Davis’ Energy Advisors Draw SEC Attention

The Securities and Exchange Commission has launched a preliminary inquiry into whether energy consultants advising Gov. Gray Davis used inside information to trade stocks of power companies doing business with the state, a source with knowledge of the matter said Monday.

The federal agency began its review late last week, the source said, in response to a request from California Secretary of State Bill Jones. A Republican rival of Davis, Jones charged that stock trading by consultants may have violated federal laws barring buying and selling based on information not available to the public.

On Friday, top aides to the governor disclosed that five consultants had been fired for possible conflicts of interest between their official positions and their personal finances.

As news of the SEC inquiry spread through the capital Monday, Davis officials were confronted by a flurry of questions about who in the administration owns energy stocks.

Financial disclosure records filed by the governor’s spokesman, Steve Maviglio, show that he owns between $10,000 and $100,000 in a Texas company he and his boss have accused of making “obscene” profits while California has been “on its knees.” Maviglio said he bought the shares in Houston-based Enron Corp. in 1996.

“It’s not a crime to own energy stock,” Maviglio said.

He also owns 300 shares of San Jose-based Calpine Corp., which has the largest share of the $43 billion in long-term state power contracts.

Maviglio placed the order for the stock on May 31, one day after San Jose’s mayor dropped his opposition to a controversial Calpine plant favored by the governor and others. Under the terms of Maviglio’s purchase, the transaction was completed about three weeks later when the stock reached $40 a share, a value of $12,000. It has since fallen in value.

“I viewed it as a good long-term investment,” Maviglio said, adding that he purchased the shares for his retirement account based on publicly available information.

The Davis administration has spared Calpine the kind of fierce criticisms that it has leveled at other electricity suppliers, such as Enron. But California’s grid operator has identified the company as one of many energy merchants to overcharge the state millions of dollars.

The fired consultants also owned shares in Calpine, ranging in value from several thousand dollars to more than $100,000, records show.

Another top Davis administration official, legal affairs secretary Barry Goode, disclosed in his economic interest statement that he recently held between $100,000 and $1 million in another out-of-state company accused of multimillion-dollar price gouging.

In a statement, Goode said he sold his stock in Williams Co’s. a month after he began working for the governor in February. Goode said the shares were supposed to be sold before he went on the state payroll, but his broker failed to do so.

In light of the recent disclosures, Secretary of State Jones said the governor must do more to ensure the public that its interest comes first.

“The governor should direct all of his staff to immediately file updated conflict of interest statements that reflect current holdings and any activity since their last statement of economic interest was filed,” said Jones, who is seeking the GOP nomination for governor.

Word of the SEC’s entry into California’s energy problems comes as the governor faces harsh criticism from lawmakers and others for the quick and broad hiring of highly paid private consultants to guide him through the crisis.

In his written request to the SEC, Jones said that recently filed disclosure documents showed that at least one consultant bought and sold shares of two energy companies within the same month, raising “a red flag” about the possibility of insider trading.

State law prohibits officials from participating in decisions involving their personal financial interests.

The five consultants fired last week were among 11 named in Jones’ letter, delivered to the San Francisco office of the SEC last Wednesday. It was not clear which individuals are the focus of the SEC’s inquiry, or whether the agency’s review would result in any charges.

Two of the former traders said Monday that they had not been contacted by federal investigators and knew nothing of an inquiry into possible insider trading.

But William Mead, fired Thursday, said it is no mystery why so many of his colleagues owned Calpine stock.

Mead said he bought it 2 1/2 years ago and made so much money he recommended it to his colleagues last year, while they all still worked for the now-defunct California Power Exchange in Alhambra. Calpine power was not traded on that exchange, so there was no conflict of interest, he said.

Mead and three other energy traders--hired by the state in February and March--were terminated by the Davis administration for allegedly buying power for the state from Calpine while owning the company’s stock. Fired traders Herman Leung, Peggy Cheng and Constantine Louie did not list the date of their Calpine purchases on financial statements that the state required to be filed only two weeks ago.

“But I’m sure they bought it while they were still at the power exchange, because that’s when we discussed it,” Mead said. “It was kind of like a hobby. I’m sure it wasn’t done with the intent to manipulate.”

Former trader Elaine Griffin, who also owned Calpine stock and resigned two weeks ago to take another job, said she didn’t know she owned energy securities until she checked with her financial advisor July 13, just before leaving her state job.

Griffin said she and her husband own about $10,000 worth of Calpine stock in individual retirement accounts managed by their advisor, who bought the stock Feb. 1 without their knowledge, she said, after research found it to be a good investment.

“I kind of feel like we’ve been used for political reasons,” Griffin said. “We would have disclosed anything right at first, but they never asked.”

As a trader, Griffin said she occasionally bought Calpine power for the state, but only at market prices.

Meanwhile, two Democratic political consultants, who helped Davis polish his image after the ongoing energy crisis caused his poll numbers to plummet, have agreed to accept no payment for their work as part of an out-of-court settlement of a taxpayer lawsuit.

Tom Hiltachk, a lawyer for conservative anti-tax activist Lewis Uhler, said the settlement was reached last Friday after negotiations with lawyers for communications consultants Mark Fabiani and Chris Lehane.

“Now they will not receive one red cent,” said Hiltachk. “Very simply Mr. Fabiani and Mr. Lehane have agreed to cease all activities for the governor, to accept no payments for their services and to basically get out of the consulting business with the governor.”

As his part of the agreement, Hiltachk said, Uhler withdrew his lawsuit Monday morning.

Uhler had filed a lawsuit against the two consultants and Controller Kathleen Connell in June contending that they should not receive any payments because of a conflict of interest. The two men also did consulting work for financially troubled Southern California Edison, which was seeking help from Davis and the Legislature.

Connell, a former Los Angeles mayoral candidate who has been at odds with Davis since he endorsed an opponent, had held up the payments pending the outcome of the lawsuit.

Under an agreement with Davis, the men were to have been paid $30,000 a month for six months.

Fabiani and Lehane could not be reached for comment.

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Times staff writers Nancy Vogel and Virginia Ellis in Sacramento and Robert J. Lopez in Los Angeles contributed to this story.