TXU lawsuit starts Monday

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AUSTIN - TXU misled Wall Street analysts by failing to disclose significant financial risks and by manipulating earnings reports, according to a whistle-blower lawsuit scheduled for court action Monday.

The lawsuit -- perhaps the first in the nation under the Enron-inspired Sarbanes-Oxley Act -- was filed by William J. Murray, TXU's former senior vice president for capital management. Murray alleges that he discussed the possibility of bankruptcy with top brass and that TXU fired him as punishment for pressing for public disclosure of unfavorable financial data.

"What this really boils down to is ... the failure to make proper disclosures, the failure to identify risk that existed, and also manipulating earnings," said Murray's lawyer, Hal Gillespie. "He was penalized for making complaints that public policy [demands] that you make."

A TXU spokeswoman said Murray lost his job as part of last year's corporate downsizing. She also said that the company looked into each of his concerns, although some appeared to be outside his area of expertise.

TXU lawyers on Monday are expected to file a motion before U.S. district Judge Jorge Solis in Dallas to dismiss the suit.

"We do deny all the allegations in the complaint and the claims of wrongdoing by TXU," said spokeswoman Joan Hunter. "We deny any allegations of violations of [Securities and Exchange Commission] requirements, of financial disclosure requirements. We do intend to defend the case because it is without merit."

Murray's 49-page lawsuit paints an Enronesque picture of denial and earnings manipulation within the boardrooms of TXU. According to the suit, Murray was hired in December 2000, spent several months complaining of the company's lack of financial disclosures, and then was fired in August 2002.

He seeks as yet undetermined damages for lost wages and bonuses. He makes various allegations:

• In September and October 2001, Murray raised concerns over proper SEC disclosures of billion-dollar liabilities related to pipelines, state franchise tax misstatements and other issues, according to the suit.

"We are bending over backwards to avoid having our book accounting reflect economic reality," Murray stated in a Sept. 20, 2002, e-mail. "I think we're playing awfully close to legal and ethical boundaries."

• During a July 2, 2002, meeting, TXU official Tony Horton stated that the company would have to come up with an extra $4.3 billion if its credit rating fell below investment grade but that the company had only $850 million available, according to Murray's complaint.

This meeting came about a month after a rating agency told one top executive that TXU was in its "cross hairs" for a potential downgrade, and after Murray had told other top executives that TXU's earnings disclosures had been far too positive, according to the lawsuit.

"Murray stated that given that the company did not have financial ratios of an investment grade company, this was a significant risk of bankruptcy," the complaint alleges.

In December 2002, Moody's Investors Service downgraded the credit ratings of TXU Corp. and certain subsidiaries. But that downgrade came after the November bankruptcy of TXU Europe, which took pressure off the company for extra cash.

• Murray also raised questions related to billing problems that led to hundreds of millions of dollars in delayed payments in 2002, according to the suit. He "questioned how TXU could even consider going live with error rates that large and began advocating disclosure of billing error rates and system risk," the complaint states.

• The suit also states: "On many occasions, [chief financial officer] Mike McNally openly referred to 'earnings management,' a practice Murray believes violates federal securities law."

• In March or April 2002, TXU Energy Trading Corp. President V.J. Horgan "told Murray that his raising issues has resulted in a reduced bonus. ... She says that Mike McNally [CFO] and Brian Dickey [Executive VP of TXU] had Murray's bonus cut because he was not a 'team player' and they were unhappy with him raising a lot of issues."

Murray was fired about four months later, according to the suit.

"It is part of our company policy, part of our code of conduct, that we ask our employees to report anything that they believe doesn't follow company principles," said TXU spokeswoman Hunter. "And we did meet with him on many occasions and talked to him about his concerns, and he seemed satisfied on the occasions that we did [meet with him]."

The former TXU vice president filed the lawsuit under the whistle-blower provision of the Sarbanes-Oxley law, which was enacted last year in the wake of the Enron meltdown to encourage employees to report corporate wrongdoing.

Gillespie, Murray's attorney, said his client's lawsuit is probably the first under Sarbanes-Oxley to reach federal court.

Star Telegram

-- Anonymous, June 16, 2003


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