"They made what was actually red ink appear to be black," U.S. Attorney Michael Shelby told reporters after the hearing before U.S. District Judge Sim Lake.
The case was one of many to come out of the troubled energy trading industry after the 2001 collapse into bankruptcy of industry leader Enron. The company's demise triggered investigations that uncovered financial irregularities at numerous companies, including Dynegy.
The former executives face up to five years in prison and $250,000 in fines for their part in a scheme in which they disguised a $300 million loan as a natural gas trade and hid the deal from their auditor, now-defunct Andersen.
With Tuesday's plea, the two reversed their pleas of not guilty entered on July 1 and agreed to cooperate with prosecutors in any investigation into Dynegy. Prosecutors agreed to drop several other charges that, in total, could have brought them up to 35 years in prison and $2 million in fines if convicted.
The two, who will be sentenced on Oct. 24, declined to comment after the hearing.
A third defendant in the scheme, Jamie Olis, Dynegy's former finance vice president, has pleaded not guilty and has not changed his plea. He will appear in court on Friday for a scheduling hearing.
Shelby said investigations into possible wrongdoing by Dynegy and others would continue, but he declined to offer details about whether further charges were expected.
Dynegy said in a statement it was committed to "complete cooperation with all government agencies and to restoring the confidence of its stakeholders."
Prosecutors have said the three defendants illegally disguised the risk-free loan from several banks as a five-year natural gas contract in 2001 with a dummy company and booked the money as cash flow under a plan they called "Project Alpha." The company also took a $79 million tax benefit from it.
Dynegy paid a $3 million fine late last year to settle a complaint lodged by the U.S. Securities and Exchange Commission over the scheme, but it admitted no wrongdoing. The company later restated its 2001 earnings downward by 12 percent because of the deal.
In a separate case, former Dynegy gas trader Michelle Maria Valencia is facing federal charges that she reported bogus deals to industry publications in an attempt to manipulate prices.
Dynegy had touted itself as the successor to Enron, but the accounting scandals, charges of fraudulent price reporting and ballooning debt combined to hammer its share price from nearly $60 in 2001 to as low as 49 cents a year ago.