PG&E Execs' Stock Trades Could Draw SEC Scrutiny 

David Lazarus / SF Chronicle 2feb01

[ see executive compensation chart below ]

Experts said yesterday that an investigation is likely into whether two senior PG&E executives violated securities laws by cashing in $118,000 in stock options last August -- the same month that outside bankruptcy lawyers were secretly hired.

"The normal procedure is to conduct an informal inquiry into potential violations and then to determine whether to seek a formal inquiry," said Jared Kopel, a Palo Alto attorney who spent six years as an investigator with the U. S. Securities and Exchange Commission.

It remains to be seen, Kopel and other lawyers cautioned, whether the SEC can prove that the executives' stock trades were directly influenced by privileged information or whether they were simply accidents of timing.

"Something is not a crime without criminal intent," said David Conn, a Los Angeles attorney specializing in securities law. "Sometimes there's smoke but no fire."

Pacific Gas and Electric Co. officials refused yesterday to clarify the circumstances surrounding the stock transactions or to specify the exact date in August that bankruptcy lawyers were retained.

The SEC declined to comment on whether an investigation already has started.

"We only announce that an investigation was opened when we sue someone," said Helane Morrison, district administrator of the SEC's San Francisco office.

As The Chronicle reported yesterday, Gordon Smith, PG&E's chief executive officer, and Richard Clarke, a member of the parent company's board and former CEO of the utility, pocketed $118,000 from stock options last summer before the full scope of the utility's financial difficulties was known.

Lawyers said the pair may have broken the law if they cashed in their options after the bankruptcy lawyers had been hired, or even if they knew the lawyers were going to be brought in.

"The mere retention of bankruptcy counsel appears troubling," said Daniel Bergeson, a San Jose attorney with expertise in insider trading cases. "What did the executives know at the time?"

Shawn Cooper, a PG&E spokesman, said earlier that the New York law firm of Weil, Gotshal & Manges was initially hired to help PG&E and its parent company,

San Francisco's PG&E Corp., avoid bankruptcy.

As the utility's financial condition crumbled, however, he said the attorneys' role switched to advising PG&E on different scenarios for seeking Chapter 11 protection from creditors.

Bergeson said it would be hard to imagine that PG&E's top brass did not grasp the severity of the utility's situation when the highly regarded legal firm entered the picture last August.

"Retaining a firm of the likes of Weil, Gotshal means it's a serious issue, " he said. "If it wasn't a serious issue, they wouldn't need to have that kind of firepower at the table.

"Trading within that period raises troubling questions," Bergeson added. "Somebody has to explain it."

According to financial records, Smith exercised 7,500 options on Aug. 11 at an average $24.38 per share. He sold off the shares the same day at $28.53, earning $31,140 in profit.

Clarke exercised 25,000 options on Aug. 24 at an average $24.75 a share. He immediately sold the shares at $28.25, earning $87,512.

The transactions were made before it was revealed that PG&E had amassed billions of dollars in debt because of runaway wholesale power prices.

An independent audit of PG&E's books this week criticized the utility's top executives for being slow to respond to the company's financial woes and failing to implement cost-cutting measures until last December.

Lawyers said it is often difficult to prove that stock transactions, even ones with seemingly suspicious timing, were the direct result of inside information.

In the case of Smith and Clarke, they noted that the relatively small size of each man's trade -- both possess more than 100,000 PG&E stock options -- could indicate that they were not deliberately trying to cash in their assets.

On the other hand, the lawyers observed that there does not seem to be a pattern of exercising options at regular intervals, which would strengthen the case for this being a matter of bad timing, not insider trading.

Neither Smith nor Clarke exercised stock options at any other point last year, according to financial records.

Conn, the Los Angeles lawyer, said it will be up to SEC investigators to decide what motivated the two men to pocket stock profits in the same month that bankruptcy lawyers were put on the payroll.

"Not every corporate insider is necessarily guilty of unlawful insider trading," he said. "The burden is on the government to prove that the trading arose out of the use of confidential information."

Kopel, the former SEC investigator, said that in most informal probes, company executives are called in for questioning and documents may be requested.

If the case warrants a formal investigation, he said, subpoenas for more extensive information would be issued and a civil suit could be filed. Criminal charges might be pursued concurrently by the U.S. attorney's office.

How shareholders respond is another matter.

"I would not be shocked if there was a shareholder lawsuit citing these trades," Kopel said of the PG&E case.

Along with not being able to pay its wholesale power bill, PG&E and its parent company defaulted, as expected, on $726 million in short-term debt yesterday.

