Energy trading companies should leap into action with “an aggressive compliance program in-house,” including a regimen of standards and procedures to weed out unacceptable market behavior, a veteran attorney in the regulatory arena told the mid-year meeting of the Energy Bar Association.
Attorneys should tell their energy company clients that preventative measures are extremely important. Rules should be created and communicated to all employees, said Richard G. Morgan with the firm of Shook, Hardy & Bacon LLP in Houston. Large diversified companies should create programs for each subsidiary.
There ought to be a policy of encouraging whistle-blowers and that program should be actively supported by the top executives and the board of directors. “Let everyone know the policy will be enforced with zero tolerance, Morgan advised.
Meanwhile, “what if you get a letter” from a federal oversight agency? “As soon as you regain consciousness; stop right there! Immediately engage your general counsel and immediately advise your board that you have received the letter.” This is no small matter. Morgan pointed out the various agencies are cooperating and reminded energy executives of the “litany of lawsuits against Enron.” The company should engage a full investigation by an outside forensic counsel, Morgan said, and then should assert attorney-client privilege over any communications with that counsel.
The next move is to “engage in procedures to protect privileged information,” determining which among the relevant documents should be privileged. Morgan warned that if a company waives its privilege over documents with one of the federal agencies, then those documents will also be available for possible subsequent civil litigation. With those caveats, Morgan advised companies to cooperate fully with an informal investigation.
Morgan also had advice for the agencies, including the Federal Energy Regulatory Commission, the Commodity Futures Trading Commission and the Securities and Exchange Commission, all of which were represented on the panel before the energy bar.
“Mind your Ps and Qs — and the Qs are Quiet and Quick.
“We have all seen the incredible meltdown of the energy industry. It is important that these investigations move quickly and quietly because, if they become public, it will have a direct impact on the stock. That’s just the nature of [the] market right now; which is highly volatile — operated by 26-year-olds in New York City, who don’t know anything about the energy industry, but are very much interested in selling stock.”
Morgan also warned the regulators to “beware of hotline tips; take them for what they’re worth,” being aware that they may be coming from a competitor who is just seeking a competitive advantage in marketplace.
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