THE UNITED STATES DEPARTMENT OF JUSTICE
OFFICE OF THE U.S. TRUSTEE
David C. Farmer, Successor Trustee
vs.
Bobby N. Harmon
(Formerly Mary Lou Woo vs. Harmon and James Nicholson vs. Harmon)
CV05-00030 DAE/KSC
United States District Court, District of Hawaii
Judges: David A. Ezra; Kevin S. Chang
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DEFENDANT’S WITNESS
WILLIAM A. WISE
Former CEO of El Paso Corporation.
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April 18, 2003
Wise leaves El Paso with bountiful booty
Former leader took home $50 million during last three years, could get $840,000 annually in retirement
by Jim Greer, Houston Business Journal
New filings with the Securities and Exchange Commission hardly mince words about the hastened exit of longtime El Paso Corp. leader William Wise, but they also outline some handsome parting perks and note that three of Wise's relatives have been on the company payroll.
"El Paso terminated the employment of William A. Wise" as chairman and CEO last month, the Houston energy company says in new SEC documents. Wise's previously announced departure as leader of the revamping company had previously not been described in such blunt terms. But Wise leaves anything but empty-handed, according to filings made late last week.
Also in the SEC documents, the company reveals that one of Wise's sons-in-law last year received $170,531 as an employee for El Paso or one of its subsidiaries. Joining him on the El Paso payroll was another of Wise's unnamed sons-in-law, who in 2002 was paid $74,174. And the filings mention that a Wise sister-in-law also was an employee, earning $62,779 from the company last year.
While his three relatives were averaging a combined salary in the low six figures in 2002, Wise's salary topped $1.4 million. Wise also received about $485,000 in additional compensation last year.
Although it cracks seven figures, the 2002 compensation package marks a pay cut for Wise. For the stretch from 1999 through 2001, excluding stock options, Wise's three years at the helm landed him a combined kitty well over $50 million. Thanks largely to an incentive payment, he earned over $33 million just in 1999.
But El Paso's fortunes have changed dramatically in the new millennium.
The company's stock hit a low of $3.33 on Feb. 13 of this year. Two days before the shares scraped bottom, El Paso announced that Wise would retire by the end of this year. On March 12, the timetable was accelerated.
As the CEO since 1990, Wise led El Paso's transformation from a pipeline operator into a sprawling, diversified energy company. But, Morningstar analyst Paul Larson notes, Wise stepped down "amid a rash of controversy."
A highly publicized industry meltdown decimated El Paso's energy trading business, notes Larson. The company is now winding down the money-losing trading operation.
And last month, El Paso finally settled some sticky regulatory issues, but only after agreeing to pay hundreds of millions of dollars to various parties in the western United States. RBC Capital Markets analyst Mark Easterbrook points out that as part of the settlement, El Paso recently took a hefty charge.
Heavy debt also has been weighing on Houston's largest company, which is aggressively selling assets to offset that burden.
"Leverage is still well above a comfortable level," notes Easterbrook.
Still, debt levels appear manageable for 2003, Easterbrook adds.
Looking for a leader
Another overhang that could continue to pressure El Paso shares in the near term is a proxy fight that dissident shareholders have waged for control of the company's board.
And there's the El Paso regime change.
Director Ronald Kuehn took the helm when Wise stepped down last month. With help from an executive search firm, El Paso is looking for a permanent CEO.
"One of El Paso's key challenges is restoring management credibility," according to a Goldman Sachs equity analyst.
Such a restoration could improve the company's access to the capital markets, the analyst adds.
The Goldman analyst also believes that a new CEO's strategy and performance could significantly impact El Paso shares, "positively or negatively."
Amid the tumult, the Houston energy company's stock has dropped more than 85 percent from above $50 a share in 2001 to about $7 this week. In less than a year, about $10 billion in market value has disappeared from El Paso shares, leaving the stock with a recent market capitalization just above $4 billion.
The stock's extensive tumble increasingly fueled shareholder cries for a change at the top.
