Government - ERCOT Scandal Series

ERCOT, Part 5 of 5 - Attorney General Abbott obtains fourth guilty plea in electric reliability council of Texas white-collar crime scheme

Christopher Douglas agrees to repay over $500,000 to ERCOT and to testify at the April 24 trial of co-defendant Carlos Luquis

From the Office of Greg Abbott, Attorney General of Texas

April 19, 2006

GEORGETOWN—Texas Attorney General Greg Abbott April 12 obtained yet another guilty plea in an ongoing Williamson County case against six men under indictment for setting up an elaborate criminal enterprise in 2004 inside the Electric Reliability Council of Texas (ERCOT), the state’s electricity grid system.

Christopher Douglas, 47, of Austin, pleaded guilty to two charges, one for engaging in organized criminal activity for misapplication of fiduciary property and one for theft. They are first-degree felonies, and he will also agree to repay ERCOT over $500,000 in illegal profits he obtained. Prosecutors have agreed to recommend no more than nine years in prison upon sentencing.

Chris Douglas
senior manager

"As our prosecutors continue to chip away at this complex case, they have revealed the true criminal scheme and obtained confessions in the form of guilty pleas from several key players, such as this man,” said Attorney General Abbott. “We now will now press forward and bring jury trials against the last two individuals standing in this case.”

Douglas served as chief financial officer for ECT Global Inc., Cyberensics Corp. and Tri-Force Security Inc., companies he formed with codefendants Christopher Uranga and Carlos Luquis. Uranga has pleaded guilty and awaits sentencing, while Luquis awaits trial.

Using their positions inside ERCOT, where Douglas was also manager of the organization’s Data Warehouse, the three men funneled contracts to their own companies and took in more than $1.2 million illegally. While they did actually provide ERCOT with some legitimate contractors, Douglas admitted that the three pocketed a significant amount of money for work never done or services not provided in the security department at ERCOT.

Douglas acknowledged owing more than $500,000 in restitution to ERCOT, and he has already tendered over $230,000 to law enforcement officers, which will be credited toward his final restitution upon sentencing. He has been cooperating since last June by briefing prosecutors about how the six conducted the illegal scheme. Douglas and Uranga have agreed to testify at the April 24 trial of codefendant Luquis.

The schemes enabled the defendants to steer contracts to their own private companies in such a way as to violate their ethical and fiduciary responsibilities to ERCOT, all without the knowledge and approval of its legal and accounting departments.

Only two defendants await trial in the coming months based upon indictments handed down in January 2005. They are:

• Steve Wallace, program development director (two indictments, $800,000 misappropriated and also indicted in Travis County on three counts of first-degree felony theft);

• Luquis, physical security manager (six indictments, over $100,000 misappropriated).

• Three other indicted defendants have pleaded guilty and are awaiting sentencing, pending the outcome of the Luquis trial:

• Former chief information officer Kenneth Shoquist pleaded guilty last month to engaging in organized criminal activity for commercial bribery and acknowledged receiving $120,000 in bribes from Wallace. He will be repaying the money prior to his May 4 sentencing, where he is expected to receive eight years incarceration.

• John Cavazos, a nonemployee contractor and a shell company security director (one indictment, $8,700 misappropriated), will receive four years of probation or deferred adjudication, and has already paid $8,700 in restitution to ERCOT. He will also testify at the April 24 trial of Luquis.

• Uranga, director of IT security (six indictments, over $500,000 misappropriated), has pleaded guilty to two counts of misapplication of funds and will be sentenced to up to 15 years in prison. He has agreed that his restitution amount exceeds $500,000.

Abbott - Looking Back - Douglas enters fourth guilty plea in ERCOT crime ring case - Luquist to go on trial April 24

ERCOT, Part 4 of 5 - Attorney General Abbott obtains third guilty plea from former executive in ERCOT white collar crime scheme case

Kenneth Shoquist to serve 8 years in prison, make restitution of $120,000 to ERCOT

From the Office of Greg Abbott, Attorney General of Texas

April 18, 2006

AUSTIN—Texas Attorney General Greg Abbott today obtained the latest and most significant guilty plea from a defendant linked with five others who have been indicted for running an organized criminal enterprise inside the Electric Reliability Council of Texas (ERCOT) in Williamson County in 2004.

