Saturday, March 03, 2007

TXU PEU Buyout Already Smells of Insider Trading

The planned private equity underwriter purchase of TXU Corp already stinks from wildcatter profiteering. Someone in the know leaked or used their knowledge to buy options on TXU stock. The crafty insider even used European trading firms in an effort to disguise their identity. However the Securities and Exchange Commission uncovered the plot, placing the criminal’s ill begotten gains on hold while pursuing the case.

A closer look at the news article reveals several clues. A board member stepped down to avoid the appearance of impropriety given their background with the Nuclear Regulatory Commission. This seems odd given the appointment of James A. Baker as advisory chairman and the planned addition of two other ex-government board members. One is a prior EPA chief, the other a former Secretary of Commerce. Why does one give the appearance of a conflict of interest while the other three are “solid board appointments”?

On most boards, conflicts are declared and that person abstains from both discussion and voting on that issue. Was the retiring board member the insider trader? They happen to have another board position in the United Kingdom. Coincidence or a lead? Only the SEC is in a position to know for sure as it currently calls the insider trader “unknown”.

Already rich Wall Street deal makers are known for passing information on to their friends for profiteering. The SEC brought charges against 13 people this week for such scheming. The director of the SEC's enforcement division, said in a statement:

"What is so alarming about the conduct alleged in the SEC's case isn't just the scope of the scheme ... but, sadly, who is at the center of it. Besides the lawyers, defendants including registered representatives, compliance personnel and hedge fund managers, improperly relied on hundreds of tips during five years of illegal trading. And this conduct ... [occurred] at what are commonly considered 'top tier' Wall Street firms."

Board members also have been known to drop hints to their friends. While working for HCA a friend got advice from Tommy Frist that now would be a very good time to buy his company’s stock. This occurred before HCA’s first time to go private in the late 80’s.

This deal is all about money. Investment houses take companies private for operations improvement and later resale. Guess who pays in these tranactions? The customer does.
As an electricity purchasing Texan, TXU’s $2.5 billion in 2006 profits have me angry. The legislature’s promise of deregulation turned into much higher than average energy prices (despite the more widespread use of cheaper fuels like coal in our state).

It appears TXU tried to make the headlines about their buyout vs. their obscene profit increase on the backs of Texas energy customers. Their rush to get off the public reporting exchanges may be held up by the Texas legislature which fortunately is in session. Will they represent the people or their high dollar corporate contributors?

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