US Lawmakers Seek To Unseal Records In Climate Fraud Case
By Ian Talley, Of DOW JONES NEWSWIRES
WASHINGTON -(Dow Jones)- U.S. legislators are seeking to open sealed documents
in a case of multi-million-dollar climate fraud, according to a rare filing by
House of Representatives' lawyers.
Two Republican legislators say the records could shed light on the potential
challenges of policing a new, trillion-dollar commodities market that would be
created under climate legislation that Congress is considering.
Reps. Joe Barton (R., Texas), ranking member of the Energy and Commerce
Committee, and Greg Walden, (R., Ore.), ranking member of an oversight and
investigations panel, have asked a federal district court in California to
unseal all the closed records regarding the successful prosecution of Anne
Masters Sholtz, a former California Institute of Technology economist, for
fraud. The House Office of General Counsel is pursuing the matter for the
lawmakers, without objection from the Department of Justice.
Fueled by recent Wall Street chicanery and the contribution of banks, brokers
and hedge funds to the financial meltdown, lawmakers say the case of climate
fraud could expose the very real weaknesses of a federal "cap-and-trade" system.
Congress is considering legislation that would set a declining cap on
greenhouse gas emissions and create a market where companies can buy and sell
emission rights.
The California case involves a nearly identical climate trading system called
the Southern Californian Regional Clean Air Incentives Market, or Reclaim,
designed to cut air pollution in the Los Angeles region. Sholtz, who helped
design Reclaim, allegedly hustled New York Investment firm AG Clean Air out of
more than $12 million between 1999 and 2001 by selling fake emission credits.
Sholtz was convicted on one count of fraud in 2005, receiving what the
lawmakers say was a veritable slap on the hand for the felony -- a one-year
house probation sentence. According to House investigators, there was an
estimated $50 million to $80 million in claims against her in bankruptcy filings
and the Environmental Protection Agency had received complaints that Sholtz had
defrauded nine companies.
Barton said the case -- and the sealed documents -- could show that the
federal authorities "may not understand how to stop a vastly more destructive,
Bernie Madoff-version of Ms. Sholtz from taking advantage if the nationwide cap-
and-trade system is approved." Madoff, who allegedly managed a $50 billion
fraudulent hedge fund, has become an icon of Wall Street scams.
According to the filing made earlier this week, the sealed pleadings in the
Sholtz case, "may provide insights into the Reclaim system's vulnerabilities to
fraud that could be very valuable to the Congress."
A Republican aide said records currently publicly available from the Sholtz
case indicate that the government had difficulty linking the actual economic
losses from the cap-and-trade system to the fraud, complicating prosecution.
The fear of fraud and manipulation has prompted some lawmakers propose
policies that would restrict trading of greenhouse gas emissions. But given the
political sway of companies that want to participate in the cap-and-trade
program and say that financial trading of emissions is vital to the success of
the system, it's uncertain if those proposals will make much headway.
Rep. Walden is also fearful that many of the most exuberant, enthusiastic
advocates of cap-and-trade are some of the same major institutional investors
that were involved in the housing and commodity markets that failed in the past
year.
For example, in the Regional Greenhouse Gas Initiative, or RGGI, a cap-and-
trade system in the northeastern states, among those who wanted to buy credits
were a raft of investors that aren't major emitters, including trading units of
Barclay's Plc (BCS), Goldman Sachs (GS), JP Morgan Chase & Co. (JPM), Merrill
Lynch, now a unit of Bank of America (BAC), and Morgan Stanley (MS).
Legislators also point to alleged fraud in international emissions-trading
markets, where billions of dollars worth of reduction projects have been
recognized to be illegitimate.
-By Ian Talley, Dow Jones Newswires; (202) 862 9285; ian.talley@dowjones.com;
(END) Dow Jones Newswires
11-25-091628ET
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