The Vicodin Thieves. Chip Jacobs

was intended to buy her time until she could unload A.G.’s credits to someone else besides Mobil and pay A.G. what it could have made with the oil company if the original deal could have been completed. Eventually, A.G. caught on to the stonewalling, technically known as “lulling,” demanding to be paid in full. By then, authorities were onto her. A.G. and Mobil declined comment for this story.

      AN EASY FIX

      Sholtz asserts, as she has in court documents, that the initial federal charges against her were overblown, and in this regard she has a point. Contrary to early media accounts and government reports about her, she never trafficked in counterfeit credits because there weren’t any.

      Her downfall, she insisted in interviews and in her plea agreement, traced from her entanglements with a smooth-talking Texas financier named Jimmy Keller. He was on Sholtz’s payroll from 1998 to 2000 before she fired him, and Sholtz said she last spoke with Keller in 2002. (One of her ex-cohorts said he died several years ago.) Sholtz said it was Keller who committed the credits that could have stopped her prosecution by encumbering them in a phony, high-yield investment scheme involving bank notes. It took her about eight months to reconstruct what had happened. When she had, though, RECLAIM credit prices had plunged, diminishing the money she had to throw at the problem. “I wasn’t panicked—I was angry,” Sholtz said. “I should have just said, ‘I will find a way out,’ and admit I messed up. I could have sold my part of the company and learned a big lesson. But I thought nobody would have traded with us anymore or that A.G. might have forced us to sell the company to them and fire our employees. I didn’t have the courage or maturity to ask for help.”

      Because AQMD regulators were blind originally to what had transpired, Sholtz continued barreling forward. Among other actions, she solicited money from new investors to pay off existing ones in a Ponzi-type scheme, Howard Grobstein, the court appointed bankruptcy trustee, wrote in filed documents. In another instance, she blamed the destruction of the World Trade Centers during the 9/11 terrorist attacks for missing deal paperwork. Sholtz disputes that she misled as many people as some have charged, and said she felt demonized by a few of the accusations against her. “There’s been so much misinformation, it’s astounding,” she said. “Some people really didn’t want to know the truth. They just wanted to blame me without looking at themselves or their associates.”

      Nonetheless, in February 2001, while still misleading A.G., Sholtz insisted the Netherlands government test its own nitrogen-oxide emissions trading program. Months later, she tried playing white knight when RECLAIM credit prices soared during the California electricity crisis by offering to stabilize trading through a centralized auction similar to hers. Governor Gray Davis had ordered power plants statewide to generate electricity however they could, even from high-polluting machinery. Traders and speculators from Texas to New York seized the opportunity, hoarding credits to sell at huge markups to utilities frantically buying more than their allotment. With RECLAIM approaching meltdown, district brass temporarily pulled utilities from the market. They also spurned Sholtz’s rescue plan.

      The next year, her two promising companies flopped into bankruptcy. What she hoped would be a reorganization plan ossified into dissolution. It got messier. Individual investors claimed losing retirement accounts, college funds, and nest eggs in the collapse. Multi-million dollar settlements were cut with two large energy entities, Calpine and Intergen. The Bradbury mansion was sold. Where she was once hailed as brilliant, foresighted and charming, she was now characterized as dishonest and, according to one official, “manipulative.” Just as that was occurring, questions arose about her Ph.D. cited in stories, the Netherlands, and elsewhere. As the Weekly reported, she had no doctorate because she had not completed her dissertation at Washington University. Sholtz said that a colleague had introduced her at a public function as “Dr. Anne Sholtz” and since she was close to earning her advanced degree, she let the lie stand. “That would have been so easy to fix,” she said, “but, again, it required a level of maturity that I didn’t have.”

      GAMING THE SYSTEM

      EPA agents arrested her at a Monrovia gym in 2004. The theatrics of it, Sholtz suspected, were meant to intimidate her. “I was handcuffed and outside there were guys with big guns,” she recalled. “They wanted to embarrass me. Did they think I was going to flee in my Spandex?” The incarceration of a niche green celebrity chummy with AQMD brass at the Metropolitan Detention Center rattled others, too. Inside local environmental and regulatory circles, feelings of betrayal, fury, and anguish erupted.

      She would eventually be indicted on six federal counts stemming from the A.G.-Mobil transaction. One knowledgeable source, said Sholtz lucked out, because federal investigators had turned over to the Justice Department enough evidence for more than eighty counts. Charges filed, the white collar case seemed to turn invisible, as if the region’s virulent smog—still the unhealthiest in the nation for ozone and particulate matter—had devoured it. Four years lapsed from her 2004 arrest to her 2008 sentencing, and even then her punishment warranted no Justice Department press release.

      The two prosecutors handling the case, Assistant U.S. Attorneys Joseph Johns and Dorothy Kim, have steadfastly refused comment beyond Johns saying last year it was a calculated gamble to have Sholtz plead guilty to a single count. Adding to the mystery in United States v. Anne Sholtz, many of the key court documents, the transcript of her sentencing hearing among them, remain quarantined by judicial order. Justice Department spokesman Thom Mrozek said one reason is that her case involves “under seal filings” that might signal ongoing investigations into other areas. Wayne Nastri, the EPA’s West Coast administrator, was virtually the only significant suit to speak up. In a January 2008 letter to Judge Collins, Nastri recommended that she hand Sholtz a message-sending sentence. “Environmental regulatory programs which utilize market mechanisms,” Nastri wrote, “will fail if the integrity of such programs can be seriously compromised.”

      At the April 2008 sentencing hearing, which caught many off guard because of the case’s frequent delays, Sholtz wept and foretold of family harm if she were given hard time. But what mattered to Collins, according to numerous people present that day, was that Sholtz’s companies had paid A.G. so it actually turned a profit in its trade dealings with her over time, in spite of her misleading actions. (Sholtz estimates that amount at $28 million.) Alluding to that and other factors, Collins stunned the Justice Department, EPA, and some of Sholtz’s victimized investors by giving her a skimpy sentence: one year of home detention as part of her five years of probation, plus a conditional ban on AQMD emissions trading.

      In a surreal coda to one of the bigger cases of cap-and-trade criminality, Collins chided prosecutors for their strategy while praising Sholtz’s defense attorney, Richard Callahan of Pasadena. Even so, environmentalists and others say it is incumbent on regulators to learn from Sholtz’s gaming so it is not repeated on the bigger carbon stage. “We definitely see [this] fraud as a cautionary tale for the state thirty-five and the country as we move toward greenhouse gas regulations and potential market mechanisms,” said Bill Magavern, director of Sierra Club California. “In discussions about it, I’ve brought up the fact that there has been outright criminal fraud and I find that most people don’t know about it.”

      OPERATION BALD-HEADED EAGLE

      Thumb through the federal government’s case file on Sholtz and you would think she had confined her ambitions to smoggy Southern California. The felony that torpedoed her career, after all, involved Torrance refiner ExxonMobil Corporation. What you would never glean from the available prosecution documents was Sholtz’s involvement in a spectacular and alarming international venture—one intersecting the worlds of espionage, foreign policy, environmental markets, and con-artistry—in the years before authorities were chasing her. All of that has been buried until now. A months-long Pasadena Weekly investigation, based on business records, operational memos, wire transfers, invoices, résumés, and other documents scooped up by federal and bankruptcy officials and obtained by the paper, coupled with Sholtz’s own rendition of events, tells part of this bizarre story of cap-and-trade money gone sideways into areas it was never intended to occupy.

      Peel back to 1998. After losing about $1.7 million in soured deals in the AQMD’s smog cap-and-trade program when a credit buyers’ check bounced, Sholtz said that Keller confided