Saturday, August 20, 2011

California Public Employees' Retirement System (CalPERS) and then there is Dynegy

http://www.time.com/time/business/article/0,8599,202237,00.html
Excerpt:

California's Prescient Brush With Enron

By Cathy Booth Thomas Monday, Feb. 11, 2002
Long before the power crisis, California and Enron got along just fine. The California Public Employees' Retirement System (CalPERS), the nation's largest pension fund investor, had invested $250 million in one of the first of Enron's now-infamous off-balance-sheet partnerships — called JEDI — and got a 73 percent return over just three years. Small wonder then that when Enron execs came back in 1997 with JEDI II, a similar vehicle to invest in energy projects, including Enron's own Energy Services, CalPERS listened.

http://en.wikipedia.org/wiki/CalPERS
Excerpts:
1) Notable investments
The agency both lost and gained from investments in Enron (which went bankrupt in 2001) and its affiliated companies. Its losses included common stock worth $40 million; "stock in a different portfolio, some bonds and a separate investment in New Power Co." worth $100 million; and $4 million from the liquidation of Enron's JEDI II project (i.e., CalPERS had paid $175 million for its stake but received only $171 million in return).[66][67] However, as CalPERS had earned $132.5 million from the sale of its stake in Enron's JEDI I project to Enron's Chewco project,[67] its total Enron losses were only about $11 million. Although CalPERS "was alerted by its advisers in December 2000 about the serious and potentially embarrassing conflicts inherent in one of a web of private partnerships set up by Enron's chief financial officer, Andrew S. Fastow",[68] it later denied that it could have taken actions to prevent Enron's downfall.[69] Nevertheless, as a result of the Enron experience, in 2002 the CalPERS board did resolve to improve accounting and auditing standards among companies in which it invests.[70]

2) To avoid confusion with public employees' retirement systems in other states, the organization's name was changed to "CalPERS" in 1992.[8] By 1996, the CalPERS portfolio was worth $100 billion, and the number of members exceeded 1 million.[8] In 2001-2002, CalPERS provided technical assistance for the Sarbanes-Oxley Act because it had sustained financial losses from the Enron and WorldCom bankruptcies.[8]
In November 2005, CalPERS expanded its headquarters with the 560,000-square-foot (52,000 m2) "Lincoln Plaza East & West" buildings which cost $265 million.[12][13] The architecture of the buildings, which received praise, includes an entry tower 90 feet (27 m) high in a shape reminiscent of a tree which is made of steel covered with glass.[13] The project was awarded a Gold Leadership in Energy and Environmental Design (LEED) rating.[14]

http://articles.sfgate.com/2002-08-03/business/17558948_1_milberg-weiss-bershad-hynes-calpers-board-firm
Excerpt:

Legal spender / CalPERS defends pricey law firm hired for WorldCom suit

August 03, 2002|By Bill Wallace, Chronicle Staff Writer
The California Public Employees Retirement System has come under fire for hiring a law firm to handle its $319 million lawsuit against WorldCom Inc. that once billed state taxpayers $88 million in legal fees.
The firm, Milberg Weiss Bershad Hynes and Lerach, sued WorldCom in Los Angeles County Superior Court last month on behalf of CalPERS and two other public employee benefit funds. The firm could be paid up to $54 million if the litigation is successful.
In an interview with The Chronicle, state Sen. Ray Haynes, R-Riverside, called CalPERS' hiring of Milberg Weiss deplorable, and pointed to the criticism that the firm had received when it billed taxpayers for $88 million in fees in a lawsuit against the state Department of Motor Vehicles. The state Court of Appeal overturned those fees July 22, calling them "over the top" and an unconstitutional gift of public funds to the firm.



http://www.camajorityreport.com/index.php?module=articles&func=display&aid=4652&ptid=9&theme=print
Excerpt:
Here are the facts about public employee pensions in California:
  • Average pension: $25,000 (Source: CalPERS)
  • Impact on state budget: The State of California pays less as a percentage of payroll today than it did in the early 1980s.
  • Pensions Bigger Than Salaries? The average CalPERS member receives 50 percent or less of their pay in retirement.

