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Enron Mail |
I think the press report below highlights one of several areas that should
be addressed by a proper compliance program. Spokane, Wash.-Based Utility's Legal Woes Mount The Spokesman-Review, Spokane, Wash. -- Nov. 12 A federal agency is investigating possible violations of energy futures trading rules at an Avista Corp. subsidiary in Houston in 1998. Commodity Futures Trading Commission investigators want to know whether Avista Energy intentionally manipulated the futures market to drive up the price of a large electricity futures contract in the summer of 1998. Avista Corp. is also dealing with other legal problems that occurred during the tenure of Avista Chief Executive Officer Tom Matthews, who was replaced last month as CEO and resigned as chairman of the board Friday. Matthews has said he became a lightning rod for criticism that deflected attention from the company's successes. The problems include lawsuits from four former Avista Energy electricity traders, who say their managers reneged on bonuses for racking up big profits for the subsidiary in 1998 and 1999. Three of the traders' lawsuits have been settled for undisclosed amounts, the latest one last week. In addition, Avista is preparing to defend four shareholder lawsuits over the financial hits investors took this year from the company's $123 million in energy trading losses at its regulated utility. The most hush-hush of these legal wrangles involves the CFTC, an agency created by Congress in 1974 to monitor the sale of commodity futures and options markets nationwide. The agency has issued a formal "order of investigation" to look into the alleged violations at Avista Energy, said New York attorney Michael Koblenz, a former CFTC assistant director and Eastern regional counsel. The agency works like the Securities and Exchange Commission, which regulates and monitors stock trading. In May, the CFTC's Division of Enforcement issued subpoenas to several current and former Avista Energy employees. The agency wants information on "certain trading in the August 1998 Palo Verde and California-Oregon border electricity futures contracts on the New York Mercantile Exchange (NYMEX)," according to one of the subpoenas. Avista spokesman Steve Becker declined repeated requests for comment last week on the CFTC probe and the lawsuits against Avista. "It's our policy not to comment on any threatened or pending litigation," Becker said. Koblenz is representing Luis Pando, a former Avista Energy senior analyst and trader, in the CFTC investigation. Pando worked at Avista from August 1997 through March 1999 and now works for Southern California Gas Co. in Los Angeles. Pando is also one of the four Avista Energy traders who sued over their bonuses. Pando says Avista owes him at least $300,000; his case is pending. Futures contracts have been traded for more than a century for agricultural products. In the last 20 years, the trades have expanded into many new markets, including energy. The contracts are used by power traders to hedge against future price fluctuations of the energy market. Although money changes hands on paper between marketers dealing with the NYMEX contracts, rarely do actual kilowatts get delivered. The CFTC has authority to bring civil charges in administrative or federal court and can also refer alleged trading violations to the Justice Department for possible criminal charges, Koblenz said. "Individuals could lose their licenses and be fined, or be asked to disgorge some of their profits. The same penalty applies to the corporate structure," Koblenz said. CFTC spokesman Dennis Holden declined comment on the Avista investigation last week. "The CFTC does not confirm or deny the existence of any investigation," Holden said. In a recent interview, Pando said he was questioned for two days in September by commission investigators in New York. "They are looking at violations of the Commodities Exchange Act. It was intimidating," Pando said. The investigation's focus is on an option for 800 megawatts of power that was expiring in August 1998. A megawatt is enough to provide electricity to 600 homes. Avista made a $4 million to $5 million profit on the deal, but a trader outside the company complained to the New York Mercantile Exchange that Avista traders were trying to manipulate the price, said another former Avista Energy trader. "The rumor is that someone leaked this trade in advance," cutting into the potential profits of other traders, said the ex-trader, who asked not be named in this story. Pando says he doesn't know how he ended up on the CFTC subpoena list. He never worked in Houston, where the trade was made, and has never traded futures contracts. He said he sold over-the-counter physical power into the California market from Spokane after he became an energy trader in July 1998. "I was very surprised I was brought into this. This is a very serious charge, but I wasn't involved," Pando said. Meanwhile, Avista has settled three of the four energy traders' lawsuits over their bonuses, said Robert Dunn, their Spokane attorney. "A couple of these guys were like the Ken Griffey and Alex Rodriguez of the power industry. They made so much money for the company it kicked them into an unheard-of bonus category," Dunn said. In an interview last Monday, former Avista Energy trader Michael Griswold said he made $25 million in profits for Avista Energy in 1998 before he left the company in the dispute over the bonuses. His lawsuit was settled Wednesday and Griswold can no longer discuss the case, Dunn said. Meanwhile, a high-profile Seattle firm with expertise in securities litigation has been named lead counsel for the Avista shareholder suits filed last summer. Hagens and Berman represented Washington, Idaho and 11 other states as special attorneys general in the recent litigation against the tobacco industry spearheaded by Washington Attorney General