Kenneth Shoquist, 54, now living in California, pleaded guilty to engaging in organized criminal activity for commercial bribery. He admitted taking $120,000 in checks from DSS Group, a company owned by fellow ERCOT coworker and codefendant Stephen C. Wallace. Shoquist agreed to repay these proceeds to ERCOT and now awaits sentencing to eight years in prison for his conduct.

Kenneth Shoquist
chief information officer

“This defendant was the gatekeeper who made the scope of this white-collar crime possible by hiring and enabling the other criminals in the first place,” said Attorney General Abbott. “It is safe to say that none of the fraud that occurred at ERCOT would have been possible except for the insider dealing he encouraged.”

In his role as chief information officer, Shoquist promoted the hiring of Wallace to oversee ERCOT’s multimillion-dollar program budgets. In this capacity, Wallace was able to successfully bill ERCOT for work that was never done, including invoices submitted in the name of a deceased person. Over the course of this scheme, Shoquist signed off on contracts and invoices for billing by Wallace. The funds were billed to budgets within the Information Technology (IT) department that Shoquist supervised. In turn, Wallace paid Shoquist monthly kickbacks ranging from $7,500 to $20,000.

Shoquist was responsible not only for the hiring of Wallace, who bilked ERCOT out of nearly $1 million in false billings, but also of Christopher Uranga and his codefendants, Christopher Douglas and Carlos Luquis. These men used their positions inside ERCOT to misapply funds in excess of $1 million as well.

The schemes enabled Wallace and Uranga and his co-defendants to steer contracts in such a way as to violate their ethical and fiduciary responsibilities to ERCOT, the state’s electricity grid system, all without the knowledge and approval of its legal and accounting departments.

Two defendants await trial in the coming months based upon indictments handed down in January 2005. They are:

• Wallace, program development director (two indictments, $800,000 misappropriated and also indicted in Travis County on three counts of first-degree felony theft);

• Luquis, physical security manager (six indictments, over $100,000 misappropriated).

• Two indicted defendants have previously pleaded guilty and are awaiting sentencing, pending the outcome of the Luquis trial:

• John Cavazos, a nonemployee contractor and a shell company security director (one indictment, $8,700 misappropriated), will receive four years of probation or deferred adjudication, and has already paid $8,700 in restitution to ERCOT.

• Uranga, director of IT security (six indictments, over $500,000 misappropriated), has pleaded guilty to two counts of misapplication of funds and will be sentenced to up to 15 years in prison. He has agreed that his restitution amount exceeds $500,000.

One other indicted defendant, Douglas, former senior manager of ERCOT’s Data Warehouse and codefendant of Luquis and Uranga, is currently cooperating with the Attorney General’s prosecutors and has yet to enter a plea on any of the charges.

Abbott - Looking Back - Shoquist peads guilty in ERCOT crime ring case

ERCOT, Looking Back - Part 3 of 5 - Attorney General Abbott obtains second guilty plea in ERCOT organized crime case

John Cavazos returns almost $9,000 in illegal profits to ERCOT as part of plea

From the Office of Greg Abbott, Attorney General of Texas

April 17, 2006

GEORGETOWN, December 20, 2005—Texas Attorney General Greg Abbott today obtained the second guilty plea from a defendant named along with five others in indictments last January who ran an organized crime ring inside the Electric Reliability Council of Texas (ERCOT) in Williamson County.

John Cavazos, 33, of San Antonio pleaded guilty to misapplication of fiduciary property enhanced to organized criminal activity, a third-degree felony. He returned $8,700 to ERCOT, which is the amount he was illegally paid as a security contractor. His sentencing is set for March 31.

John Cavazos
shell company security director

“We are gradually peeling back the layers of this sophisticated ring and exposing these individuals for who they are – white collar criminals,” said Attorney General Abbott. “I look forward to getting the remainder of the players in front of a jury and seeing that justice is done.”