http://www.pbs.org/newshour/bb/business/enron/player9.html
Excerpt:
Chewco is a $383 million investment partnership allegedly arranged by Enron's former chief financial officer Andrew Fastow in 1997 to keep Enron's debt off its balance sheets.
Chewco, named after a Star Wars character Chewbacca, was part of a cluster of partnerships that executed different roles in billion-dollar financing deals. Funded by money invested in Enron and without investor knowledge, the partnership involved Fastow and an off-shore financial group he controlled.
The story of Chewco began nearly a decade ago in 1993 when Enron and the California Public Employees Retirement System (Calpers) created a 50-50 partnership known as the Joint Energy Development Investment Limited (JEDI). At the time, Enron did not include JEDI in its earnings since it did not own more than 50 percent of the partnership.
Then in 1997, Fastow created Chewco which bought Calpers' stake in JEDI. With the purchase, Enron and Fastow essentially owned JEDI. However, since Fastow and his partners had organized Chewco in such a way, the entire partnership was kept off of Enron's books. Since Chewco was not included, the JEDI partnership, still apparently run by Enron and an outside group, also remained off the balance sheet.

http://en.wikipedia.org/wiki/Reed_Hundt
Excerpt:
After leaving the FCC, Hundt has worked as an advisor to McKinsey & Company and to the Blackstone Group.

 http://www.sourcewatch.org/index.php?title=Blackstone_Group
Excerpt:
The Blackstone Group is a private investment banking firm and describes itself as a "leading global investment and advisory firm." The Blackstone Group was founded in 1985 by a group of four, including Peter G. Peterson and Stephen A. Schwarzman.
The Blackstone Group has ties to American International Group, Inc. (AIG) and Kissinger Associates, Inc./Henry Kissinger. According to the Blackstone website, AIG acquired a 7% non-voting interest in the company in 1998 for $150 million "and committed to invest $1.2 billion in future Blackstone-sponsored funds".
"Blackstone has developed strategic alliances with some of the largest and most sophisticated international financial institutions. In addition to AIG, they include Kissinger Associates, Roland Berger & Partner, GmbH, and Scandinaviska Enskilda Banken," the website states. [1]
The company's Blackstone Alternative Asset Management unit handles $1 billion in hedge funds for pension giant CalPERS.
John Forbes Kerry 2004 campaign 'adviser' Roger C. Altman was Vice Chairman of The Blackstone Group from 1987 through 1992 "where he led that firm's merger advisory business". [2]
In December 2001, The Blackstone Group was appointed as Enron's principal financial advisor with regard to its financial restructuring.[3] The company also advised Enron on "the Sale of its North American Power and Gas Trading Business to UBS". [4]Template:Deadlink
The Blackstone Group is also handling the restructuring of Global Crossing. [5]

http://money.cnn.com/2001/11/28/companies/enron/

Dynegy scraps Enron deal
graphicNovember 28, 2001: 5:27 p.m. ETCollapse of $9B deal could push Enron into bankruptcy, analysts say.




Excerpt:
NEW YORK (CNN/Money) - Dynegy Inc. scrapped its proposed $9 billion merger with Enron Corp. Wednesday, a move that leaves what had been one of the nation's biggest and most influential companies teetering on the edge of bankruptcy.
The collapse of the deal came after Standard & Poor's, one of the nation's leading credit-rating agencies, said it cut Enron's debt to "junk bond" status because of worries that Enron might be forced into bankruptcy - the latest blow to a company that had helped reshape the nation's energy markets by using cutting-edge computer and Internet technology.

http://money.cnn.com/2010/08/13/news/companies/dynegy_shares_surge/index.htm
Excerpt:

