I think the press report below highlights one of several areas that should
be addressed by a proper compliance program.

Spokane, Wash.-Based Utility's Legal Woes Mount

The Spokesman-Review, Spokane, Wash. -- Nov. 12
A federal agency is investigating possible violations of energy futures
trading rules at an Avista Corp. subsidiary in Houston in 1998.

Commodity Futures Trading Commission investigators want to know whether
Avista Energy intentionally manipulated the futures market to drive up the
price of a large electricity futures contract in the summer of 1998.
Avista Corp. is also dealing with other legal problems that occurred during
the tenure of Avista Chief Executive Officer Tom Matthews, who was replaced
last month as CEO and resigned as chairman of the board Friday.
Matthews has said he became a lightning rod for criticism that deflected
attention from the company's successes.
The problems include lawsuits from four former Avista Energy electricity
traders, who say their managers reneged on bonuses for racking up big
profits for the subsidiary in 1998 and 1999.
Three of the traders' lawsuits have been settled for undisclosed amounts,
the latest one last week.
In addition, Avista is preparing to defend four shareholder lawsuits over
the financial hits investors took this year from the company's $123 million
in energy trading losses at its regulated utility.
The most hush-hush of these legal wrangles involves the CFTC, an agency
created by Congress in 1974 to monitor the sale of commodity futures and
options markets nationwide.
The agency has issued a formal "order of investigation" to look into the
alleged violations at Avista Energy, said New York attorney Michael Koblenz,
a former CFTC assistant director and Eastern regional counsel.
The agency works like the Securities and Exchange Commission, which
regulates and monitors stock trading.
In May, the CFTC's Division of Enforcement issued subpoenas to several
current and former Avista Energy employees.
The agency wants information on "certain trading in the August 1998 Palo
Verde and California-Oregon border electricity futures contracts on the New
York Mercantile Exchange (NYMEX)," according to one of the subpoenas.
Avista spokesman Steve Becker declined repeated requests for comment last
week on the CFTC probe and the lawsuits against Avista.
"It's our policy not to comment on any threatened or pending litigation,"
Becker said.
Koblenz is representing Luis Pando, a former Avista Energy senior analyst
and trader, in the CFTC investigation.
Pando worked at Avista from August 1997 through March 1999 and now works for
Southern California Gas Co. in Los Angeles.
Pando is also one of the four Avista Energy traders who sued over their
bonuses. Pando says Avista owes him at least $300,000; his case is pending.
Futures contracts have been traded for more than a century for agricultural
products. In the last 20 years, the trades have expanded into many new
markets, including energy.
The contracts are used by power traders to hedge against future price
fluctuations of the energy market.
Although money changes hands on paper between marketers dealing with the
NYMEX contracts, rarely do actual kilowatts get delivered.
The CFTC has authority to bring civil charges in administrative or federal
court and can also refer alleged trading violations to the Justice
Department for possible criminal charges, Koblenz said.
"Individuals could lose their licenses and be fined, or be asked to disgorge
some of their profits. The same penalty applies to the corporate structure,"
Koblenz said.
CFTC spokesman Dennis Holden declined comment on the Avista investigation
last week. "The CFTC does not confirm or deny the existence of any
investigation," Holden said.
In a recent interview, Pando said he was questioned for two days in
September by commission investigators in New York.
"They are looking at violations of the Commodities Exchange Act. It was
intimidating," Pando said.
The investigation's focus is on an option for 800 megawatts of power that
was expiring in August 1998. A megawatt is enough to provide electricity to
600 homes.
Avista made a $4 million to $5 million profit on the deal, but a trader
outside the company complained to the New York Mercantile Exchange that
Avista traders were trying to manipulate the price, said another former
Avista Energy trader.
"The rumor is that someone leaked this trade in advance," cutting into the
potential profits of other traders, said the ex-trader, who asked not be
named in this story.
Pando says he doesn't know how he ended up on the CFTC subpoena list.
He never worked in Houston, where the trade was made, and has never traded
futures contracts. He said he sold over-the-counter physical power into the
California market from Spokane after he became an energy trader in July
1998.
"I was very surprised I was brought into this. This is a very serious
charge, but I wasn't involved," Pando said.
Meanwhile, Avista has settled three of the four energy traders' lawsuits
over their bonuses, said Robert Dunn, their Spokane attorney.
"A couple of these guys were like the Ken Griffey and Alex Rodriguez of the
power industry. They made so much money for the company it kicked them into
an unheard-of bonus category," Dunn said.
In an interview last Monday, former Avista Energy trader Michael Griswold
said he made $25 million in profits for Avista Energy in 1998 before he left
the company in the dispute over the bonuses.
His lawsuit was settled Wednesday and Griswold can no longer discuss the
case, Dunn said.
Meanwhile, a high-profile Seattle firm with expertise in securities
litigation has been named lead counsel for the Avista shareholder suits
filed last summer.
Hagens and Berman represented Washington, Idaho and 11 other states as
special attorneys general in the recent litigation against the tobacco
industry spearheaded by Washington Attorney General Christine Gregoire.
The Seattle firm was also recently hired by Microsoft to help defend the
computer company in the government's antitrust case.
It also won a settlement from junk bond financier Michael Milken on behalf
of several Washington state public employee pension funds. Milken pleaded
guilty in 1990 to six felony counts in the unrelated Drexel, Burnham Lambert
securities fraud litigation and was jailed for 22 months.
The Seattle firm's lawyers "have played lead and/or major roles in cases
that have resulted in cumulative recoveries in excess of $260billion,"
according to the firm's backgrounder filed for the Avista case in U.S.
District Court in Spokane.
The Avista shareholders sued shortly after Avista CEO Matthews announced in
June that the company would lose $90 million from bad electricity trades at
its regulated utility in this year's turbulent energy market. The losses
have since grown to $123 million.
They allege Avista exposed shareholders to unacceptable risks by "covertly"
entering into massive electricity forward contracts "in an undisclosed
gamble that electricity prices would decrease in the future."
Instead, the price skyrocketed, "causing Avista's share price to drop
sharply," the complaint says.
The lawsuits seek to represent all shareholders who bought Avista stock
between April 7 and June 21 this year.
Avista's Becker declined comment on the shareholder lawsuits, again citing
company policy not to discuss pending litigation.