Cavazos, who was not employed by ERCOT, agreed to act as president of a shell security company established by some of the other defendants, who were upper-level employees of the state’s electricity grid system.

As president, Cavazos helped conceal the identities of the other defendants involved in the scheme. The enrichment scheme was designed to violate ERCOT’s strict conflict-of-interest policy prohibiting employees from profiting in any manner from ERCOT’s business decisions.

Cavazos’s Tri-Force Security Inc. was one of several “paper”companies hatched by the defendants to conceal the identities of the players while allowing them to profit in the range of $2 million.

James Christopher Uranga, 37, of Round Rock, was an upper level security manager within ERCOT who schemed to funnel contract payments to the defendants’ illegal security and information technology companies. He pleaded guilty in August to misapplication of funds and admitted he owes ERCOT $500,000 for illegal profits he obtained. He awaits sentencing in January.

Other former ERCOT employees still awaiting trial are Kenneth Shoquist, Steve Wallace and Carlos Luquis. Some of the group’s activities are under investigation by the Travis County District Attorney’s Office. One other defendant, Chris Douglas is currently cooperating with the Attorney General’s prosecutors.

The integrity of ERCOT, the state’s electricity grid system, was never compromised because of the organized crime perpetrated. ERCOT is funded through a charge of 42 cents per 1,000 kilowatts, which equates to about 50 cents per month on a residential bill.

Abbott - Looking Back - President of shell company pleas guilty

ERCOT, Looking Back, Part 2 of 5 - Attorney General Abbott obtains first guilty plea tied to insider profit scheme within Electric Reliability Council Of Texas

James Christopher Uranga, 37, of Round Rock, admitted his role in setting up “shell” security companies with other indicted defendants and funneling contracts to these companies as a way to obtain millions of dollars in illegal payments from ERCOT.

From the Office of Greg Abbott, Attorney General of Texas

April 15, 2006

GEORGETOWN, August 17, 2005—Texas Attorney General Greg Abbott today obtained the first guilty plea in an ongoing Williamson County case against six men under indictment for setting up an elaborate criminal scheme inside the Electric Reliability Council of Texas (ERCOT), the state’s electricity grid system.

James Christopher Uranga, 37, of Round Rock, admitted his role in setting up “shell” security companies with other indicted defendants and funneling contracts to these companies as a way to obtain millions of dollars in illegal payments from ERCOT.

Chris Uranga

director of information technology operations and corporate security

“The true nature of this white-collar crime has gradually come to light and it is appalling in its scope,” said Attorney General Abbott. “This defendant can expect the same justice as any other person who engages in organized crime in Texas.”

A scheme involving three or more individuals, as in this case, rises to the level of organized criminal activity, a felony. In this scenario, Uranga used his position inside ERCOT to misapply funds to his benefit. He now awaits sentencing for a term of not longer than 15 years in prison, depending on how much of the more than $500,000 in estimated restitution Uranga can return to ERCOT and how much assistance he can provide in the prosecution of other ERCOT defendants. This may include his cooperation with authorities investigating related crimes that occurred in Travis County.

Attorney General Abbott agreed to pursue the investigation and prosecution last year at the request of Williamson County District Attorney John Bradley. Uranga entered his plea in 395th District Court.

In his role as director of information technology operations and corporate security at ERCOT, Uranga was uniquely positioned to funnel lucrative security contracts to his own companies without ERCOT’s knowledge. In some cases, contracts were created and invoices sent for work that was never done. Uranga reported directly to Ken Shoquist, ERCOT’s chief information officer, who recruited Uranga to ERCOT from Dell Financial Services. Shoquist remains under indictment and awaits trial on similar charges.

The scheme enabled Uranga and the co-defendants to steer contracts in such a way as to violate their ethical and fiduciary responsibilities to ERCOT, all without the knowledge and approval of its legal and accounting departments.

• Steve Wallace, program development director (two indictments, $800,000 misappropriated and also indicted in Travis County on three counts of first-degree felony theft);

• Carlos Luquis, physical security manager (six indictments, over $100,000 misappropriated)

• John Cavazos, a nonemployee contractor and a shell company security director (one indictment, nearly $9,000 misappropriated).