For his part, Kuehn gets a salary of $100,000 -- per month -- while he serves as El Paso chairman and CEO. His bonus could double his salary. And SEC filings show that El Paso will maintain a Houston apartment for Kuehn, who has a residence in Birmingham, Ala.
Still, any corporate apartment occupied by Kuehn likely does not compare to the Houston residence that Wise purchased with El Paso's help. In 1997, El Paso loaned Wise more than $1.5 million to purchase the Houston residence, according to the SEC documents.
A month ago, Wise repaid El Paso the more than $1.5 million in principal, along with about $617,000 in interest, the SEC filings indicate.
But there's another part of the agreement. El Paso says it will purchase the Houston residence at Wise's request within two years of his termination. Such a purchase would come "at the greater of" the home's appraised value or the amount of Wise's investment in the residence, according to the SEC documents. Wise, perhaps temporarily, is apparently out of pocket over $2 million for the residence.
As El Paso's former chairman, CEO and onetime president, Wise also appears poised to receive estimated retirement benefits of $842,452 per year.
Last fall, Wise gave up one of his three titles in the initial stages of the management shuffle. He retained the top two posts at El Paso, but only for a few months.
Meanwhile, Wise will not stand for re-election as a company director at the El Paso annual meeting in June.
His diminishing role in the company is a far cry from his standing just two years ago.
In 2001, El Paso senior management received a financial pat on the back for completing the acquisition of Houston-based Coastal Corp. Separate from more than $5 million in other compensation landed by Wise in 2001, he received $3.5 million as a "special retention payment" awarded "in connection with the completion of the Coastal transaction and successful integration of the organizations."
- jgreer@bizjournals.com
www.bizjournals.com/houston/stories/2003/04/21/story3.html
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September 24, 2002
Judge rules gas company
gouged California
State now looking to recoup $4 billion from El Paso Corp.
The New York Times
WASHINGTON – An administrative law judge concluded yesterday that the El Paso Corp. illegally drove up prices for natural gas in California during the state’s power crisis in 2000 and 2001, the first time any federal regulatory official has determined there was widespread manipulation of energy supplies.
In the ruling, Curtis L. Wagner Jr., the chief administrative law judge at the Federal Energy Regulatory Commission, essentially validates the suspicions of California officials that El Paso, the nation’s largest natural gas company, withheld natural gas from the state, driving up the cost of electricity generated by gas-fired turbines.
“El Paso Pipeline withheld extremely large amounts of capacity that it could have flowed to its California delivery points,” Wagner said in the ruling. El Paso’s actions significantly increased the price of natural gas flowing to California, he added...
The ruling sent shares in El Paso down 36 percent, falling to $7.51, down $4.16.
California officials and one of the state’s major utilities, which argued the case in hearings at the energy commission, said they would seek to recover nearly $4 billion in what they contend were higher power and gas prices caused by El Paso’s actions.
The company also faces a number of lawsuits, which will be aided if the ruling is upheld....
El Paso predicted that the ruling would be reversed. In a statement, the chairman and chief executive of El Paso, William A. Wise, said: “We are disappointed that today’s proposed decision does not recognize the substantial record evidence supporting El Paso Natural Gas’ position that the pipeline was operated properly. . ”
In March 2001, The New York Times, as part of a reporting project with the PBS program, “Frontline,” disclosed that internal El Paso documents showed senior executives discussing a plan to give them more control of gas markets, including the “ability to influence the physical markets” to benefit the company....
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October 29, 2002
CEO Full Count: William A. Wise
By Dan Ackman, Forbes
At Bat: William A. Wise
Team: El Paso
Ball One
In April 2002, El Paso announces that it is paying Chief Executive William A. Wise, 56, $11.2 million in total compensation for fiscal year 2001. While this may sound like a decent wage for a company in El Paso's condition, it is actually a big pay cut for Wise, who took home $35 million in 1999.
