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Rather than give up what some regard as the most complex bankruptcy case in history, U.S. Bankruptcy Judge Dennis Montali sold hundreds of thousands of dollars in stock he owned in several large creditors of California-based Pacific Gas & Electric. According to Montali’s financial disclosure forms and his clerk, Montali sold valuable stock in energy producers Calpine Corp., Duke Energy Corp. and Dynegy Inc. shortly after being assigned the case. “As soon as he was assigned the case, he immediately undertook steps to sell those stocks and he sold them before any of the parties made any appearances in this case, and before he made any decisions in this case,” said clerk Peggy Brister, speaking for Montali, of the U.S. Bankruptcy Court for the Northern District of California. The sales complied with federal ethics rules on conflicts of interest. The judge made a tidy profit on his energy investments. He bought stock in Calpine and Dynegy in early 2000, just before prices for electricity spiraled upward, PG&E’s debts mounted, and the first whispers of the power crisis were heard. Montali purchased shares in San Jose, Calif.-based Calpine on March 15, 2000, when it traded around $26 per share. By the end of 2000, Montali’s stake was worth between $100,000 to $250,000, and by April, when PG&E filed for bankruptcy, Calpine’s stock was trading above $50. Also on March 15, 2000 — and again in July — Montali bought stock in Houston-based Dynegy, whose share price has since also doubled. By the end of the year, his stake was worth between $50,000 and $100,000. He held stock in Duke Energy before buying stakes in Calpine and Dynegy, but over the same period the company’s value increased by more than half. By the end of 2000, Montali’s stock in Duke Energy was worth between $15,000 to $50,000. While Montali apparently knows where to invest his money, he also knows when to get out. The day after Christmas 2000 he gave himself a present, selling as much as $50,000 worth of PG&E’s corporate parent. Each of the three power providers is owed millions by PG&E, which filed for bankruptcy April 6. Although a PG&E spokesman could not determine the exact amount, initial filings in the case stated that the utility owed, for example, a total of $175 million to four of Calpine’s California co-generation plants. How much is owed to each of the suppliers is difficult to determine, said a PG&E spokesman. The company actually owes the money to state agencies that trade in power. PG&E owes those agencies between $2.5 and $3 billion. “That includes Calpine, Duke and Dynegy, but it’s not only Calpine, Duke & Dynegy,” said spokesman John Tremaine. By many accounts, Montali has relished the challenging case, speaking casually with the lawyers and displaying flashes of humor during court hearings, and at one point stopping a crucial argument to inform a lawyer that he was mixing metaphors. Montali’s stock sales are completely aboveboard, said both a legal ethics expert and a representative from the Administrative Office of the U.S. Courts. According to ethical rules, when federal judges are assigned a case with a party in which they have an economic interest, they have two choices: Either recuse themselves or sell the interest. Montali chose the latter. They are not allowed to have any interest, economic or otherwise, in a party before the court. “He has no economic interest,” so the situation presents no ethical problems, said Jonathan Arons, a San Francisco-based legal ethics expert. California Gov. Gray Davis and other state officials have railed against what they characterize as profiteers of the state’s energy crisis, accusing power providers of lining their own pockets while siphoning state resources. Duke Energy, in particular, was harshly criticized after admitting it charged the state as much as $3,880 per megawatt hour, almost 30 times its average price. However, Davis and others have not criticized shareholders in the companies. Perhaps that is because the California Public Employees’ Retirement System and other state pension funds have significant stakes in the companies criticized by the governor.

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