Aide to Davis Gets Rid of Stock
Gov. Gray Davis’ chief spokesman said Thursday that he has sold his 300 shares of stock in a California power company in the face of criticism that his ownership constituted a conflict of interest.
Meanwhile, in a sign that its insider-trading investigation may be intensifying, the Securities and Exchange Commission has in recent days asked some of Davis’ energy advisors to supply information about their personal stock trades, according to sources. The SEC began an inquiry last week to determine whether Davis consultants traded energy stocks based on privileged information gleaned in their jobs advising the governor.
The developments came amid an uproar over stock holdings by a number of Davis administration officials and contract employees, several of whom purchased large amounts of stock in energy companies just before or during their employment by the state in energy-related jobs.
Davis’ press secretary, Steve Maviglio, said that he had not been ordered to sell the Calpine Corp. stock, which he bought in May, but that it had become “more of a distraction than it was worth.” He had been widely criticized for holding shares in Calpine while publicly praising it as an example of a responsible energy company. Maviglio is not believed to be part of the SEC probe.
The administration last week fired four state energy traders after finding that they bought electricity from Calpine while owning the company’s stock. A fifth trader left to take another job three days after disclosing her stock ownership. And a negotiator of power contracts who owned Calpine stock was fired because he reviewed a state contract to buy power from the San Jose-based company.
Vikram Budhraja, a key energy consultant to Davis, received a letter from the SEC on Wednesday, a week after California Secretary of State Bill Jones singled out Budhraja’s stock transactions in a complaint to the SEC.
Budhraja’s attorney, Stephen Kaufman, said Budhraja received a simple, one-page letter stating that the SEC was conducting an inquiry into possible violations of security fraud laws.
It is common in the early stages of an investigation for the SEC to send letters asking that individuals voluntarily supply information such as stock-trading records.
“They asked that we voluntarily provide documents relating to all of my client’s stock transactions since Jan. 1,” Kaufman said. “We do not believe the SEC matter has any basis whatsoever. And the documentation will show in no uncertain terms that Mr. Budhraja was never involved in insider trading.”
Jones estimated that Budhraja made a 40% profit in January buying and selling stock of Edison International, the parent company of Southern California Edison. He said Budhraja also made a 28% profit in trading stock of Houston energy company Dynegy Corp. that he bought Jan. 11.
Kaufman said Budhraja’s stock purchases do not constitute insider trading because the transactions occurred before state officials first talked with the consultant about a job Jan. 25, so he could not have decided to buy because of confidential information.
“Insider trading requires the use of knowledge that was not generally available to the public,” Kaufman said. He said his client is simply a savvy investor.
Dispute Over Contract Dates
Jones, however, said the $6.2-million contract between the Electric Power Group, which Budhraja heads, and the state to manage California’s power buying is dated Jan. 18, before he bought his second batch of Edison stock.
Kaufman maintains that the contract was misdated.
“Ultimately, the contracts, the invoices, the governor’s office and the DWR [Department of Water Resources] will confirm that the first contact was on Jan. 25,” Kaufman said. “[Budhraja] came on board on the 29th and he sold his stock that morning.”
Fired trader William Mead, whose purchase of more than $100,000 in Calpine stock was highlighted in Jones’ complaint to the SEC, could not be reached Thursday. But he has said he did nothing wrong.
Former power trader Elaine Griffin, who resigned three weeks ago and still owns about $10,000 of Calpine stock, said Thursday that she has not been contacted by the SEC but would welcome an inquiry.
“It doesn’t matter to me because I didn’t do anything wrong,” she said. “The state did something wrong by not having us fill out these [financial] statements five months ago when we started. Now it’s a big deal.”
Davis spokesman Maviglio said he sold his Calpine shares Thursday morning, two days after questions arose about his purchase of that stock and shares of Enron Corp., a Texas-based generator that has been one of Davis’ key targets for criticism.
Maviglio said he had not sold the Enron stock, but had sent a letter to the state Fair Political Practices Commission asking for advice on whether it was proper for him to own it. He previously had defended his ownership of both stocks, saying that he had not been privy to any insider information.
FPPC spokeswoman Sigrid Bathen said she could not confirm whether the commission had received the letter and could not comment about Maviglio’s specific situation.
In general, state law requires government officials to disclose any potential conflict of interest and to disqualify themselves from acting on any matter in which they hold a financial interest.
Maviglio said that Davis has not asked him to resign and that he has no intention of doing so.
He leavened his predicament with humor, joking--after answering the phone in the governor’s press office, a job usually done by a subordinate--that he had been reduced to answering phones as a result of a Los Angeles Times editorial calling for his removal.
He also observed wryly that he had taken a sizable loss on the Calpine stock, which has followed a general retreat by energy stocks in recent weeks.
“I took a $1,300 bath, thank you very much,” he said.