An Enron-era name acquired by Blackstone

dynergy_shares_stock_chart.png By Annalyn Censky, staff reporterAugust 13, 2010: 10:38 AM ET



NEW YORK (CNNMoney.com) -- Shares of Dynegy Inc. - a power generating company that played a role in the Enron scandal - surged more than 60% Friday after the company agreed to be acquired by investment firm Blackstone Group for $4.7 billion, including its existing debt.
Under the deal with Blackstone Group (BX), Dynegy stockholders will receive $4.50 in cash for each share of Dynegy common stock they own -- a 62% premium to the closing share price of $2.78 on Thursday, the company said.

http://www.sourcewatch.org/index.php?title=Dynegy_/_LS_Power
Excerpt:
Dynegy Inc. (NYSE: DYN), based in Houston, TX, is a large owner and operator of coal, fuel oil, and natural gas power plants.[2] The company's portfolio consists of 31 power generation facilities producing approximately 20,000 megawatts of power in the Western, Midwestern, and Northeastern United States.[3]
Once known as "The Natural Gas Clearinghouse," Dynegy adopted the "New Economy" branding in 1998, after which the company structured itself in a manner similar to Enron, launching several business ventures, including an online trading platform and broadband communications services, which could be misconstrued of those of its larger rival.
In March 2007, Dynegy acquired LS Power, a privately-held coal and gas power developer, to form the largest builder of coal plants in the country.[4][5] LS Power received 340 million shares of Dynegy common stock, $100 million in cash, and a $275 million note. Dynegy assumed approximately $1.8 billion in debt from LS Power.[4]

http://www.lspower.com/News/newsArticle071608.htm
Excerpt:
Scott Healy, Senior Vice President. 
Mr. Healy has over 17 years experience in power generation development and finance, including the successful development or financing of over 4,500 MW of gas fired generation projects and over 2,000 MW of wind generation projects. Prior to LS Power, Mr. Healy held senior management roles at Kenetech, Calpine, Enron, PPM Energy, Orion Energy and Orion Energy Group.

http://www.electricityforum.com/news/aug03/scandal.html
Excerpt:

Two ex-Dynegy execs plead guilty in fraud scheme

HOUSTON -- Two former executives of energy company Dynegy Inc. have pleaded guilty to criminal charges stemming from a 2001 scheme to falsely boost profits in a case reminiscent of the deals that brought down Enron Corp.
Gene Shannon Foster, Dynegy's former tax vice president, and Helen Christine Sharkey, the company's former accounting manager, each pleaded guilty to one count of conspiracy to commit securities fraud, reversing their earlier pleas.
"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.

http://www.nytimes.com/2003/06/13/business/former-employees-of-dynegy-face-charges-of-fraud.html
Excerpt:

Former Employees Of Dynegy Face Charges of Fraud

By SIMON ROMERO
Published: June 13, 2003











































Federal prosecutors charged three former employees of Dynegy, the large energy trader, with securities fraud and conspiracy today in connection with their role in a secretive project aimed at disguising a $300 million loan as cash flow.
The indictment against the three defendants, all midlevel employees at Dynegy, once a highflying rival of Enron and the El Paso Corporation, two other Houston-based energy trading companies, is part of a continuing investigation of Dynegy, whose founder, Charles L. Watson, resigned as chief executive in May 2002.
Dynegy released a statement today saying that it ''has been and remains committed to complete cooperation with the U.S. Attorney's Office in Houston and other government agencies.''
The six-count indictment of the three defendants, Jamie Olis, 37, a former senior director of tax planning; Gene Shannon Foster, 44, a former vice president for taxation; and Helen Christine Sharkey, 31, a former member of Dynegy's risk control and deal structure groups, also included charges of mail fraud and three counts of wire fraud.

http://www.guardian.co.uk/business/2004/mar/26/corporatefraud
Excerpt:

