Dynegy/UC Settlement Helps End Crisis Litigation

Dynegy agreed to pay $468 million to settle a securities fraud class-action suit, helping to bring to a close the nearly final round of energy crisis litigation. The lead plaintiff, the University of California, sued the merchant generator in the U.S. District Court in Houston, Texas, for allegedly misrepresenting the company?s financial results, which stemmed from a natural gas transaction in 2001 known as ?Project Alpha.? This deal was alleged to be a cover for a $300 million loan from Citigroup to boost Dynegy?s bottom line. UC claimed the sham deal artificially lifted stock prices between June 2001 and July 2002. ?The settlement is extremely favorable for the defrauded investors,? said James E. Holst, the university?s general counsel. UC purchased 4.16 million shares of Dynegy stock between November 2, 2000, and May 7, 2002. Citigroup was a defendant in the suit, but its motion to dismiss was granted last year. However, Citigroup agreed to pay UC $5 million in exchange for the university?s agreement to waive its right to appeal. The $468 million deal, announced April 15, includes a $250 million cash payment and a $68 million issuance of stock. Of the payout, $150 million will be covered by Dynegy?s directors? and officers? insurance. In addition, the university was given the right to pick two new board of directors members. Dynegy will also pay $5 million on top of the $468 million to cover the university?s legal fees. The merchant generator also announced it had settled a related suit brought in the Texas District Court. ?These settlements represent the last significant legal impediments to the pursuit of growth opportunities for our Natural Gas Liquids and Power Generation businesses,? stated Bruce Williamson, Dynegy president and CEO. Dynegy did not admit any liability by the company or its directors. It will record a first-quarter post-tax charge of $155 million, which is not expected to affect business earnings, according to Dynegy.

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Dynegy/UC Settlement Helps End Crisis Litigation

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