Cms Energy Scandal and Rebound Essay

1431 Words Jun 21st, 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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Reliant's round-trip trades made up 20 percent of all its trading last year. Dynegy has denied taking part in anything improper and has reportedly cooperated with investigators. Four major energy companies all have made and unethical decision and have had a hand in manipulating the energy market.
The outcome
In 2002 management admitted that CMS Energy booked $4.4 billion in round-trip trades and inflated its revenue by as much. The company's stock price dropped by more than 50 percent over the past year and in May 2002, CMS Energy's CEO resigned.
Preston D. Hopper, CMS's former chief accounting officer was fired, and Tamela C. Pallas, former chief executive of CMS Houston-based trading subsidiary resigned from CMS with a lucrative $2,028,000 termination contract. Pallas¡¦ contract leaves doubt in that the company did not have knowledge of the round trip trades. I believe that CMS was afraid that Pallas would implicate others, including members of the Board of Directors. It would be impossible to conduct damage control if the public new that the company was allowed the trades to take place. The company would have no scapegoat and would have a difficult time turning things around. I believe that the board of directors where aware of the round trip trades and approved of it or they would not have given a lucrative termination contract. Pallas took the money and became the scapegoat the company needed.
May 24, 2002 CMS Energy Corporation Board of…

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