Christine Gregoire. The Seattle firm was also recently hired by Microsoft to help defend the computer company in the government's antitrust case. It also won a settlement from junk bond financier Michael Milken on behalf of several Washington state public employee pension funds. Milken pleaded guilty in 1990 to six felony counts in the unrelated Drexel, Burnham Lambert securities fraud litigation and was jailed for 22 months. The Seattle firm's lawyers "have played lead and/or major roles in cases that have resulted in cumulative recoveries in excess of $260billion," according to the firm's backgrounder filed for the Avista case in U.S. District Court in Spokane. The Avista shareholders sued shortly after Avista CEO Matthews announced in June that the company would lose $90 million from bad electricity trades at its regulated utility in this year's turbulent energy market. The losses have since grown to $123 million. They allege Avista exposed shareholders to unacceptable risks by "covertly" entering into massive electricity forward contracts "in an undisclosed gamble that electricity prices would decrease in the future." Instead, the price skyrocketed, "causing Avista's share price to drop sharply," the complaint says. The lawsuits seek to represent all shareholders who bought Avista stock between April 7 and June 21 this year. Avista's Becker declined comment on the shareholder lawsuits, again citing company policy not to discuss pending litigation. NGI's Daily Gas Price Index published : November 16, 2000 Investigators Probing Avista's Trading Practices Legal troubles for the once high-flying Avista Corp. continue to add up, as federal investigators have begun looking into possible energy futures trading rule violations that may have occurred two years ago at a Houston subsidiary. Investigators from the Commodity Futures Trading Commission (CFTC) are checking into whether subsidiary Avista Energy illegally manipulated futures markets that in turn drove up the price of an electricity futures contract in 1998. The CFTC, created in 1974 by the U.S. Congress, monitors the sale of commodity futures and options markets across the country, and is similar to the Securities and Exchange Commission. It has the authority to bring civil charges into administrative or federal court, and also may refer alleged violations to the U.S. Department of Justice for criminal charges, according to attorney Michael Koblenz. Koblenz, a former CFTC assistant director and regional counsel, is representing Luis Pando, a former Avista Energy senior analyst and trader, one of the four Avista Energy traders who sued the corporation for bonuses, and whose case is still pending. Pando claims he is owed at least $300,000. The CFTC is looking into trading in an August 1998 Palo Verde and California-Oregon border electricity futures contract on the New York Mercantile Exchange, according to one of the subpoenas. Pando said he had been questioned for two days in September by CFTC investigators in New York. The CFTC investigation, however, is just a small part of the legal difficulties that have descended upon Avista Corp. Four former Avista Energy electricity traders sued the corporation, alleging that their managers reneged on profit bonuses in 1998 and 1999. Three of those lawsuits have been settled out of court for undisclosed sums. Avista also is preparing its defense against four shareholder lawsuits filed after the company lost $123 million in energy trading losses from its regulated utility (see Daily GPI,). And then, not nearly as surprising as it would have been less than a year ago, Tom Matthews resigned as chairman of the board last week, after being replaced in October as CEO. He said in recent months that he considered himself to be the "lightning rod" for problems within the company, and that the focus had diverted attention from Avista's numerous successes. Matthews' departure was not the only management change announced last week by the Avista board of directors. Erik J. Anderson was appointed to the board of directors, filling a board vacancy created by Matthews. Anderson is CEO of Seattle-based Matthew G. Norton Co., responsible for strategic planning and direction, asset allocation and principal investments within the company. Larry A. Stanley was elected non-executive chairman of the board of directors, replacing Matthews, and he will serve out Matthews' unexpired term as chairman until May 2001. Also, as expected, Gary G. Ely was officially appointed Avista president and CEO. In October, when Matthews resigned, the Avista board had named Ely acting president and CEO. Ely, who has been with Avista for 33 years, had previously held the position of executive vice president of Avista Corp. He has overseen the refocus and strong financial turnaround of the company's unregulated Avista Energy unit this past year and has led the initial development of Avista's growth businesses. Scott L. Morris and Kelly O. Norwood were named corporate vice presidents of Avista Corp. Morris also serves as president of Avista Utilities, the company's regulated electric and gas operating division, and Norwood also serves as vice president and general manager of Avista Utilities' energy resources department. "The board has affirmed its commitment to and remains fully supportive of the company's strategic direction. We will continue our goal of value creation and emphasize this as our number one objective. We also remain diligent in our work to strengthen our utility business," said Stanley. David Yeres Clifford Chance Rogers & Wells 200 Park Avenue New York, NY 10166 Tel: (212) 878-8075 Fax: (212) 878-8027 Email: david.yeres@cliffordchance.com ****************************************************************************** ************************************** This message and any attachment are confidential and may be privileged or otherwise protected from disclosure. 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