Cms Energy Scandal and Rebound

1433 Words Apr 12th, 2007 6 Pages
Beginning in 2000, CMS Marketing, Services and Trading Company began to make energy trades that had no economic justification. As stated in the Securities and Exchange Commission cease and desist order ¡§CMS materially overstated its revenues, expenses and energy-trading volumes in 2000 and 2001 through the use of undisclosed round-trip energy transactions conducted by its Houston-based energy-trading division, MS&T.¡¨ These trades have now become known as "round-trip" trades. CMS issued false Press Releases describing the trades as low margin trades when in fact there were no margins. The Company admits that $5.2 billion of these trades were made in 2000 and 2001.
Round Trip Trades
Round trip or wash trades are simultaneous,
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The special committee reported its findings and recommendations to the Board of Directors on November 4, 2002. In a CMS press release (2002) the board approved the recommendations of the committee and it¡¦s independent outside counsel. No new information was discovered, and there was no indication of motives other than to pump up the marketing credentials of the Marketing, Services and Trading business by showing higher sales volumes. Furthermore the committee found no apparent effort to manipulate the price of CMS Energy stock or affect energy prices.
In March 2004 the SEC filed civil lawsuits against Preston D. Hopper, and Tamela C. Pallas, for fraud and other securities law violations. The complaint alleges that Pallas orchestrated the sham transactions to simulate robust operations within CMS's marketing and trading subsidiary. Hopper failed to ensure the disclosure of the true nature of the trades. Hopper sponsored improper accounting for the sham transactions and that, when CMS's outside auditors forced CMS to reverse the reporting of the round-trip trade revenue, Hopper fraudulently failed to disclose the reasons for the reversal. The Commission is seeking in its civil suit that there be monetary penalties and that the court prevent them from serving as officers or directors of any public company.

Are they legal? Round trip trades are
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