Former Dynegy executive jailed for 24 years after $300m fraud

A former executive of the Houston-based energy firm Dynegy was yesterday sentenced to 24 years in prison, in the harshest display yet of the determination to clamp down on corporate fraud in the US.
Tax specialist Jamie Olis was convicted in November for his part in an accounting fraud designed to hide $300m in debt from Wall Street and report inflated operating results.
Mr Olis, 38, will not be eligible for parole, which means he will serve almost his entire sentence.

http://www.freakonomics.com/2006/09/11/creative-uses-of-efficient-markets/
Excerpt:
There is an interesting article in the Economist showing how this logic landed a guy named Jamie Olis in jail.

http://www.economist.com/node/7880472?story_id=7880472
Excerpt:
Dismal science, dismal sentence

The efficient markets hypothesis can land you in jail

Sep 7th 2006 | from the print edition
JAMIE OLIS knows better than most people that the ideas conjured up by economists in their ivory towers can have a big effect on the real world. The tax accountant, found guilty of committing fraud while working for Dynegy, an energy-trading firm, has been doing time since March 2004, in large part thanks to a controversial economic theory, the efficient markets hypothesis. Last October an appeals court threw out Mr Olis's 24-year jail term, because Judge Sim Lake, who sentenced him, got his economics wrong. But Mr Olis stayed in prison pending resentencing, again by Judge Lake. That will follow a hearing, due on September 12th, that is likely to be dominated by a debate over market efficiency.

http://www.kycbs.net/Dynegy.htm
Excerpt:
November 3, 2006
Corruption - A $6 Million Gift
To Oil Company
In years past this alone would have been a major story and the corruption involved would not be tolerated. But this year it's just one more thing - a relatively small thing. We all know what is behind it - payments from lobbyists. The people involved will be leaving the government soon to "work" at the oil companies for unusually high pay. Gov't drops demand for Chevron royalty,
The department's Minerals Management Service had maintained that Chevron owed an additional $6 million for gas it took under federal leases in the Gulf between 1996 and 2002 and sold to Dynegy Inc., a company Chevron partially owns.
Essentially, the government argued that Chevron undervalued the gas it sold to Dynegy. Chevron paid royalties based on a price that didn't represent fair market value, the government auditors said.

http://en.wikipedia.org/wiki/Chevron_Corporation
Excerpt:
In January 1996, NGC (formerly NYSE: NGL) and Chevron announced plans to merge Chevron’s natural gas and natural gas liquids business with NGC. On May 23, 1996, the companies reached an agreement in principle to merge their business. Under the agreement, Chevron transferred its natural gas gathering, operating and marketing operation to NGC in exchange for a roughly 25 percent equity stake in NGC. On August 30, shareholders approved the deal creating North America’s largest natural gas and gas liquids wholesaler. In 1998, NGC Corporation was renamed Dynegy (NYSE: DYN).[9][10]
In a merger completed February 1, 2000, Illinova Corp. (formerly NYSE: ILN) became a wholly owned subsidiary of Dynegy Inc., in which Chevron also took a 28% stake.[11] However, Chevron in May 2007 sold its roughly 12 percent (at the time) Class A common stock in the company for approximately $985 million, resulting in a gain of $680 million.[12][13]

http://www.offthekuff.com/mt/archives/003069.html
Excerpt:
February 25, 2004
Chevron buys Enron building ChevronTexaco will buy that grand monument of riches-to-rags excess, the new Enron building. They'll move some 500 non-Houstonians (from New Orleans, Midland, and San Ramon) into it, as well as employees from their other downtown locations.

