The U.S. District Court named the University of California as the lead plaintiff against Dynegy Inc., the embattled Houston-based natural gas and energy company, on Oct. 28.
The suit charges that Dynegy and its bankers misrepresented the financial state of the company by disguising loans as commodities transactions. The University of California alleges that the money received by these loans was counted as income to hide the magnitude of the company’s debt. This allegation is similar to charges levied against Enron Corp., against which the University of California was named lead-plaintiff on Feb. 15.
The suit also accuses Dynegy of engaging in “”round-trip”” trades and “”ricochet trades,”” methods in which the company swaps electricity with other energy traders that are designed to increase the appearance and volume of electricity trading by the company.
The University of California’s Dynegy losses totaled $112.4 million from the 4.16 million shares purchased between Nov. 1, 2000, and May 7, 2002. The University of California’s portfolio is valued at $51 billion and includes both pension and endowment funds.
“”We felt that with the size of our loss and the expertise that we have and the resources that we have, that we were in the best position to represent all the class members and be in position to seek a significant recovery,”” said UC spokesperson Trey Davis.
The university is not seeking a set dollar amount in the suit.
Judge Sim Lake of the U.S. District Court for the Southern District of Texas based his decision to name the University of California lead plantiff on the amount of losses sustained by the university, the ability of the university to litigate the case on behalf of the shareholders, and the university’s claims, which were typical of those of other class members.
Dynegy provided a brief comment on the suit and signaled its willingness to see the case to court.
“”We expected a lead plaintiff to be named, and Dynegy plans to defend itself,”” said David Byford, a spokesman for the company.
Dynegy, which had made a bid a year ago to buy rival Enron, walked away from the $8 billion deal amid its own wave of accounting scandals. Last year it declared bankruptcy, its credit rating was junked and stock prices plummeted. On Oct. 30, Dynegy posted a $1.8 billion loss for the third quarter.
On June 25, the university filed to become lead plaintiff in the case. Other investors vying to be named lead-plaintiff included New York Hotel Trades Council and Hotel Associate of New York City pension funds, Banknorth Investment Management Group, RRZ Investments Management, Tennant Group, Daniel Rascoe, Briand Lindquist and Michael Kvetnoy.
UC will have 60 days to formulate an amended complaint, consolidating all the cases filed against Dynegy. The judge will then set a pre-trial schedule.
The monetary loss for the University of California, although small in comparison to the entire value of its portfolio, impacts the ability of the university to provide for its academic mission as well as for pensions for employees, a UC spokesman said.
The UC-led lawsuit is unrelated to further investigations conducted by the state of California into causes of the 2000 and 2001 power crisis. On Nov. 12, Dynegy confirmed that it received a subpoena from the U.S. attorney in the Northern District of California requesting information related to the California energy markets.
Dynegy stock was priced at 82 cents at the market’s close on Nov. 13, down overall from a 52-week high of $47.20.
