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. Last Updated: 07/27/2016

$4.4Bln Bogus Trade Claims Energy Chief

DEARBORN, Michigan -- CMS Energy Corp. on Friday said its chairman and chief executive resigned, a week after coming under fire for the utility holding company's admission that it engaged in $4.4 billion of bogus power trades over an 18-month span.

Chairman and chief executive William McCormick, who disclosed the so-called wash or round-trip trades that artificially pumped up revenue and volume, will be replaced by Kenneth Whipple. Whipple, 67, had been an executive vice president of Ford Motor Co. and is a member of CMS's board of directors.

In addition to McCormick's resignation, CMS said its board would create a special committee to investigate the round-trip trades, where companies buy and sell power at the same price with the same counterparty. Members of the committee will be appointed within the next 10 days, and it will retain outside counsel to help with the investigation.

The resignation of McCormick, 57, is the second high-level executive departure at the company in the past week, following the departure of Tamela Pallas, the president and chief executive of CMS's marketing and trading business.

Over recent weeks Dearborn, Michigan-based CMS has found itself at the center of an industry-wide scandal over round-trip or wash trades, which accounted for nearly 80 percent of the electricity it traded in 2001 and more than 70 percent the year before. The trades lifted CMS revenues by $4.4 billion over 18 months.

Disclosure of the trades -- which have also been announced by Reliant Resources Inc., Williams Cos. Inc., Dynegy Inc. and others -- have been the latest blow to a sector already hit by the collapse of Enron Corp., once the nation's largest trader of power and gas.

Federal regulators are now investigating the deals, while a number of shareholders have filed lawsuits against CMS and others for issuing false or misleading financial statements.

Robert W. Baird analyst David Parker said McCormick, who has been with the company since 1985, made the right decision in stepping down, noting that revelations about bogus trading followed less than successful efforts by CMS to expand abroad and strengthen its balance sheet.

"When you add it all up it's probably time to pass the baton," he said.

Parker said he and other analysts had been misled about the rate of growth of the company's marketing, services and trading business, but said the sham deals and the regulatory probe they have triggered did not amount to a "death knell" for CMS.

CMS also said its board has hired Ernst & Young to audit financial statements for 2002, while it plans to restate its financial statements for 2000 and 2001 to eliminate the effect of the round-trip trades from its reported revenue.

CMS has already restated revenues and expenses downward by $3.4 billion for the first three quarters of 2001, and expects about $1 billion to be cut from its revenue and expense for 2000. The restatements will not affect earnings or cash flow.

The shares of CMS Energy, which said it is exploring the feasibility of extinguishing round-trip trades that remain open positions on its books, rose 61 cents, or nearly 3.5 percent, on the New York Stock Exchange Friday.