PUCT Staff Seeks to Vacate Approval of Twin Eagle Resource Management REP Certificate

June 24, 2011
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PUCT Staff have moved for rehearing to vacate the Notice of Approval granting Twin Eagle Resource Management, Inc. a REP certificate (6/10), after Twin Eagle Resource Management disclosed in an errata, after submission of its application and after certificate approval had been granted, that its Executive Vice President and CFO, Robert Doty, was involved in a U.S. Securities and Exchange Commission investigation based on accounting and disclosure matters when he was CFO of Dynegy Inc. in 2001.

Twin Eagle Resource Management said that the omission of the disclosure was inadvertent.

According to the SEC, the investigation arose, "out of Respondent's [Doty] role in Dynegy's materially misleading use of a structured-finance transaction called Project Alpha ('Alpha')." The SEC said that, "Alpha was essentially a $300 million loan to Dynegy, disguised as cash from operations through the purchase and sale of natural gas," that, "had no business purpose aside from minimizing Dynegy's taxes and narrowing the gap between Dynegy's net income and operating cash flow."

The investigation was resolved in 2007 through a settlement (SEC Release No. 33-8855) in which Doty did not admit or deny any wrongdoing, though the SEC found that Doty, "willfully violated Section 17(a) of the Securities Act, Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13b2-1."

The SEC ordered Doty to pay disgorgement of $200,000, plus prejudgment interest of $56,560. The SEC noted that Doty agreed to a civil penalty of $120,000 in a separate civil action.

Twin Eagle Resource Management noted that Doty previously disclosed the investigation to the PUCT in connection with Champion Energy's REP application, where Doty previously served as CEO.

PUCT Staff said that it requires more time to properly evaluate the information that Twin Eagle has provided in the errata and will require some time for discovery. Staff requested a deadline of July 29, 2011 for filing Staff's amended recommendation on REP certification.

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