http://www.dailymarkets.com/economy/2010/12/19/carl-icahns-dynegy-power-struggle-and-coming-showdown-at-chesapeak-energy/
Excerpt:
Diverging Forward Views
For the past few months, Dynegy has been telling investors to accept a buyout offer from Blackstone Group or the company would face dire consequences. However, Dynegy’s investors have a drastic different view about the company’s future.
Billionaire financier Carl Icahn and hedge fund Seneca Capital, two biggest stakeholders of Dynegy, had rejected Blackstone’s original offer of $603 million or $4.50 a share citing gross undervaluation, and that the company is very well positioned to reap benefits of a recovery in electricity price.
Icahn Deal at 10% Premium
The climax came on Wed. Dec. 15, when Dynegy said it accepted a buyout offer of $665 million, excluding debt, from Carl Icahn, while Blackstone Group signaled that the private-equity firm won’t seek to top Icahn’s offer. The offer from Icahn Enterprises, valued at round $5.50 a share, represents a 10% premium to Dynegy’s average closing price over the past 30 trading days.

http://topics.nytimes.com/top/reference/timestopics/people/l/william_s_lerach/index.html
Excerpt:
William S. Lerach


Pat Sullivan/Associated Press
Updated: Jan. 25, 2011
Robin Hood or Legal Hood?'' was the headline of a 2005 New York Times article about William S. Lerach and Melvin I. Weiss, partners at the law firm of Milberg, Weiss.
Mr. Lerach in particular had become perhaps the lawyer most feared and loathed in boardrooms across America. He was a hyperaggressive specialist in filing class action suits against major corporations, supposedly on behalf of small investors who had lost money when a stock's price dropped. The firm was usually the first to file the suits, often giving it the position a lead counsel in the actions and allowing it to collect the majority of the legal fees awarded.

http://en.wikipedia.org/wiki/MCI_Inc.
Excerpt:
Founded in 1963, it grew to be the second-largest long-distance provider in the U.S. It was purchased by WorldCom in 1998 and became MCI WorldCom, with the name afterwards being shortened to WorldCom in 2000. WorldCom's financial scandals and bankruptcy led that company to change its name in 2003 to MCI. The MCI name disappeared in January 2006 after the company was bought by Verizon. As of May 2011 the MCI trademark is still maintained on MCI.com and on a sub-page of Verizon.com.

http://en.wikipedia.org/wiki/UUNET
Excerpt:
Timeline
  • 1987 - UUNET Communications Services is founded and passes its first traffic via the CompuServe Network on May 12 using UUCP (Unix to Unix Copy Protocol).
  • 1989 - UUNET becomes a for-profit corporation
  • 1990 - UUNET launches AlterNet
  • 1991 - UUNET participates in the founding of the Commercial Internet Exchange Association
  • 1994 - Microsoft paid $16.4 million for a 15 percent share of the company
  • 1995 - In May, UUNET is listed on the NASDAQ stock market in an initial public offering that would become part of the beginning of the dot-com boom.
  • 1995 - UUNET Technologies Inc places a takeover bid against Unipalm Pipex.[6]
  • 1996 - UUNET Technologies agreed to a merger with the Microsoft backed MSF Communications Company.[7]
  • 1996 - Metropolitan Fiber Systems (MFS) acquires UUNET for $2 Billion
  • 1996 - WorldCom acquires MFS on New Year's Eve - Dec. 31st at 11:58 p.m EST for $12.4 billion
  • 1997 - Usenet death penalty (UDP) issued against UUNET, and lifted a week later
  • 1997 - On November 10, WorldCom and MCI announced their US$37 billion merger including combining internetMCI & UUNET Internet operations.
  • 1998 - The combined MCI WorldCom opens for business on September 15 after being given the go-ahead from the DOJ, subsequent to divesting internetMCI.[8]
  • 1998 - WorldCom acquires CompuServe Network Services from H&R Block and ANS Communications from AOL. Both become part of UUNET in 1999.
  • 1999 - On October 5, MCI Worldcom announces its intentions to buy Sprint for $129 billion.
  • 2000 - The European Commission and DOJ denied the MCI WorldCom / Sprint merger on Anti-Trust Grounds.
  • 2000 - The UUNET brand is folded into WorldCom's product line and disappears
  • 2003 - The UUNET brand re-emerges as WorldCom's wholesale-only brand
  • 2004 - WorldCom renames itself to MCI, still using the UUNET brand for wholesale business.
  • 2005 - MCI again drops the UUNET brand for wholesale business. The name is no longer in use.
  • 2006 - Verizon acquires MCI, including its UUNET subsidiary, now known as Verizon Business. AS701 remains the backbone of Verizon Business although its origin dates back to 1990 when it was under the UUNET flag.
http://news.cnet.com/MCI-WorldCom-AOL-merger-a-boon-for-business/2100-1033_3-235580.html
Excerpt:
January 12, 2000 1:25 PM PST

