Another day, another corporate scandal. On Thursday, the target was Westar Energy Inc. Chairman David Wittig, who was indicted by a federal grand jury on charges of money laundering, conspiracy and four counts of submitting false books to a federally insured bank in Topeka, KS.

According to U.S. Attorney Eric F. Melgren’s office in Topeka, Wittig and his banker, former Capital City Bank CEO Clinton Odell Weidner II, who also was indicted, falsified bank documents to obtain $1.5 million to invest in Arizona real estate. Westar Energy apparently was not involved, but also still is under investigation for the use of aircraft leased by subsidiaries and matters related to its annual shareholder meetings (see Power Market Today, Sept. 30).

Westar said Wittig on Thursday requested that he be put on administrative leave to “devote his time and energy to his personal defense.” The Westar board granted his request and placed Wittig on leave without pay, according to a statement. Westar said the board intends to appoint an acting president and CEO promptly.

According to the indictment, starting on April 3, 2001, Weidner and Wittig agreed to conceal facts regarding an extension of credit to Wittig of $1.5 million by Weidner, as an officer of Capital City Bank. While documents state the loan was being used “to purchase stock and make business investments” and to “complete the final renovation costs of the Landon mansion as well as their personal funds,” it actually was used by Weidner to make a down payment on a real estate development in Scottsdale, AZ, in which Weidner would thus acquire a 50% interest.

“The defendants submitted and caused to be submitted deceptive personal financial statements to Capital City Bank to conceal the true beneficiary of the $1.5 million in loan proceeds,” the indictment said. “[They] caused deceptive loan records to be submitted to and maintained by Capital City Bank. [And they] falsified and caused to be falsified a loan proposal to increase Wittig’s line of credit by $1.5 million…In truth and in fact, as the defendants well knew, the $1.5 million was going to be used to make the down payment on a real estate development in Scottsdale, AZ…”

Trading in Westar stock was halted Thursday on the New York Stock Exchange after it fell 21.47% to $8.52. The indictment follows the resignations earlier this week of two Westar Energy board members. Douglas Lake and John Dicus were nominated by Westar to serve as its representatives on Oneok’s board following Oneok’s purchase of Westar’s gas distribution assets in Kansas in 1997. Westar, which runs the largest electric utility in Kansas, currently is seeking to sell its stake in Oneok. And the resignations apparently were related to the proposed Oneok sale rather than the indictment. Tulsa-based Oneok in late August rejected a proposal to pay about $971 million to buy 42.5% of its stock from Westar, which acquired the stake in 1997.

Earlier this year it was reported that federal prosecutors were investigating Wittig’s use of corporate aircraft (see Power Market Today, Sept. 30). The same U.S. attorney’s office sought documents and testimony related to the use of aircraft leased by subsidiaries of the company and about its annual shareholder meetings. Westar received the subpoena on Sept. 17, according to a Securities and Exchange Commission filing. No additional information was provided by the U.S. attorney’s office on Thursday on any potential further indictments.

In another action, Standard & Poor’s put Westar’s credit ratings (‘BB’-plus) on CreditWatch with negative implications, noting its financial condition “remains quite depressed.” S&P said funds from operations to total debt stands at just 10%, cash flow coverage at about 2.4 times (x), and pre-tax interest coverage below 2.0x. “Due to aggressive use of debt financing and a series of write-offs, the company’s common equity cushion is a lean 25% and debt to capital is about 73%.” (see Power Market Today, Nov. 6)

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