Ball Two
El Paso on Aug. 8 announces a "pro forma" quarterly profit of $234 million; this is less than the $414 million it earned pro forma in the same quarter a year ago. (It records a non-pro forma loss of $45 million.) But a gain is a gain, and it allows Wise to say: "Our second-quarter pro forma results from operations are a strong endorsement of our asset-rich business model and, we believe, a direct result of the hard work and dedication of our employees."
Strike One
On Sept. 23, a Federal Energy Regulatory Commission (FERC) administrative law judge rules that El Paso withheld "extremely large amounts" of natural gas necessary for the operation of California's electricity-generating plants between November 2000 and March 2001, the time of the Golden State's notorious rolling blackouts. The ruling--with damages to be specified later--sends the company's share price plummeting 36%. The ruling soon leads to El Paso's debt being downgraded to one notch above junk. El Paso denies any wrongdoing and says it will challenge the judge's ruling.
Strike Two
Oscar Wyatt, a natural-gas mogul and staunch critic of El Paso's management and accounting practices, joins the shareholder lawsuits vexing the company; the court later agrees to name him the class leader.
"I'm doing this to protect the interest of the El Paso shareholders," Wyatt says. He figures he should lead the suits since he owns about 4 million shares of El Paso stock, a consequence of the sale of Coastal to the Houston-based energy trading and pipeline company in a stock-for-stock deal valued at $24 billion. The 90% decline in the share price since the deal was completed has left Wyatt, Coastal's former chairman, very angry.
Ball Three
The company on Oct. 11 announces it has agreed to sell its 14.4% interest in the Canadian and U.S. segments of the Alliance Pipeline, as well as the Aux Sable natural-gas liquids plant, based in Illinois, and related entities to Enbridge for approximately $165 million. Wise says its "balance sheet enhancement program" is proceeding on schedule. "This transaction represents another important step in El Paso's plan to reduce debt and strengthen our balance sheet," says Wise. He adds that the firm has sold assets worth $2.7 billion and is on track to hit its year-end target of $4 billion in asset sales to reduce debt.
Foul
El Paso continues to deny it is in any way guilty of the kind of "round-trip" trading of energy that has infected much of the energy trading industry. Apart from the FERC matter, its regulatory record compared to Dynegy and, of course, Enron looks OK.
Next Pitch
The company is appealing the FERC ruling. It says: "The record evidence in this case establishes unequivocally that El Paso Natural Gas Company acted lawfully and prudently at all times." The company claims that FERC's ruling "would threaten pipeline safety and reliability" by requiring, in effect, that pipelines operate too close to full capacity too much of the time. A win in the FERC case would validate the heavy lobbying by El Paso and Wise, and the firm's public relations attack on the ruling.
As for Wise: "He has always done what he believes to be in the best interests of shareholders and employees," a company spokeswoman says.
beta.forbes.com/2002/10/29/cx_da_1029elpaso.html - [Cached Version]
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New Charges of 'Wash' Trades, Improper Books Levied at El Paso
Oscar Wyatt, former chief of Coastal Energy before it was acquired by El Paso Corp., late Wednesday filed a 68-page class action complaint in U.S. District Court in Houston accusing El Paso and several top executives of engaging in round-trip power trading, improper mark-to-market accounting, concealing obligations with off-balance sheet entities, and manipulating of the California energy markets.
The complaint includes detailed accounts of alleged wash trades based on what it says are El Paso trade sheets. It also includes a detailed account of a 50-MW forward swap between El Paso and Morgan Stanley that the complaint alleges was a ''fabricated'' deal El Paso used to justify large mark-to-market gains in its quarterly earnings.
El Paso did not respond to calls by press time Thursday. The suit names as defendants El Paso Chairman, President and CEO William Wise, CFO H. Brent Austin and Ralph Eads, executive vice president and president of El Paso's Merchant Energy Group. Also named as defendants are Credit Suisse First Boston, the investment bank that was underwriter for a number of El Paso offerings, and PricewaterhouseCoopers, the company's auditor.
