A class action lawsuit has been filed in the US District Court for the District of New Jersey on behalf of purchasers of Amerada Hess common stock during the period between February 9 and July 11, 2000, while a similar suit has been brought against Xcel Energy in the US District Court for the District of Minnesota.
The complaint against Amerada Hess, filed by the law Firm of Cauley Geller Bowman & Coates, charges the company and certain of its officers and directors with violations of the US Securities Exchange Act of 1934.
The complaint alleges that beginning in early 2001, Amerada Hess began secret discussions to acquire Triton Energy Limited to obtain needed additional oil reserves and to significantly boost Amerada Hess’ crude oil production.
However, it immediately became clear to Amerada Hess’ top insiders that due to the demands of Triton’s CEO and Triton’s controlling shareholder that if Amerada Hess was to acquire Triton, Amerada Hess would have to pay an extremely high price of over $3 billion for Triton, a price in excess of what standard valuation approaches would justify for Triton, a price that would represent a very substantial premium over Triton’s stock trading price and a price that would require Amerada Hess to borrow billions of dollars to finance the purchase of Triton.
Without disclosing these discussions and negotiations or Amerada Hess’ decision to offer to pay over $3 billion to acquire Triton, the top insiders at Amerada Hess who were involved in, or aware of, the details concerning the proposed acquisition of Triton, sold off huge amounts of their Amerada Hess stock to avoid the losses they knew they would suffer from the sharp decline in Amerada Hess’ stock which they knew would occur when the Triton acquisition was disclosed, and thus profit from the artificial inflation in the price of Amerada Hess’ stock that persisted while they failed to disclose material information about the proposed Triton acquisition.
By not disclosing that defendants were actively negotiating for the acquisition of Triton, the Individual Defendants violated their duty to ‘abstain’ or ‘disclose’ under the 1934 Act and pursued a scheme to defraud purchasers of Amerada Hess stock by selling off over 1.3 million of their Amerada Hess shares at as high as $90 per share for proceeds of $119 million.
On October 7th, after the Individual Defendants had completed their stock sales, Amerada Hess disclosed it was acquiring Triton for $3.2 billion, $45 per share, a very large, over 50%, premium over Triton’s 7/9/01 closing price of $29-29/32.
Amerada Hess stock fell from $81-11/16 on 7/9/01 to $77 on 7/10/01; to $74 per share on 7/12/01; and to $70-19/32 per share on 7/18/01, a cumulative decline of well over 13% in just seven trading sessions. By the September 26 2001, just weeks after Amerada Hess completed the Triton deal and disclosed it had had to borrow $2.5 billion to finance the transaction, Amerada Hess’ stock fell to $59-3/32 compared to its Class Period high of $90-13/32 in 5/01, a 34% decline.
The Xcel Energy suit, also involving securities violations, has been filed in the US District Court for the District of Minnesota by law firm Berger & Montague on behalf of all persons or entities who purchased Xcel Energy securities between January 31, 2001 and July 26, 2002.
This complaint alleges that the Xcel defendants violated Sections 10(b) and 20(a) of the US Securities Exchange Act of 1934, and Rule 10b-5, by issuing a series of material misrepresentations to the market between January 31, 2001 and July 26, 2002, thereby artificially inflating the price of Xcel Energy securities.
Throughout the Class Period, as alleged in the Complaint, defendants issued numerous statements and filed quarterly and annual reports with the US Securities & Exchange Commission which described the Company’s financial performance and the financial performance of NRG Energy, the Company’s majority-owned subsidiary.
As alleged in the complaint, these statements were materially false and misleading because they failed to disclose and/or misrepresented the following adverse facts, among others that the Company had engaged in ’round-trip’ energy trades that provided no economic benefit for the Company; that Xcel’s and NRG’s credit agreements with lenders contained cross-default provisions and covenants, the result of which was that in the event of a default by NRG, among other adverse effects, Xcel would lose access to $800 million in credit; that the Company lacked the necessary internal controls to adequately monitor the trading of its power; and finally, that as a result, the value of the Company’s revenues and financial results were materially overstated at all relevant times.
After the close of the market on July 25, 2002, Xcel issued a press release announcing its financial results for the second quarter, the period ended June 30, 2002, and disclosed that its earnings had declined and that it was revising its earnings expectations for fiscal 2002. In a conference call the very next day, defendants finally disclosed the true extent of Xcel’s liquidity and credit difficulties and its management’s inability to effectively remedy such difficulties stemming from the operations of NRG. As reported in several business articles dated July 26, 2002, analysts were horrified to learn that the liquidity and credit difficulties extended to Xcel itself under the ‘cross-collateral default’ provisions Xcel and NRG had entered into with lenders.
Market reaction to these revelations was swift and brutal. On July 26, 2002, Xcel stock closed at $7.55, a more than 36% one-day decline, on extremely heavy trading volume. Subsequently, on July 28, 2002, defendants disclosed that Xcel had received subpoenae from the SEC and CFTC regarding Xcel’s engaging in ’round-trip’ or ‘wash’ transactions, which involve the simultaneous buying and trading of power at the same price and same amount and provide no economic benefit to the Company.