By Anna Driver and Eileen O'Grady

HOUSTON (Reuters) - By the standards of recent financial scandals, Stephanie Rae Roqumore's alleged $6.8 million natural gas trading scam may be small potatoes, but it raises some big questions.

How could a lone natural gas trader in Houston dupe some of the world's biggest energy companies for eight years, despite a veritable forest of red flags? After all, the overhaul of trading rules and credit practices in the wake of Enron's collapse was supposed to make it tougher, if not impossible, to perpetuate such a fraud.

In September, FBI agents raided Roqumore's suburban Houston home, searching for evidence she scammed at least 11 energy companies. Among the stacks of paperwork seized from the ornate 3,000-square-foot house were bank records for trading firms Roqumore is accused of using to dupe companies including Occidental Petroleum, Royal Dutch Shell Plc's Coral Energy Resources, Hess Corp and privately-held commodities giant Cargill.

Federal agents also recovered two handguns -- one found under a mattress -- ammunition, documents for a million-dollar life insurance policy and a summons from the Internal Revenue Service, according to the search and seizure warrant.

The $6.8 million scheme laid out in a 19-count indictment charging wire fraud and money laundering seems straightforward. "We are sifting through the evidence at this point and Ms. Roqumore maintains her innocence," Wendell Odom, Roqumore's attorney, said in an statement.

Roqumore, 48, who has pleaded not guilty to the charges, is accused of purchasing natural gas from firms by submitting false financial statements to the companies to obtain lines of credit. She would then sell gas to counter-parties like ConocoPhillips, paying back either a fraction of the purchase price or nothing at all in some instances, according to her indictment.

Court records and public documents contain numerous red flags indicating Roqumore was in financial trouble. Public records also show a guilty plea to a felony theft charge in 1999. Roqumore and her parent company, SRR Energy Management Resources, filed for Chapter 7 bankruptcy in 2006, yet firms continued to extend her credit to buy natural gas up until April 2010.

"What is sort of surprising is that she was able to get away with it for so long," said Craig Pirrong, director of energy markets at the Global Energy Management Institute at the University of Houston's Bauer College of Business.

Her arrest warrant was signed by a federal judge on September 13. She is free on $50,000 bond, but is banned from working in finance and may not be self-employed. She is also barred from taking out any lines of credit. U.S. District Judge Lynn Hughes in Houston has set a trial date for January 18.

According to her attorney, Roqumore has a new job, a condition of her release. Gas Energy Management, one of the companies she created to trade, is now shuttered. Gas Energy Management's former office suite, located in a leafy Houston neighborhood, now houses a staffing company.

Roqumore faces a lifetime in prison if convicted and sentenced for the maximum penalty on all charges. She also faces a $3.75 million forfeiture fine, according to the indictment.

Hess, Cargill, Shell and Occidental declined to comment on the case.

WHO IS SHE?

A relative unknown in Houston's active gas trading community, Roqumore nonetheless managed to gain entry to do business with well-established companies at a time when trading practices were under heavy scrutiny by regulators.

As a one-person company, Roqumore's alleged false financial documents might have been difficult to verify, said Art Gelber, founder of Gelber & Associates, a Houston-based advisory firm specializing in energy trading practices and protocols. Established energy marketers might have been willing to do business with new partners at that time, Gelber said. "In times of trauma, there is opportunity," he said.

According to a transcript of a creditors meeting for her bankruptcy case, Roqumore said she worked as an accountant in the oil and gas industry for 15 years at companies including Halliburton Co, Dynegy Inc and failed energy giant Enron Corp.

While she did not trade when working at those companies either as an employee or contract employee, she said she handled the back-office accounting after energy deals were done. In that role, Roqumore gained the knowledge needed to buy and sell natural gas and also developed relationships with traders.

"My visibility with the traders was on a regular basis on the trading floor," Roqumore said in the bankruptcy case document.

While an accountant by training, Roqumore said she failed her Certified Public Accountant (CPA) exam in 1990, according to a transcript that was part of her bankruptcy case.

