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Mirant Corporation, the energy marketer that spun off from Southern Co. two years ago, is being sued in a potential class action that claims the firm violated the Employee Retirement Income Security Act. The suit, filed last month in federal court in Georgia by a retired Mirant employee, alleges that Mirant’s and Southern Co.’s corporate officers must restore losses the companies’ retirement plans sustained. Those plans included investment portfolios of Mirant stock for thousands of the firm’s employees. Mirant’s stock, which soared to nearly $50 a share in 2001, had fallen to less than $4 a share by the summer of 2002. It closed Tuesday at $3.17. Those losses, the suit alleges, were caused by “imprudent” investments in Mirant stock by Mirant’s pension retirement plans. According to the suit, Mirant directors, corporate officers and employees who managed the pension retirement plans, including investments in Mirant stock, misled employees participating in those plans “by concealing Mirant’s participation in the illegal manipulation of energy prices in California during 2000 and 2001 as well as other irregular and unlawful accounting manipulations tied to energy trading.” Brown v. Mirant, No. 103CV1027 (April 17, 2003). In addition, the suit alleges, Mirant made “material misrepresentations and omissions regarding investments in company stock” in SEC filings, annual reports, news releases and conference calls with investment analysts. Mirant employees were allowed to contribute from 1 percent to 19 percent of their pretax earnings to 401(k) plans, according to the suit. Mirant would match 75 percent of an employee’s contributions up to 6 percent of the total contributed amount. All matching contributions were invested in Mirant stock, although participants had the option of redirecting their contributions to other investment funds, the suit alleges. The suit names both companies as well as a number of corporate officers and directors as defendants. Among the individuals named: Mirant Chairman A.W. Dahlberg; President and CEO S. Marce Fuller; Executive Vice President and Chief Financial Officer Raymond D. Hill; Senior Vice President of Finance and Accounting James A. Ward; Senior Vice President Vance N. Booker; and directors A.D. Correll, Elmer B. Harris, William M. Hjerpe, David J. Lesar and W.L. Westbrook. The allegations concerning Mirant’s alleged accounting irregularities and illegal manipulation of California energy prices are virtually identical to those raised in a series of securities fraud suits filed in federal court in Atlanta last year. In re. Mirant Corporation Securities Litigation, No. 102CV1467 (N.D. Ga. May 29, 2002). Southern Co. attorneys J. Kirk Quillian, Bridget Bobick, and Jaime L. McMahon of Troutman Sanders, and Mirant attorneys Oscar N. Persons, Todd R. David and H. Douglas Hinson of Alston & Bird this week sought to fold the ERISA suit into the ongoing securities litigation, noting that the factual bases for the ERISA claims are identical to those of the securities claims. “The two actions involve the same subject matter, Mirant stock, during overlapping time periods,” the attorneys argued. Since May 2002, Mirant shareholders have filed at least 20 federal suits in Georgia and California accusing the Atlanta-based firm of manipulating California electricity prices to reap illegal profits and artificially inflate its stock. The shareholder suits began surfacing in federal court in Atlanta less than two months after California’s state attorney general filed the first of three suits against Mirant in U.S. District Court in San Francisco. The suits claim the energy company broke federal antitrust laws by limiting electricity sales in California during periods of high demand in order to drive up prices, sometimes by as much as 100 percent to 200 percent in 2000 and 2001. The suits also accuse Mirant of illegally dominating the electric power market in northern California through its ownership of the region’s major power plants. The price increase helped Mirant and a dozen other companies that marketed electricity in California reap billions in profits, the suits allege. The alleged antitrust law breaches also helped push Mirant stock prices to a high of nearly $50 a share in 2001. Now Mirant faces demands that it disgorge millions of dollars in profits to the state of California. MIRANT FIGHTS BACK Mirant has sought to dismiss the litigation, claiming that its entry into the California energy market expanded rather than reduced competition. The market historically had been dominated by Pacific Gas & Electric Co., which had held a monopoly on power generation in the state. Moreover, the Mirant’s California attorneys argue, the California Public Utilities Commission — while deregulating the state’s electric power market — approved Mirant’s power plant purchases in northern California as an “environmentally superior alternative.” In doing so, state regulators “consciously rejected the option of having this portfolio of three generating plants sold piecemeal to separate firms,” Mirant lawyers argue in court briefs. Only the Federal Energy Regulatory Commission, not the state or federal courts, has the authority to determine whether rates Mirant charged for wholesale — as opposed to retail — power were “just and reasonable,” Mirant lawyers say. The California litigation and parallel investigations by the California Public Utilities Commission, the California State Senate and the Federal Energy Regulatory Commission helped drive down Mirant’s stock prices to less than $4 a share last year ( Daily Report, Aug. 2, 2002). Last week, Mirant announced a $2.4 billion net loss for 2002. Total operating revenues in 2002 were $6.4 billion compared to $8.5 billion in 2001, according to a company news release. The combined net income of Mirant ‘s two subsidiaries was $262 million. Re-audits of its 2000 and 2001 earnings resulted in a restated net income for 2001 that dropped from $568 million to $409 million. Restated net income for 2000 dropped from $359 million to $330 million, according to the news release. Mirant spokesman David Payne said the ERISA suit “is based on the same specious claims we have seen previously, and we’re confident that Mirant will prevail on the merits of the case.” Attorney Quillian said he “has no earthly idea” why Southern Co. was named as a defendant in the suit. “It’s not really a proper defendant for any of the allegations they’ve alleged,” Mirant attorney Persons of Alston & Bird could not be reached for comment. The case has been assigned to U.S. District Judge Beverly B. Martin. Mirant employees are being represented by Richard S. Schiffrin, Joseph H. Meltzer, and Edward W. Ciolko of Schiffrin & Barroway of Bala Cynwyd, Pa., and Joshua A. Millican of Atlanta.

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