NGI's Daily Gas Price Index
published : November 16, 2000
Investigators Probing Avista's Trading Practices
Legal troubles for the once high-flying Avista Corp. continue to add
up, as federal investigators have begun looking into possible energy futures
trading rule violations that may have occurred two years ago at a Houston
subsidiary.
Investigators from the Commodity Futures Trading Commission (CFTC)
are checking into whether subsidiary Avista Energy illegally manipulated
futures markets that in turn drove up the price of an electricity futures
contract in 1998.
The CFTC, created in 1974 by the U.S. Congress, monitors the sale of
commodity futures and options markets across the country, and is similar to
the Securities and Exchange Commission. It has the authority to bring civil
charges into administrative or federal court, and also may refer alleged
violations to the U.S. Department of Justice for criminal charges, according
to attorney Michael Koblenz.
Koblenz, a former CFTC assistant director and regional counsel, is
representing Luis Pando, a former Avista Energy senior analyst and trader,
one of the four Avista Energy traders who sued the corporation for bonuses,
and whose case is still pending. Pando claims he is owed at least $300,000.
The CFTC is looking into trading in an August 1998 Palo Verde and
California-Oregon border electricity futures contract on the New York
Mercantile Exchange, according to one of the subpoenas. Pando said he had
been questioned for two days in September by CFTC investigators in New York.

The CFTC investigation, however, is just a small part of the legal
difficulties that have descended upon Avista Corp. Four former Avista Energy
electricity traders sued the corporation, alleging that their managers
reneged on profit bonuses in 1998 and 1999. Three of those lawsuits have
been settled out of court for undisclosed sums.
Avista also is preparing its defense against four shareholder
lawsuits filed after the company lost $123 million in energy trading losses
from its regulated utility (see Daily GPI,).
And then, not nearly as surprising as it would have been less than a
year ago, Tom Matthews resigned as chairman of the board last week, after
being replaced in October as CEO. He said in recent months that he
considered himself to be the "lightning rod" for problems within the
company, and that the focus had diverted attention from Avista's numerous
successes.
Matthews' departure was not the only management change announced
last week by the Avista board of directors. Erik J. Anderson was appointed
to the board of directors, filling a board vacancy created by Matthews.
Anderson is CEO of Seattle-based Matthew G. Norton Co., responsible for
strategic planning and direction, asset allocation and principal investments
within the company.
Larry A. Stanley was elected non-executive chairman of the board of
directors, replacing Matthews, and he will serve out Matthews' unexpired
term as chairman until May 2001. Also, as expected, Gary G. Ely was
officially appointed Avista president and CEO. In October, when Matthews
resigned, the Avista board had named Ely acting president and CEO. Ely, who
has been with Avista for 33 years, had previously held the position of
executive vice president of Avista Corp. He has overseen the refocus and
strong financial turnaround of the company's unregulated Avista Energy unit
this past year and has led the initial development of Avista's growth
businesses.
Scott L. Morris and Kelly O. Norwood were named corporate vice
presidents of Avista Corp. Morris also serves as president of Avista
Utilities, the company's regulated electric and gas operating division, and
Norwood also serves as vice president and general manager of Avista
Utilities' energy resources department.
"The board has affirmed its commitment to and remains fully
supportive of the company's strategic direction. We will continue our goal
of value creation and emphasize this as our number one objective. We also
remain diligent in our work to strengthen our utility business," said
Stanley.

David Yeres
Clifford Chance Rogers & Wells
200 Park Avenue
New York, NY 10166
Tel: (212) 878-8075
Fax: (212) 878-8027
Email: david.yeres@cliffordchance.com










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