Dynegy wrongly pushed worker to plead--Texas jury

HOUSTON May 16 (Reuters) - A Texas jury has decided energy company Dynegy Inc. (DYN.N) should pay $2.5 million in damages because it withheld funds for the criminal defense of former accounting executive Jamie Olis, court officials said on Wednesday.

Evidence showed Dynegy withheld money to pressure Olis to plead guilty and help U.S. prosecutors threatening to indict the company for disguising a loan as cash flow, a lawyer who tried the case said.

Olis refused to plead guilty, went to trial and was convicted of fraud. He is serving a prison sentence, originally set at 24 years, but reduced to six years at the direction of an appeals court.

The jury verdict reached on Tuesday after a three-week trial found that Dynegy committed civil fraud in depriving Olis lawyer Terry Yates of $450,000 in attorney fees. The jury also recommended that Dynegy pay $2 million in punitive damages.

Testimony at the trial showed the U.S. Attorney's Office in Houston pressured Dynegy to cut off defense support that, under company bylaws, was owed to Olis, Yates lawyer Lloyd Kelley said.

Lawyers testified at the trial that such prosecutorial pressure was improper, Kelley said.

A similar issue has arisen in the New York prosecution of KPMG accountants accused of tax fraud. A federal judge has ruled KPMG violated the defendants' constitutional rights by withholding funds to pay their lawyers.

Neither Dynegy nor any of its high executives were ever indicted.

Evidence of e-mails and conversations between Dynegy and the U.S. Attorney's Office will likely become part of Olis' appeal, Kelley said.

Olis also has a civil suit similar to Yates' filing pending against Dynegy.

Kelley expects Dynegy to appeal the Yates verdict. The outcome is not a final judgment until the verdict is signed by Texas state District Judge Sharolyn Wood. She has scheduled a hearing May 25.

A Dynegy spokesman declined to discuss details of the case.

"We respect the jury's decision on this, but at the same time we're looking at our options and they include the possibility of appealing," spokesman David Byford said.

Dynegy, which had difficult years after aborting a proposed merger to rescue failing Enron Corp. in 2001, has turned its business around and begun growing again, Byford said. Dynegy recently purchased plants and projects from L S Power Group.