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TRENTON – Attorney
General Anne Milgram announced that the
former director of operations for NUI Energy
Brokers Inc. was sentenced today for diverting
profits from Elizabethtown Gas Company to
his company through sham purchases and sales
of natural gas.
Joseph Principato Jr., 46,
of Linden, was sentenced to 60 days in jail
as a condition of three years probation
by Superior Court Judge Stuart Peim in Union
County. He also was ordered to pay a $75,000
fine. In sentencing Principato, a first-time
offender, to 60 days in jail, Judge Peim
indicated it is important to send a message
of deterrence. Principato pleaded guilty
on June 23 to misapplication of entrusted
property, a third-degree offense.
Deputy Attorney General
Thomas Clark prosecuted the case for the
Division of Criminal Justice.
The Division of Criminal
Justice obtained a state grand jury indictment
charging Principato on April 17, 2007. In
pleading guilty, Principato acknowledged
that the sham transactions resulted in a
loss of at least $37,500 to Elizabethtown
Gas Company.
NUI Energy Brokers (“Energy
Brokers”), a subsidiary of NUI Corp.,
traded natural gas on its own behalf and
on behalf of Elizabethtown Gas, which also
is owned by NUI Corp. Principato, as operations
director for Energy Brokers, was in charge
of selling excess gas for Elizabethtown
Gas and, at times, purchasing gas for Elizabethtown
Gas. Principato engaged in two schemes between
1997 and 2003 that generated profits for
Energy Brokers at the expense of Elizabethtown
Gas by steering more favorable deals to
Energy Brokers. Energy Brokers allocated
15 percent of its profits to an incentive
program that provided bonuses and commissions
to various employees, including Principato.
Principato had a duty in
selling the excess gas of Elizabethtown
Gas to try to obtain the best price he could
for the company and its ratepayers. However,
he instead arranged hundreds of sham transactions,
sometimes known as “sleeve”
transactions, in which he sold the excess
gas of Elizabethtown Gas to a third party
at a relatively low price. By prior agreement,
Energy Brokers then purchased the gas from
the third party, typically for just half
a cent more per unit, so that Energy Brokers
could sell the gas on its own behalf to
an ultimate purchaser for a higher price.
In the second scheme, Principato
took advantage of the fact that Energy Brokers
sometimes made gas purchases for Elizabethtown
Gas. Energy Brokers was not supposed to
profit from those purchases, but Principato
used sham sleeve transactions to obtain
profits for his company.
Specifically, Energy Brokers
would obtain gas at a favorable price, but
would not sell it to Elizabethtown Gas at
that price. Instead, Principato sold it
to a third party at a profit for Energy
Brokers. The third party then sold it to
Elizabethtown Gas, per arrangement with
Principato. The third party would charge
a small markup above what it paid, typically
half a cent per unit.
On June 30, 2004, Energy
Brokers pleaded guilty to a charge of third-degree
corporate misconduct and agreed to pay a
$500,000 fine in connection with the sleeve
transactions. NUI Corp. agreed to reimburse
the ratepayers of Elizabethtown Gas $28
million and pay a $2 million penalty to
the New Jersey Board of Public Utilities.
The
fraud came to light after an outside auditor
hired by the Board of Public Utilities conducted
a routine audit and raised concerns about
conflicts of interest involving Energy Brokers’
employee incentive program. A subsequent
internal investigation by NUI Corp. uncovered
the numerous sleeve transactions. Detective
Eric Ludwick handled the investigation for
the Division of Criminal Justice Major Crimes
Unit.
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