MCI WorldCom: AOL merger a boon for business

By John Borland
Staff Writer, CNET News
    Bernard Ebbers The planned merger between Time Warner and America Online will benefit MCI WorldCom as the telecommunications firm carries most of AOL's data traffic, chief executive Bernie Ebbers said today. In a speech to the Press Club in Washington, D.C., Ebbers said he welcomed the deal, even though the two companies would provide stiff competition to MCI WorldCom's high-speed consumer Internet services--and potentially to its phone services as well.



    http://www.fastcompany.com/bookclub/excerpts/159184018X.html
    Excerpt:The French establishment does not eat its own," cautioned Edgar Bronfman Jr., whose family lost over $5 billion when Vivendi Universal plunged into crisis in 2002. But the sudden flurry of criminal investigations and regulatory probes suggested that shareholders and employees might eventually receive a full explanation for the incredible collapse of the company.

    http://en.wikipedia.org/wiki/Edgar_Bronfman,_Jr.
    Excerpt:
    His controversial decision to sell his family stake in DuPont Chemical in order to create the Vivendi Universal entertainment company which turned out to be short-lived, was a source of widespread astonishment in the business community.[citation needed]
    Bronfman was convicted of insider trading in a French court resulting in a 15 month suspended sentence and fined €5 million. [2]

    http://www.hiddenmysteries.org/conspiracy/reststory/bronfmanfreon.html
    Excerpt:
    Lewis du Pont Smith, in an April 27, 1994, open letter to shareholders on DuPont’s CFC Policy, warns that DuPont Corporation will be destroyed when a consumer backlash demands a Congressional investigation “regarding the science behind the ozone depletion fraud and the economic forces that pushed for the CFC ban.”
    This direct descendant of the company’s founder, accuses Edgar Bronfman, Charles Bronfman, and Charles Bronfman Jr, Canadians who own 25% of DuPont, as having led the whole international campaign, including the Montreal Protocol, to phase out CFCs.
    Lewis du Pont Smith calls this CFC policy “the most massive consumer fraud of this century.”
    He writes that “The cost to consumers of the ban on CFCs will exceed $5 trillion: the consequences on human health will be devastating.”

    http://ecorner.stanford.edu/author/edgar_bronfman_jr
    Excerpt:
    The first step in this diversification was the widely criticized sale of Seagram's stake in DuPont. In 1981, Edgar Bronfman, Sr., had sold Seagram's stake in Conoco to DuPont, in exchange for almost 25% of the chemical giant. This stake in DuPont, by 1995, represented about 70% of Seagram's total earnings. Nevertheless, Bronfman, Jr., acting as Seagram's CEO, approached DuPont about buying back its shares, a deal that DuPont wasted no time in closing.

    With the proceeds of the $9 billion sale, Bronfman, Jr., went on an expansion into the entertainment business, in music through the acquisition of Polygram, and in film entertainment through MCA and Universal Pictures. However, the new entertainment conglomerate he created had a brief life, before needing a strategic partner. Bronfman, Jr., then led Seagram into a disastrous all-stock acquisition by French conglomerate Vivendi in 2000. Bronfman, Jr., became chief of the new company, Vivendi Universal, but the Seagram company effectively lost control of its entertainment businesses. Meanwhile, the beverage division - the core of Seagram's business - was acquired by Pernod Ricard and Diageo. Seagram's for all intents and purposes ceased to exist.
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