Magazine article The American Prospect

Mitch Daniels: Due Diligence? Bush's OMB Director and Indiana's Own Version of Enron. (Gazette)

Magazine article The American Prospect

Mitch Daniels: Due Diligence? Bush's OMB Director and Indiana's Own Version of Enron. (Gazette)

Article excerpt

IN HIS 29 YEARS AS A MAINTENANCE worker for the Indianapolis Power and Light Company (IPALCO), James C. Gilmore had never been asked to do anything like it. But in late 2000 and early 2001, according to an affidavit filed with the U.S. District Court, Southern District of Indiana, he was ordered to remove "many carts full of accounting records, minutes of the Board of Directors of IPALCO, and other documents" to a large truck-borne shredder, which was rented from a company called Shred-Tech and parked in the alley behind IPALCO headquarters.

IPALCO at the time was getting ready to merge with the AES Corporation, a Virginia-based global-utility behemoth, in a deal that IPALCO'S managers and board of directors were touting to shareholders--while rushing to dump their own stock before the merger took effect. In fact, the merger quickly turned into a financial disaster for I PALCO stockholders and for the company's workers, whose 401(k) plans were locked into a heavy investment in IPALCO. But the directors and officers by then had cashed out.

What was in the papers that Gilmore carted to the shredder is just one of the interesting questions now raised by angry stockholders, employees and retirees in four class-action lawsuits. The defendants--IPALCO and its officers and directors--include White House Office of Management and Budget (OMB) Director Mitch Daniels, who was a board member at IPALCO at the time of the merger decision.

In the Hoosier State, IPALCO is being called "Indiana's Enron," and though there's no bankruptcy dimension to the IPALCO affair, the parallels to Enron are nonetheless striking, right up to the prominent White House ties to both cases. So why has no one outside the state noticed? "Frankly, I've been amazed that this hasn't gotten any more traction than it has on the national scene, [because] it fits perfectly within the context of Enron, Tyco and all the other scandals, and because of the Daniels connection," says Brian Howey, editor of the Howey Political Report, an influential journal in Indiana.

THE SAGA OF HOW IPALCO'S STOCK holders, workers and retirees got fleeced begins late in 1999, when IPALCO was casting about for a merger partner. By the spring of 2000, two prospective acquirers had offered to buy the company for $23.50 a share. In May the AES topped their bids by offering $25 a share, but in June it withdrew the cash offer and said it would instead pay for IPALCO shares with AES stock. According to the lawsuit filings, AES shares were obviously volatile and the company's overly ambitious global-expansion plans were fraught with peril. Nonetheless, in July, with other cash offers still on the table, the IPALCO board unanimously voted to go forward with the AES deal.

In an Oct. 6, 2000, letter sent to shareholders, IPALCO's leadership wrote that "your board of directors has carefully reviewed and considered the terms and conditions of the share exchange agreement, and has determined that it is fair and in the best interests of IPALCO and its shareholders for I PA LC O to be acquired by AES pursuant to the terms of the share exchange agreement. Your board of directors has unanimously approved the share exchange agreement, and recommends a vote for approval of the share exchange agreement."

Despite the board's apparent enthusiasm, the acquisition didn't exactly receive an overwhelming stockholder endorsement: More than 45 percent voted against it. But it passed and, at the end of March 2001, the actual stock swap took place. Within days, the price of AES shares started falling. Six months later, it took a one-day plunge of 49 percent after the company announced that its 200l results would be worse than expected. As of this writing, AES shares have lost more than 90 percent of their March 200l value. Yet by the share-exchange date, virtually all of IPALCO's board members and officers had dumped their stock--walking away, according to the lawsuit filings, with an estimated $43. …

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