Risk & Compliance

El Paso Settles Lawsuits

Without admitting fault, officials accused of misleading investors close the book on El Paso's "last major legacy issue."
Stephen TaubAugust 2, 2006

Officials at El Paso Corp. announced that they settled a shareholder class action and a derivative lawsuit that alleged that the energy company disseminated false and misleading financial information.

Under the terms of the shareholder class action settlement, El Paso and its insurers will pay a total of $273 million, according to the statement. The natural gas company said it will contribute about $48 million, while its insurance companies will contribute roughly $225 million. The company stressed that based on contributions made in prior periods, it has built up a substantial reserve to fund the settlement, so the payout will have no material impact on its second quarter financial results.

The derivative lawsuit agreement, which will be fully funded by El Paso’s insurers, calls for a $17-million payment, of which $12 million will be used to settle the shareholder litigation portion of the suit. “These settlements resolve the last major legacy issue for El Paso,” said Doug Foshee, president and chief executive officer, in a statement.

The company, and its current and former directors and officers named in the lawsuits, did not admit liability or fault.

The officials were accused of making misleading statements about wash trades—also called round-trip trades—the manipulation of the California energy market, and the size of the company’s natural gas and oil reserves, reported Reuters.

El Paso was one of several companies that was investigated by federal regulators for their controversial “round trip” practice, which involved buying and selling power or natural gas at the same price with the same counterparty.

In 2004, the company reduced its natural gas and oil reserves by 41 percent, resulting in a $2.7-billion reduction in their pretax value.