INDIANAPOLIS - A "who's who" of the Indianapolis business community is being issued subpoenas from state regulators involving the sale of shares in IPALCO Enterprises around the time the utility company was bought by AES Corp. in 2001.
The Indiana Securities Division on Friday sent the requests for information to about 30 former IPALCO officers and directors, The Indianapolis Star has learned.
Corporate governance is in the spotlight these days. It's pretty clear that this was an example of bad corporate governance.
Ken Skarbeck, managing partner of Aldebaran Capital Management in Indianapolis
They include former IPALCO director Mitch Daniels, a former Eli Lilly and Co. executive who is now President Bush's budget director. Daniels, who sold about $1.45 million in IPALCO stock in January 2001, on Tuesday announced he is resigning the federal post, leading to speculation he will run for governor here.
Other key insiders being issued subpoenas are former IPALCO chairman John Hodowal and former vice chair Ramon Humke. Directors include former Bank One Indiana chairman Joseph D. Barnette Jr. and Anthem Chairman L. Ben Lytle.
About 2,000 IPALCO employees alleged in the suit filed Friday in U.S. District Court in Indianapolis that the insiders "dumped" $71 million worth of stock in the Indianapolis electric utility, in part because they saw trouble ahead with AES' stock price, which later tumbled.
Friday's filing in federal court was a revision of the original suit filed in March 2002, after IPALCO employees lost thousands of dollars in company thrift plans after AES' shares nosedived.
AES shares traded at $49.60 when the merger closed in March 2001, plummeting 90 percent in the first 10 months after the merger, and to a low of 92 cents last October. Shares closed Tuesday at $6.17, down 30 cents.
Budget Director Mitch Daniels testifies on Capitol Hill in this March 19, 2003 file photo, before a House Appropriations subcommittee hearing on the fiscal 2004 federal budget. Daniels will resign within the next 30 days, the White House announced Tuesday. (AP Photo/Matthew Cavanaugh)
"What is noteworthy about (Friday's) filing is the fact that, until recently, we could only document that the insiders dumped $9 million in shares they personally owned soon after the AES deal was announced," said John Price, an attorney representing the IPALCO workers in the pending lawsuit.
"However, recently unveiled documents confirm that the officers and directors actually dumped the incredible sum of over $71 million."
The filing, for instance, states that insiders dumped more than $34 million worth of IPALCO shares within 30 days of Sept. 7, 2000, the date on which shareholders of record are allowed to vote later on the transaction. This allowed insiders to vote in favor of the acquisition and then quickly dump their shares.
Investors allege the company insiders knew -- or should have known -- that AES shares were volatile and that unloading their own shares was inconsistent with their recommendations that shareholders approve the $3 billion acquisition.
By contrast, IPALCO was considered a "widows and orphans" stock for its slow-but-steady growth.
The state launched an investigation into AES' acquisition of IPALCO about a year ago, after a rash of lawsuits by employees and investors against company insiders.
"We're just looking for the facts," said Indiana Securities Commissioner James Joven, who said he could not elaborate on details of the investigation.
Subpoenas typically request documents and may seek answers to specific questions.
The securities division has appointed as its special counsel the Evansville law firm of Ziemer Stayman Weitzel and Shoulders, which drew up the subpoenas.
"It's about time," said Mark Maddox, a former Indiana securities commissioner who now represents securities fraud victims.
He said former officers and directors either knew AES was a problem and sold their shares "to their own personal enrichment" -- or were not aware. Either scenario raises important questions that merit scrutiny, Maddox said.
"Corporate governance is in the spotlight these days. It's pretty clear that this was an example of bad corporate governance," said Ken Skarbeck, managing partner of Aldebaran Capital Management in Indianapolis.
Only two of the 32 former officers and directors could be reached for comment Tuesday. Former IPALCO director Andre Lacy, the president of Lacy Diversified Industries, said he had not received a subpoena, nor was he aware of the investigation.
Former officer Ralph Canter declined to comment.
A review by The Star last December of stock sales by insiders found that 14 of the 30 key officers and directors sold more than $22 million of their IPALCO shares between October 2000 -- when shareholders voted to tender their shares -- to February 2001, just two weeks before the close of the merger.
Insiders reached last year explained that they sold shares for reasons ranging from job loss after the merger to a way to boost executives' severance pay under a change-in-control agreement dating to 1993.
Copyright 2003 IndyStar.com