPME terminated the three defendants and, initially, covered legal fees for Walton and Brooks but later ceased for Walton; Brooks’ indemnification status likewise varied.
- The government filed a second superseding indictment in 2006 charging 49 counts (24 false reporting, 24 wire fraud, 1 conspiracy) based on a conspiracy to manipulate index prices via false reports.
- Evidence at trial included 1,000+ exhibits, trader testimony, emails, recordings, and expert analysis showing a pattern of submitting non-existent or misleading trades to influence published indexes to favor EPME’s positions.
- Jury convicted all three on conspiracy; Phillips and Walton on multiple false reporting and wire fraud counts; Brooks on extensive counts; sentencing followed with substantial loss enhancements and an obstruction enhancement in Brooks’s case.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Indictment dismissal due to government pressure | Government pressure claimed to coerce fee payment undermines fair process. | El Paso’s fee decisions were government coercive actions violating rights. | Indictment proper; no clear error in district court’s findings; no coercion. |
| CEA applicability to false reports and commodity scope | § 13(a)(2) covers false reports to industry publications about natural gas; violations extend beyond Henry Hub contracts. | Natural gas exemptions and Henry Hub focus limit coverage; reports about non-existent contracts or non-Henry Hub prices fall outside. | False reporting to Inside FERC/NGI qualifies as reports under § 13(a)(2); natural gas is a commodity; exemptions do not defeat the conduct here. |
| Jury instructions on conspiracy, deliberate ignorance, and false reporting | Instructions accurately stated mens rea and statutory requirements. | Several instructions misstate mens rea and ambiguity defenses were improper or insufficient. | Conspiracy instructions and deliberate-ignorance instruction were proper; processing of false reporting instruction upheld; no reversible error in charge. |
| Evidentiary rulings | Admissions and expert testimony aided proving knowledge and impact on indexes. | Exclusion of industry-practice evidence and others prejudiced defense; challenge to expert admissibility. | No reversible error; evidentiary rulings upheld; expert testimony properly admitted. |
| Sentencing: loss, victims, and obstruction | Baseline loss measurements and impact on guideline ranges supported, with enhancements for many victims and obstruction. | Loss burden and number of victims overstated; obstruction enhancement disputed; due process concerns about burden. | Loss method reasonable; victims over fifty; obstruction enhancement supported; sentences affirmed. |
Key Cases Cited
- Valencia, 394 F.3d 352 (5th Cir. 2004) (addresses interpretation of 'knowingly' and scope of § 13(a)(2))
- Dizona, 594 F.3d 408 (5th Cir. 2010) (false reporting manipulation in natural gas context)
- Hershey v. Energy Transfers Partners, L.P., 610 F.3d 239 (5th Cir. 2010) (standing to sue for manipulation at non-Henry Hub locations; underlying principle of 'underlying' commodity)
- United States v. Stein, 541 F.3d 130 (2d Cir. 2008) (distinguishes corporate-prosecution context; government coercion considerations)