Enron Mail

To:kean.steve@enron.com, jeff.skilling@enron.com
Subject:Davis' Energy Advisors Draw SEC Attention.htm
Date:Tue, 31 Jul 2001 05:56:08 -0700 (PDT)

Scrutiny of Davis and crew is taking hold. The state controller, Kathleen=
Connell, also has a well written op-ed critical of Davis in today's LA Ti=

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[IMAGE] Talk about it [IMAGE] E-mail story [IMAGE] Print THE STATE=
Davis' Energy Advisors Draw SEC Attention *Probe: Under review is the pos=
sible use of inside information to buy power company stocks. GOP rival of =
governor requested the inquiry. [IMAGE] [IMAGE] Times Headline=
s * Latinos Assured Water Is OK * Car Dealer Not Bound by Ad Error, =
Court Rules * Suspect in Simi Valley Serial Rapes Arrested * New LAPD=
Radios Get Negative Reviews * 2 Shot to Death, 1 at Home by Stray Bulle=
ange Commission has launched a preliminary inquiry into whether energy con=
sultants advising Gov. Gray Davis used inside information to trade stocks =
of power companies doing business with the state, a source with knowledge =
of the matter said Monday. The federal agency began its review late last =
week, the source said, in response to a request from California Secretary =
of State Bill Jones. A Republican rival of Davis, Jones charged that stock=
trading by consultants may have violated federal laws barring buying and =
selling based on information not available to the public. On Friday, top =
aides to the governor disclosed that five consultants had been fired for =
possible conflicts of interest between their official positions and their =
personal finances. As news of the SEC inquiry spread through the capital M=
onday, Davis officials were confronted by a flurry of questions about who =
in the administration owns energy stocks. Financial disclosure records fi=
led by the governor's spokesman, Steve Maviglio, show that he owns between=
$10,000 and $100,000 in a Texas company he and his boss have accused of m=
aking "obscene" profits while California has been "on its knees." Maviglio=
said he bought the shares in Houston-based Enron Corp. in 1996. "It's no=
t a crime to own energy stock," Maviglio said. He also owns 300 shares of=
San Jose-based Calpine Corp., which has the largest share of the $43 bill=
ion in long-term state power contracts. Maviglio placed the order for the=
stock on May 31, one day after San Jose's mayor dropped his opposition to=
a controversial Calpine plant favored by the governor and others. Under t=
he terms of Maviglio's purchase, the transaction was completed about three=
weeks later when the stock reached $40 a share, a value of $12,000. It ha=
s since fallen in value. "I viewed it as a good long-term investment," M=
aviglio said, adding that he purchased the shares for his retirement accou=
nt based on publicly available information. The Davis administration has =
spared Calpine the kind of fierce criticisms that it has leveled at other =
electricity suppliers, such as Enron. But California's grid operator has i=
dentified the company as one of many energy merchants to overcharge the st=
ate millions of dollars. The fired consultants also owned shares in Calpi=
ne, ranging in value from several thousand dollars to more than $100,000, =
records show. Another top Davis administration official, legal affairs s=
ecretary Barry Goode, disclosed in his economic interest statement that he=
recently held between $100,000 and $1 million in another out-of-state com=
pany accused of multimillion-dollar price gouging. In a statement, Goode =
said he sold his stock in Williams Co's. a month after he began working fo=
r the governor in February. Goode said the shares were supposed to be sold=
before he went on the state payroll, but his broker failed to do so. In =
light of the recent disclosures, Secretary of State Jones said the governo=
r must do more to ensure the public that its interest comes first. "The g=
overnor should direct all of his staff to immediately file updated conflic=
t of interest statements that reflect current holdings and any activity si=
nce their last statement of economic interest was filed," said Jones, who =
is seeking the GOP nomination for governor. Word of the SEC's entry into =
California's energy problems comes as the governor faces harsh criticism f=
rom lawmakers and others for the quick and broad hiring of highly paid pri=
vate consultants to guide him through the crisis. In his written request =
to the SEC, Jones said that recently filed disclosure documents showed tha=
t at least one consultant bought and sold shares of two energy companies w=
ithin the same month, raising "a red flag" about the possibility of inside=
r trading. State law prohibits officials from participating in decisions=
involving their personal financial interests. The five consultants fired=
last week were among 11 named in Jones' letter, delivered to the San Fran=
cisco office of the SEC last Wednesday. It was not clear which individuals=
are the focus of the SEC's inquiry, or whether the agency's review would =
result in any charges. Two of the former traders said Monday that they ha=
d not been contacted by federal investigators and knew nothing of an inqui=
ry into possible insider trading. But William Mead, fired Thursday, said =
it is no mystery why so many of his colleagues owned Calpine stock. Mead =
said he bought it 2 1/2 years ago and made so much money he recommended it=
to his colleagues last year, while they all still worked for the now-defu=
nct California Power Exchange in Alhambra. Calpine power was not traded on=
that exchange, so there was no conflict of interest, he said. Mead and =
three other energy traders--hired by the state in February and March--were=
terminated by the Davis administration for allegedly buying power for the=
state from Calpine while owning the company's stock. Fired traders Herman=
Leung, Peggy Cheng and Constantine Louie did not list the date of their C=
alpine purchases on financial statements that the state required to be fil=
ed only two weeks ago. "But I'm sure they bought it while they were still=
at the power exchange, because that's when we discussed it," Mead said. "=
It was kind of like a hobby. I'm sure it wasn't done with the intent to ma=
nipulate." Former trader Elaine Griffin, who also owned Calpine stock and=
resigned two weeks ago to take another job, said she didn't know she owne=
d energy securities until she checked with her financial advisor July 13, =
just before leaving her state job. Griffin said she and her husband own a=
bout $10,000 worth of Calpine stock in individual retirement accounts mana=
ged by their advisor, who bought the stock Feb. 1 without their knowledge,=
she said, after research found it to be a good investment. "I kind of fe=
el like we've been used for political reasons," Griffin said. "We would ha=
ve disclosed anything right at first, but they never asked." As a trader=
, Griffin said she occasionally bought Calpine power for the state, but on=
ly at market prices. Meanwhile, two Democratic political consultants, who=
helped Davis polish his image after the ongoing energy crisis caused his =
poll numbers to plummet, have agreed to accept no payment for their work a=
s part of an out-of-court settlement of a taxpayer lawsuit. Tom Hiltachk,=
a lawyer for conservative anti-tax activist Lewis Uhler, said the settlem=
ent was reached last Friday after negotiations with lawyers for communicat=
ions consultants Mark Fabiani and Chris Lehane. "Now they will not receiv=
e one red cent," said Hiltachk. "Very simply Mr. Fabiani and Mr. Lehane ha=
ve agreed to cease all activities for the governor, to accept no payments =
for their services and to basically get out of the consulting business wit=
h the governor." As his part of the agreement, Hiltachk said, Uhler with=
drew his lawsuit Monday morning. Uhler had filed a lawsuit against the tw=
o consultants and Controller Kathleen Connell in June contending that they=
should not receive any payments because of a conflict of interest. The tw=
o men also did consulting work for financially troubled Southern Californi=
a Edison, which was seeking help from Davis and the Legislature. Connell,=
a former Los Angeles mayoral candidate who has been at odds with Davis si=
nce he endorsed an opponent, had held up the payments pending the outcome =
of the lawsuit. Under an agreement with Davis, the men were to have been =
paid $30,000 a month for six months. Fabiani and Lehane could not be reac=
hed for comment. * Times staff writers Nancy Vogel and Virginia Ellis i=
n Sacramento and Robert J. Lopez in Los Angeles contributed to this story.=
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