E-mail David Lazarus at dlazarus@sfchronicle.com 

What They Made

Compensation for top utility executives
fiscal year ending Dec. 31, 1999:

Robert D Glynn, Jr Chairman, CEO, and President PG&E Corp. $2,260,165

Robert D. Glynn, Jr. is Chairman, Chief Executive Officer, and President of PG&E Corporation, which owns and manages a diverse group of North American-based natural gas, power generation, energy commodity trading, and energy utility businesses.

Glynn, 57, joined Pacific Gas and Electric Company in 1984. He was elected President and Chief Operating Officer in 1995. He became President and Chief Operating Officer of PG&E Corporation when it was formed in January 1997, Chief Executive Officer on June 1, 1997, and Chairman of the Board on January 1, 1998.

Prior to joining PG&E Corporation, Glynn spent eight years with Long Island Lighting Company and 12 years with Woodward-Clyde Consultants.

A native of Orange, New Jersey, Glynn received his bachelor's degree in mechanical engineering from Manhattan College and a master's degree in nuclear engineering from Long Island University. He also attended programs at Harvard Business School and the University of Michigan Business School.

Glynn is a Director of PG&E Corporation and Pacific Gas and Electric Company. He also is active in other organizations, including The Business Council, the California Business Roundtable, and the Board of Governors of the San Francisco Symphony.

source: http://www.pgecorp.com/officers/bios/RDGlynnJr.html 02feb01

Gordon R. Smith President and CEO PG&E $1,119,925

Gordon R. Smith, 52, who joined Pacific Gas and Electric Company after graduation from college more than 25 years ago, is President and Chief Executive Officer of the company, one of the nation's largest investor-owned energy utilities. He also is a Senior Vice President of the utility's parent company, PG&E Corporation.

Pacific Gas and Electric Company, with headquarters in San Francisco, provides natural gas and electric service to one in every 20 Americans. It is one of the nation's oldest energy utilities, created in 1905 by a combination of several predecessor companies.

Smith, a professional in corporate finance, joined Pacific Gas and Electric Company in 1970 as a financial analyst. He held a number of executive financial positions in the company, serving as Treasurer, Vice President of Finance, and Senior Vice President. He was the utility's Chief Financial Officer for six years prior to his election in 1997 as President and Chief Executive Officer.

Smith received a bachelor's degree from the Haas School of Business at the University of California at Berkeley and a master of business administration degree from the McLaren School of Business at the University of San Francisco.

He serves as a Director of Pacific Gas and Electric Company, the California Chamber of Commerce, the Bay Area Council, the Bay Area Economic Forum, the Committee on JOBS, the Silicon Valley Manufacturing Group, and the San Francisco Partnership. He also serves as a Trustee of the University of San Francisco and the Monterey Bay Aquarium, and was appointed by Governor Gray Davis to the State of California Commission on Building for the 21st Century.

Pacific Gas and Electric Company's 70,000-square-mile service area stretches from Eureka in the north to Bakersfield in the south and from the Pacific Ocean in the west to the Sierra Nevada in the east. The company's extensive electric system consists of 131,000 circuit miles of transmission and distribution power lines, and its gas system includes 42,000 miles of transmission and distribution gas lines. The company's gas transmission and procurement operations enable it to acquire natural gas from Canada, the U.S. Southwest, and California.

Pacific Gas and Electric Company is the utility unit of PG&E Corporation, the energy-based holding company headquartered in San Francisco. Through its businesses, PG&E Corporation markets energy services and products throughout North America.

source: http://www.pgecorp.com/officers/bios/GRSmith.html 02feb01

John E. Bryson Chairman, President and Chief Executive Officer Edison International $2,700,331

John E. Bryson is chairman, president and chief executive officer of Edison International, the parent company of Southern California Edison, one of the nation's largest investor-owned electric utilities; Edison Mission Energy, a worldwide developer of independent power projects; Edison Capital, an international infrastructure finance company; and Edison Enterprises, a national provider of energy-related services.

Bryson joined Edison in February 1984 and was elected as chairman and CEO of Edison International and Southern California Edison on October 1, 1990. He was elected to his current position on January 1, 2000.

Before joining Edison, Bryson was a partner in the law firm of Morrison and Foerster. From 1979 to 1982, he served as president of the California Public Utilities Commission. Before that he served nearly three years as chairman of the California State Water Resources Control Board. Earlier, he practiced law and served as a co-founder and attorney for the Natural Resources Defense Council.

Bryson is a director of The Boeing Company, Times Mirror Company, W. M. Keck Foundation, the Council on Foreign Relations, and a trustee of Stanford University.

Bryson graduated from Stanford University and earned a doctor of jurisprudence degree from Yale Law School.

source: http://www.edison.com/profileexa/meetmgt/index.htm 02feb01