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CMS Energy Settles Shareholder Derivative Lawsuit Over Round-Trip Energy Trades

Over three years after the company discovered that some of its marketers had engaged in round-trip or "wash" energy trades (see NGI, May 20, 2002), CMS Energy on Friday said it has reached an agreement to settle a related shareholder derivative lawsuit.

"This agreement eliminates a major legal and business uncertainty for CMS Energy and its shareholders and moves us a step closer to writing the final chapter on an unfortunate period in the company's history," said S. Kinnie Smith Jr., CMS Energy's vice chairman and general counsel. He noted the settlement agreement was approved by the board of directors' Special Litigation Committee and that the members of that committee joined the board after the round-trip trading was discontinued. He added that the settlement, which remains subject to court approval, represents another milestone in the company's ongoing efforts to resolve the legal issues stemming from a subsidiary's round-trip trading.

An individual shareholder filed the lawsuit, purportedly on behalf of the company, in November 2003. The lawsuit claimed certain current and former CMS Energy officers and directors had breached their fiduciary duties in connection with round-trip trading and related internal controls. The company disclosed in May 2002 that certain employees of a Texas-based subsidiary had engaged in round-trip or "wash" energy trades to raise the subsidiary's profile as an energy marketer with the goal of enhancing its ability to market its services.

The company restated its financial reports for 2000 and 2001 to eliminate all revenues and expenses from the round-trip trades, exited the wholesale energy trading business, closed the subsidiary's Texas office, and phased out most of its remaining operations. It reached a settlement on these matters with the U.S. Securities and Exchange Commission without paying any fine (see NGI, March 22, 2004).

Under the terms of the agreement to settle the shareholder derivative lawsuit, CMS Energy:

The agreement also reflects CMS Energy's implementation of a number of corporate governance changes to foster greater transparency, update its employee compliance and ethics guidelines, and increase oversight by the independent members of the board of directors. As previously announced, CMS Energy has:

"CMS Energy has made a substantial commitment to its shareholders," said Robert Weiser, an attorney for the shareholder who brought the suit. "The policies adopted by the company make it a national leader in the area of corporate governance. CMS Energy shareholders should be proud of the steps the company's board of directors has taken."

CMS Energy said the agreement to settle the shareholder derivative lawsuit includes no admission of liability by the company or any of the officers and directors named in the suit.

The agreement has been submitted to a Jackson County, MI, circuit court for approval. The court already has approved the forms of shareholder notice and scheduled a hearing for final approval of the settlement for August 26.

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