Dynegy ( DYN) has been hit with some ugly reminders of its past.

The former energy trader -- once considered an "Enron-wannabe" -- learned Thursday that three of its former accountants face felony charges for their alleged participation in a fraudulent profit-pumping scheme. The company, which is attempting to reinvent itself under new management, has already paid $3 million to settle similar charges.

Thursday's indictments, issued by the U.S. attorney's office in Houston, charged Gene Foster, Jamie Olis and Helen Sharkey with allegedly engineering a scheme -- popularly known as "Project Alpha" -- that disguised Dynegy's true financial condition. Federal prosecutors said the three were charged with criminal conspiracy, securities fraud, mail fraud and wire fraud.

Meanwhile, in filing a civil suit along similar lines, the Securities and Exchange Commission made it clear that penalties in the Dynegy case shouldn't end with the company.

"Those who betray the public trust will be pursued and punished," said Harold Degenhardt, district administrator of the SEC branch in Fort Worth, Texas. "Investors deserve this commitment, and the markets require it."

In an earlier investigation of the company, the SEC found that Dynegy used Project Alpha to reclassify a $300 million loan and tax benefit as operating cash flow and net income during the energy trading boom that preceded Enron's demise. Dynegy settled the case last September without admitting or denying wrongdoing.

Investigators now claim that at least three former Dynegy employees -- and potentially more -- carry heavy responsibility for the scam. Indeed, the SEC says the individual employees actually disregarded the advice of outside auditor Arthur Andersen and hid their improper activities from the company.

"Foster, Olis and Sharkey knew, or were severely reckless in not knowing, that their acts and omissions would cause Dynegy to account improperly for Alpha in its financial statements and submit false and misleading reports to the Commission and the investing public," the SEC stated.

Foster served as vice president of taxation, handling all of the company's tax-related matters, when Alpha was allegedly hatched. Olis, the former vice president of finance, provided tax expertise on Project Alpha, the SEC stated. And Sharkey, an accounting manager, was the "sole accounting representative assigned to the Alpha deal team," the SEC said.

On Thursday, the SEC laid heavy blame at the feet of all three.

"The investing public has a right to expect accuracy and honesty in corporate transactions," Degenhardt said. "These individuals were in a position to insure both, and they failed to do so."

The securities fraud charges could mean jail time and fines for the defendants if found guilty. In the civil case, the SEC aims to make all three defendants pay fines and return any ill-gotten gains reaped through bonuses and trading profits during their alleged involvement with the scheme. In 2001, Foster collected $330,000 in total compensation. Olis scored $272,000 -- plus another $200,000 for Dynegy stock sales -- in addition to 25,000 stock options. Sharkey collected a more modest sum of $80,000.

Prosecutors warned Thursday that more indictments are likely. In the meantime, Dynegy has promised to help the investigation along.

"While it is Dynegy's policy not to discuss former employees or matters pertaining to their employment," Dynegy said in a statement Thursday, "the company has been and remains committed to complete cooperation with the U.S. Attorney's Office in Houston and other government agencies."

Investors, long calmed by the arrival of turnaround CEO Bruce Williamson from Duke Energy's global markets division, shrugged off news of the indictments. Their continued confidence pushed Dynegy shares up 8 cents to $4.28 in midday trading. The stock has more than quadrupled since Williamson's arrival last fall.

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