One other indicted defendant, Chris Douglas, senior manager of ERCOT’s data warehouse, is currently cooperating with the Attorney General’s prosecutors and is not set for trial at this time.

Abbott - Looking Back - insider profits scheme - Uranga guility plea

Trouble at ERCOT, Looking Back - Part 1 of 5 - Attorney General Abbott gets 23 indictments against six in elaborate organized crime scheme inside the Electric Reliability Council of Texas

Managers billed electricity grid organization $2 million for work by shell companies

From the Office of Greg Abbott, Attorney General of Texas

April 14, 2006

AUSTIN, January 28, 2005—Texas Attorney General Greg Abbott today announced 23 indictments from a Williamson County grand jury looking into criminal activities of five former top managers and one associated contractor at the Electric Reliability Council of Texas (ERCOT) in Taylor.

The indictments cap a five-month investigation by the Attorney General’s Office into a complex internal network of “shell” security and computer contracting companies that billed the organization more than $2 million for “work” often done by nonexistent or even dead employees. The Texas Department of Public Safety (DPS) Special Crimes Unit and the State Auditor’s Office assisted the Attorney General.

“The maze of illicit business dealings going on within ERCOT over a year’s time is simply stunning,” said Attorney General Abbott. “This is not about electricity. It’s about corruption at top levels of ERCOT and flagrant violations of an agreed-upon ethics policy. We will continue to pursue any information that leads us to possible criminal wrongdoing, as requested by Williamson County District Attorney John Bradley.”

The 23 indictments thus far handed down by the grand jury charge the men with engaging in organized criminal activity, including the misapplication of fiduciary property, commercial bribery and theft by receiving stolen property. Most of these are first-degree felonies with a range of punishment between five and 99 years or life in prison.

The investigation into these personal enrichment schemes and complex interrelated business dealings resulted in indictments today against:

• Ken Shoquist, chief information officer (two indictments, over $100,000 misappropriated)

• Steve Wallace, program development director (two indictments, $800,000 misappropriated)

• Chris Uranga, director of information technology operations and corporate security (six indictments, over $300,000 misappropriated)

• Chris Douglas, senior manager, Data Warehouse (six indictments, over $300,000 misappropriated)

• Carlos Luquis, physical security manager (six indictments, over $100,000 misappropriated)

• John Cavazos, a nonemployee contractor and a shell company security director (one indictment, nearly $9,000 misappropriated)

Members of the ERCOT board of directors have not been under investigation and have since conducted a top-to-bottom review of the organization’s security apparatus and its employees.

The indicted managers conspired to set up multiple shell companies with puppet presidents to provide “security and computer services” to ERCOT. Each of them then billed the state’s non-profit electricity grid administrator hundreds of thousands of dollars on contracts for equipment, time and work, much of which was not provided.

For example, a company known as DSS Group allegedly provided security consulting services to ERCOT. The company sent ERCOT 13 invoices totaling $951,000 for work supposedly performed by four consultants, when only one consultant ever did any work for the organization.

The indicted men established four companies in like manner, some of which billed for employees who did no work for ERCOT, and in one case billed for a man who was deceased. In addition to DSS, the businesses were: ECT Global, Cyberensics Inc. and Tri Force Security. (A list of the shell companies with links to the above-listed managers is attached to this news release.)

While the integrity of the ERCOT grid system statewide was never compromised, the organization paid about $2 million to the managers’ shell companies as a result of illegal billings for nonexistent services. The men often lavished themselves with high-end homes and expensive boats. The Attorney General is working with the DPS and local authorities to seize bank accounts, luxury automobiles, motorcycles and other assets.

The indicted employees all signed ethics agreements with ERCOT upon accepting employment, including promises to never gain personally from an ERCOT business decision and to immediately report any possible conflicts of interest.

According to the Public Utility Commission of Texas, ERCOT is funded through a charge of 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 $125 million a year for ERCOT. The total ERCOT budget for 2004 of $174 million also includes revenue gathered from membership fees by electricity market participants.

Abbott - Looking Back - 23 indicted in ERCOT Scandal