A PWC spokesman said the company had yet to review the suit, but sees ''no basis for any litigation against us.'' A CSFB spokesman declined to comment.
The complaint was filed ''on behalf of shareholders who purchased or owned El Paso stock between Nov. 9, 2000, and Sept. 23, 2002,'' during which time the company's stock fell from $ 70 per share to $ 8.
The suit alleged ''El Paso's top executives made a substantial number of materially false and misleading statements and failed to disclose other material facts, all of which led the investing public to believe that El Paso, like other energy companies such as Enron, experienced strong 'earnings momentum,' 'high-quality cash flow' and 'substantially higher transaction volumes.'''
Wyatt's filing alleges that despite ''five separate'' statements by El Paso that it did not engage in wash trades, ''management blatantly and openly encouraged'' traders to engage in them.
The complaint charges that an El Paso ''trading sheet'' for Jan. 11, 2002, ''reflects'' six pairs of matched 50-MW trades at PJM, three with Reliant, one with Aquila, and two with Duke, all executed on the Intercontinental Exchange (ICE). The filing also claims that the six trades were only a fraction of the improper deals the company conducted and estimated that El Paso engaged in $ 800-million to $ 1.1-billion worth of round-trip deals between September 2001 and May 2002. Further, the suit charges that El Paso offered a $ 10,000 bonus to the trader with the highest volume of trades on ICE at the end of a given month.
The complaint also charged El Paso officials in August obtained from Morgan Stanley a ''surreptitious agreement'' to execute a ''prearranged'' power swap with El Paso that ''somehow convinced'' PWC ''there was a liquid market for energy contracts beyond 10 years.''
The filing presents a chronology of El Paso efforts over nearly a week in early August to find a counterparty for the swap. Morgan Stanley Wednesday said the deal had come to it through a broker. PWC, according to the filing, said without proof of liquidity, El Paso's Q1 2002 earnings might have to be restated.
The suit said that because the August '''trade' was fabricated the company's first quarter 2002 results were inflated by $ 90-million, rendering those statements false and misleading.''
The complaint alleges that El Paso ''prearranged'' the transaction with Morgan Stanley to convince PWC that a restatement was not necessary. The complaint says El Paso officials had a senior trader call Morgan Stanley ''on a non-recorded cell phone'' to ''beg them to make the deal.''
Morgan Stanley said Wednesday it was unaware that the deal was directly tied to a complicated restructuring of a 15-year, $ 2.3-billion power-purchase agreement between El Paso and Public Service Electric & Gas in which Morgan Stanley served as El Paso's merchant banker. El Paso paid Morgan Stanley $ 42-million in investment-banking and other fees, according to a Securities and Exchange Commission filing.
The deal, which involved the Eagle Point Cogeneration facility, essentially allowed El Paso to maximize the profits it could show under mark-to-market accounting, which was key to the company's efforts to avoid a restatement of its first-quarter earnings.
The complaint alleges the Eagle Point restructuring, done under the direction of Ralph Eads, who headed El Paso's Merchant Energy Division, was ''a scheme whereby El Paso would acquire old electricity-generating plants that had entered into long-term contracts to provide electricity to utilities. After acquiring these plants or companies with existing plants, El Paso would restructure the long-term contracts so that they would appear to be 'derivatives.''' ''In so doing, El Paso deceived the investing public by recognizing all revenues from such restructuring up front, even though El Paso lacked any legitimate basis for calculating the present value of future earnings for more than 10 years out.''
''When it became apparent that El Paso's first quarter 10-Q was patently false, instead of admitting its deception and telling the investing public the truth, El Paso orchestrated a cover-up by engineering a fraudulent trade in order to provide an excuse for its auditors not to force the company to restate its 2002 first quarter results,'' the complaint alleges. ''As a result of this chicanery, El Paso's public filings during this time were false because they inflated both revenues and earnings and hid the true financial picture of the company that its investors and the public were entitled to know.''
