Capital Markets

CMS Agrees to Settle Round-Trip Suits

Three years ago, the electric and natural gas utility settled SEC charges without a fine.
Stephen TaubJanuary 5, 2007

CMS Energy has agreed to pay $200 million to settle shareholder class action lawsuits stemming from round-trip transactions by its former Houston-based trading subsidiary.

The shareholder suits alleged that the electric and natural gas utility made false and misleading statements about its business and financial conditions by including the results of the round-trip transactions in its revenues and expenses between 2000 and 2002.

CMS earlier restated its financials for 2000 and 2001 to eliminate all revenues and expenses from the round-trip trades, sold the majority of the Houston trading business, phased out most of its remaining operations, and closed the subsidiary’s Houston office by the end of 2003. In March 2004, CMS settled SEC charges without a fine.

Under the settlement agreement — in which CMS makes no admission of liability — the company’s insurers will pay $76.5 million and CMS, $123.5 million. The company has established a reserve in that amount and taken a resulting pre-tax charge to 2006 earnings in the fourth quarter. The agreement is still subject to court approval.

In an unrelated matter, the company announced an arbitration-panel decision in a dispute with Duke/Fluor Daniel over the construction of CMS’s Dearborn Industrial Generation facility. “We now have the legal framework for a settlement,” said CMS general counsel James Brunner, in a statement, “and our focus in the coming weeks will be on moving forward to finalize the details of an agreement and presenting that to the court.”

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