Risk & Compliance

CMS Settles SEC Round-Trip Charges

The commission also settles charges against the company's former controller but files new complaints against two more executives.
Stephen TaubMarch 19, 2004

CMS Energy Corp. announced a settlement Thursday with the Securities and Exchange Commission regarding $5.2 billion in round-trip energy transactions by a subsidiary, reported the Houston Business Journal.

Former controller Terry Wooley agreed to a cease-and-desist order not to engage in further energy trading; he will pay a $25,000 fine. The SEC also filed civil suits against Preston D. Hopper, the company’s former chief accounting officer, and Tamela C. Pallas, the former president of the company’s Houston-based marketing, services, and trading subsidiary, for their roles in “orchestrating the deceptive trades,” reported the Journal.

The commission alleged that Pallas orchestrated sham transactions to simulate robust operations within CMS’s marketing and trading subsidiary, and Hopper failed to ensure disclosure of the true nature of the trades. The SEC also charged that Hopper sponsored improper accounting for the transactions and that, when CMS’s outside auditors forced CMS to reverse the reporting of the round-trip trade revenue, Hopper fraudulently failed to disclose the reasons for the reversal.

The SEC charges that the massive round-trip trades conducted by CMS’s trading subsidiary in 2000 and 2001 artificially increased CMS revenues and trading volumes.

Between the third quarter of 2000 and the third quarter of 2001, according to the commission, round-trip trades artificially increased the company’s trading volume and led to a $5.2 billion overstatement of revenue.

The SEC is seeking unspecified fines against the two, as well as bars prohibiting their service as officers or directors of public companies. Shortly after the SEC charges were filed, CMS announced that it had fired Hopper, who had been serving as senior vice president of information technology and administrative services.

CMS neither admitted nor denied wrongdoing, reported the Journal, and the company was not fined. The newspaper added that CMS stopped most of its trading in 2002; in 2003 it sold off its trading books and closed its Houston operation.