The suit also repeats allegations that El Paso withheld gas supplies from California, helping to precipitate that state's energy crisis in 2000-01. Citing the Sept. 23, 2002, findings of Federal Energy Regulatory Commission Chief Administrative Law Judge Curtis Wagner Jr., the suit claims that on Feb. 14, 2000, Wise met with El Paso executives and approved a scheme to ''take more control'' and ''influence the physical markets,'' and El Paso subsequently implemented this scheme by withholding a large portion of the capacity on its pipeline.
http://www.zoominfo.com/people/Wise_William_565028.aspx
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The Port Authority of New York and New Jersey Establishes a Charitable Fund to Assist the Victims of the Vicious Terrorist Attacks on the World Trade Center.
The World Trade Center Port Authority Memorial Fund will provide financial assistance to WTC victims and their families. For information about donating, please call (800) 395-1573.
The El Paso Corporate Foundation, the philanthropic unit of El Paso Corporation, has announced that it will contribute $1 million to the new charity. In addition, El Paso will also match dollar-for-dollar donations by its own employees to qualified funds. El Paso Corporation, which has natural gas and power operations worldwide, is a Houston-based energy company committed to meeting energy needs throughout the world....
Port Authority Chairman Lewis M. Eisenberg said, "Since the first hours after the terrorist attacks, we have been deeply moved by the extraordinary acts of heroism and dedication by Port Authority staff. Many of the 74 Port Authority employees lost or unaccounted for in the disaster, police and civilian personnel alike, selflessly stayed behind as they attempted to help others evacuate the buildings. This new fund will help in some small measure to ease the burdens on the survivors, both those from the Port Authority and the thousands of others who perished in this unspeakable act of violence."
Port Authority Acting Executive Director Ronald Shiftan said, "Offers of help have been pouring in from around the world. On behalf of Port Authority staff, I would like to express our profound gratitude for those who have offered condolences and prayers. The Port Authority is grieving, but we are focused on restoring the region's transportation network and carrying out future improvements. As our police and civilian employees work around the clock, their resolve is strengthened by the expressions of public support the agency is receiving."
William A. Wise, chief executive officer of El Paso Corporation, said, "El Paso is honored to support the Port Authority by helping to launch the World Trade Center Port Authority Memorial Fund. Port Authority employees based at the World Trade Center were among the first to respond to the tragedy in New York City. These employees worked side-by-side with New York City emergency personnel, and many gave their lives in an effort to save others. We hope that the establishment of this fund will, in some small way provide relief for the victims' families, and we encourage other companies to join us in building it. I would like to thank Governor Pataki of New York, Acting Governor DiFrancesco of New Jersey, and New York City Mayor Giuliani for their guidance in helping us determine where our contributions would be most useful."...
www.ibtta.org/WTCDonationpage.htm - [Cached Version]
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William A. Wise is expected to testify regarding his business, professional, political relationships with El Paso Petroleum Corp., Enron, George W. Bush, Harken Energy, Aloha Petroleum, James Ahloy, McKenzie Methane, Dennis Fern, Nathan Aipa, Rudy Giuliani, Joshua Gotbaum, Faye Kurren, Tesoro, Robert W. Goldman, AIG, Goldman Sachs, Barkleys Bank, PricewaterhouseCoopers, Mark McConaghy, and others to be named upon discovery.
Related Sites:
www.zoominfo.com/Search/PersonDetail.aspx?PersonID=565028
http://info.tpj.org/page_view.jsp?pageid=583&pubid=336
http://people.forbes.com/profile/robert-w-goldman/28619
http://www.kycbs.net/AlohaHarken.htm
http://www.kycbs.net/ENRON.htm
http://www.kycbs.net/El-Paso.htm
http://www.kycbs.net/ENRON.htm
http://www.kycbs.net/GoldmanSachs.htm
http://www.kycbs.net/Indict-Bush.htm
http://www.kycbs.net/Methane.htm
http://www.kycbs.net/Oil-Stupid.htm
Originally posted: May 23, 2009