Tuesday, June 12, 2007

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Remaining ERCOT Crime Ring Defendant Sentenced; Ends Scheme Uncovered in 2004

GEORGETOWN – A Williamson County State District judge today sentenced Stephen C. Wallace to 12 years in prison for his role in a 2003 insider contract-fraud crime ring at the Electric Reliability Council of Texas (ERCOT). Wallace, who previously pleaded guilty to misapplication of fiduciary property, a first-degree felony, is the last of six defendants sentenced in the scheme, which was uncovered in 2004.

The Office of Texas Attorney General Greg Abbott prosecuted Wallace and his co-defendants at the request of the Williamson County District Attorney. Wallace, 46, was ordered to pay $800,000 in restitution to ERCOT, bringing the defendants’ total court-ordered restitution to almost $2 million.

On Monday, a Travis County State District judge sentenced Wallace to 10 years in prison for first-degree felony theft, which he will serve concurrently with the Williamson County sentence. The Travis County District Attorney’s Office prosecuted the Travis County case with assistance from the Office of the Attorney General.

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Stephen C. Wallace

“Today’s sentence concludes a complex white-collar crime case that defrauded ERCOT, its customers and the state of Texas,” Attorney General Abbott said. “Texans can rest assured that we will aggressively prosecute criminals who steal from the taxpayers. We are grateful to Williamson County District Attorney John Bradley and Travis County District Attorney Ronnie Earle and for their assistance with this case.”

A Williamson County grand jury indicted six men in January 2005 after reviewing evidence compiled by the Office of the Attorney General.

Wallace and co-defendant Kenneth Shoquist, who is currently serving eight years in prison, set up fraudulent in-house security contracts which were funded by ERCOT. Revenue from the contracts was funneled into Wallace’s “company,” the so-called DSS Group. Wallace, a program development director at ERCOT, bribed Shoquist with profits skimmed from DSS Group. In exchange, Shoquist signed approval forms authorizing the fraudulent security contracts.

Wallace also issued fraudulent invoices for nonexistent contract workers in Travis County, who were to be paid with ERCOT funds. This first-degree felony theft was prosecuted by the Travis County District Attorney’s office.

Each of the six defendants used their positions inside ERCOT, setting up security companies with figurehead presidents and billing the organization exorbitant fees for work that was never done -- often using names of nonexistent people -- and supplies that were never delivered. The schemes were intended to deceive the organization’s legal and accounting departments.

Other co-defendants currently serving prison terms are former security manager Carlos Luquis (12 years and $205,000 in restitution), and former director of information technology James Christopher Uranga (seven years and $505,000 in restitution).

Christopher Douglas, former chief financial officer for several fraudulent companies inside ERCOT, cooperated with the investigation and received nine years probation after serving 90 days in jail. He will return $506,000 in illegal profits to ERCOT. John Cavazos, a nonemployee under contract, paid $8,700 in restitution and is serving four years probation.

According to the Public Utility Commission of Texas, ERCOT, the state’s electricity grid system, is funded by Texas electricity users, who are charged 42 cents per 1,000 kilowatts. For the average residential customer, this amounts to about 50 cents per month on an electricity bill. The fee generates about $130 million a year for ERCOT. The total ERCOT budget for 2007 of $166 million also includes revenue gathered from membership fees by electricity market participants.