She initially did well in her gas trading in 2002, but began to run into trouble a year later, when prosecutors say she purchased $1.5 million of natural gas from a marketing unit of Dominion Resources with credit obtained by falsified documents. The marketing unit was never paid for gas delivered in April and May, according to court documents.

The Dominion unit sued in 2005, winning a summary judgment of $1.8 million, including interest, against SRR Energy Management Resources. Roqumore is the sole shareholder of SRR.

By late 2003, Roqumore said she wasn't making any money trading. "I would end up selling (gas) for less than what I purchased it for, just to get rid of the gas," she said in court documents.

She continued trading just to bring money into her firm and was growing increasingly desperate to get back to the days where she was making good money trading.

"You think, well maybe, this is the month," Roqumore said in bankruptcy documents. "You were making great deals, but now all of a sudden, you're just not," she said.

Roqumore, who has one son, made enough to live in a large brick home with a well-manicured yard in the upscale "Shadow Creek Ranch" development 20 miles southeast of downtown Houston. Bankruptcy documents showed she owned three Lexus luxury automobiles and a high-end Florida time share near Orlando.

"It seemed like she had it all," neighbor Belva Smith told Houston television station KTRK soon after Roqumore's arrest. "She had a pretty good life, nice cars. She just sent her son off to college."

In bankruptcy documents, SRR Energy Management Resources showed 2004 gross receipts of $4.5 million. That fell to $2.4 million in 2005 and to less than $638,000 in the first half of 2006.

To help keep her trading operation afloat, Roqumore pursued her gambling hobby, making frequent trips to Louisiana casinos. She scored her first "real win" of $10,000 in October 2002, but casino records submitted as part of her bankruptcy case show she had good years and bad years.

Roqumore favored slot machines, a game with house odds that are hard to beat. She routinely withdrew tens of thousands of dollars from her bank accounts to gamble, she said in court documents.

HOW DID SHE DO IT?

Natural gas trading collapsed in 2002 after Enron failed and charges of gas price manipulation sent a dozen gas traders to jail.

In those cases, traders were accused of reporting false prices -- favorable to their companies -- to specialized industry publications that used the prices to create indexes used to establish gas values.

In addition to prison terms, the U.S. Commodity Futures Trading Commission fined 12 companies, including Duke Energy, American Electric Power Co Inc, El Paso Corp and others more than $272 million for false gas price reporting from 2002 to 2005.

Dynegy, El Paso, Williams, Reliant Energy and many other firms shrank their trading desks and drastically restricted gas marketing activity. "A lot of businesses seriously underestimated the credit risk associated with energy trading in the pre-2002 era," the University of Houston's Pirrong said. "Certainly, that was not the case afterward."

Concerns about counter-party credit risk led to increased use of clearing procedures for derivatives-based energy transactions, but that did not impact the type of physical gas trades used by Roqumore.

"There has been more scrutiny of credit, but that doesn't mean you are going to have a 100-percent perfect system that is going to pick up everything," Pirrong said. "A clever fraudster may be able to get away with it for a while. The industry tightened up its credit standards and its credit practices after its near-death experience in 2002."

In the early 2000s when Roqumore is alleged to have opened her own gas trading firm, it was often tough for anyone to get credit to trade natural gas. That "was one of the main laments and one thing that was causing trading volumes to dry up and pushing people to clearing," Pirrong said.

Organizational changes at companies that bought and sold energy commodities and the hiring of chief risk officers have since altered gas trading from the pre-Enron days, he said.

The Committee of Chief Risk Officers was formed in 2002 as an independent group to inject some discipline into trading by developing best practices to standardize risk and financial management activity in both physical and financial energy trading.

As a result, Pirrong said, the industry is doing much better in recognizing the potential for problems.

"Nothing teaches a lesson like people going to jail," he said. "The industry did tighten up, not to say it's perfect." (Editing by Jim Impoco and Claudia Parsons)