Risk Management

Reliant, Deloitte Settle with Investors

Shareholders had alleged that the defendants failed to disclose that Reliant was engaged in "round trip" energy deals that exaggerated its revenues...
Stephen TaubAugust 1, 2005

Reliant Energy and Deloitte & Touche have agreed to pay $75 million to settle a class-action lawsuit stemming from the energy company’s so-called round-trip trading activities from 1999 to 2001.

Reliant will pay $68 million under the settlement, of which $61.5 million is covered by its directors’ and officers’ liability insurance policies. The company will make a cash payment of $6.5 million as part of the settlement. Further, Reliant will pay an unspecified amount in defense costs. Deloitte & Touche LLP has agreed to pay $7 million.

The settlement covers investors who lost money after buying common shares of Reliant Resources, as Reliant Energy was formerly known, in its April 30, 2001, initial public offering, according to Berman DeValerio Pease Tabacco Burt & Pucillo, the law firm for the plaintiffs in the case.

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Investors accused the defendants of failing to disclose that the company was engaged in round-trip energy deals that exaggerated its revenues and trading volume. Round-trip trading refers to the practice in which two companies buy and sell the same amount of power at the same price and at the same time, resulting in a financial “wash” for both companies. When such trades became publicly known, Reliant was forced to restate its financials and shares of Reliant Energy and Reliant Resources plummeted.

The Louisiana Municipal Police Employees’ Retirement System (MPERS) acted as the lead plaintiff on behalf of Reliant Resources investors in the case in federal court in Houston. Investors who bought Reliant Resources stock on the open market before May 14, 2002, are also eligible to take part in the settlement. “We are pleased that we were able to recover a very significant portion of the money investors lost,” says Henry Dean, chairman of the MPERS board of trustees.

Under the settlement’s terms, Reliant and its directors and officers admitted to no liability, and no violations of the federal securities laws were found. The settlement also includes a release of all plaintiffs’ claims against certain former officers of Reliant. “Today’s settlement represents another step forward in our continuing effort to resolve the legacy issues that relate to Reliant’s historical trading operations,” says Joel Staff, Reliant Energy’s chairman and chief executive officer.

The settlement must be approved by judge Ewing Werlein Jr. of the U.S. District Court for the Southern District of Texas before it becomes final.