The Kansas City Star
Suit blames Aquila for losses
by Steve Everly
Aquila Inc.'s employees lost more than $150 million in retirement funds at least in part because the company failed its fiduciary duty, a lawsuit alleges.
The lawsuit was filed Friday in U.S. District Court in Kansas City on behalf of a former Aquila employee and seeks to include other affected former and current employees, thought to number in the thousands.
The suit accuses Aquila's top executives and its board of directors of breaching their fiduciary duties to provide complete and accurate information that would have enabled employees to make informed investment decisions for their 401(k) investment accounts.
Employee retirement accounts once held company stock worth $200 million, the suit said. But that had shrunk to $17.4 million by the end of 2002, when the collapse of Enron Corp. led Aquila to reverse its expansion into the energy trading and wholesale power businesses. Company policies kept employees from selling some of that stock, the suit said, and employees held onto other stock because of ?misleading? statements by company executives about the company's future.
?As corporate credit rating agencies and analysts raised their concerns over the company's business operations and financial position, the company downplayed any exposure to risk, insisting that the changing market environment created ?opportunities,' ? the lawsuit said.
Al Butkus, a company spokesman, said Aquila had received the lawsuit Monday morning and was reviewing it. ?We are examining the implications of the suit,? he said. Butkus did challenge one of the major contentions of the suit ? that the company sought to have employees invest heavily in company stock. Instead, he said, it encouraged diversity in making such investments.
The suit's plaintiff is Richard Itteilag, a former Aquila employee who is being represented by the New York law firm of Wolf Haldenstein Adler Freeman & Herz. Itteilag held 14,332 shares of stock as of March 2003, which were once worth $814,000. By May 2004, the stock was worth $62,630, for a 92 percent decline. Damages were not specified, but the suit seeks to force Aquila to make good on losses suffered by employees covered by the lawsuit because of the alleged breach in fiduciary duty.
Aquila's 401(k) retirement program, like those offered by other companies, is meant to help employees prepare for retirement by allowing them to make tax-deferred investments. Aquila also matched part of the employees' contributions. Aquila was the administrator of the plan, which included several investment options for employees, including mutual funds and Aquila stock. By mid-2001, Aquila stock accounted for roughly two-thirds of the overall value of the retirement accounts, according to the lawsuit. The company had for many years encouraged employees to buy and hold company stock, the suit said, not only in retirement accounts but in other stock purchase programs. The 2001 annual reports said that 85 percent of Aquila employees in North America owned shares of the company's common stock. ?This level of employee ownership has set us apart in our industry,? the company stated in the 2001 report, according to the lawsuit.
Aquila also maintained policies that made it difficult to sell shares of Aquila stock contributed by the company to the 401(k) retirement accounts, the suit said. The policy was first modified in 1999, when employees within 10 years of retirement could sell some of those shares. In October 2002, the company decided that employees under 50 with five years' experience could sell a portion of the company-contributed shares each year. But by that time, according to the lawsuit, the share price, which had once been in the mid-$30 range, had dropped to $5. The stock closed Monday at $2.98 a share, down 9 cents.
In addition, the suit said, the company sought to reassure employees that the stock continued to be a good investment. A proposed spin-off of the company's energy trading business in 2001 seemed to be a way to remove the risk of such a deregulated business from the main company and its collection of regulated gas and electric utilities. But in October 2001 it dropped the bid to spin off the energy trading business amid Enron's difficulties. The decision saddled the company with the energy trading, which would soak up large amounts of capital and cause the parent company's stock to decline. But reassurances continued, including one communication to employees that they could have confidence in the success of the new plan. Aquila executives said bringing the energy trading back to the parent company would bring more shareholder value. The reality, said the lawsuit, was that the energy trading business was a sinking ship. ?At a minimum, defendants had a duty to inform plan participants of the significant risk that they face in continuing to hold Aquila stock,? the suit contends.