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“You know, when you get that big disappointment, it’s like a big punch in the midsection, when you realize you’ve lost a good part of your life’s savings. And, of course, at my age, you don’t recoup those kinds of losses:’ Europe, was suffering in a weak electric market in England and was hemorrhaging cash. Nye and TXU had purchased the British outfit in 1995. By 2002, it was threatening to sink the whole company. In June of that year, TXU treasurer Kirk Oliinternal memo about the subsidiary’s many troubles to TXU executives, including Murray. According to court documents, Oliver wrote that TXU Europe was no longer financially fit enough to maintain an “investment grade” credit rating. The only reason that the rating agencies hadn’t downgraded it was the parent company’s collateral. In essence, TXU’s own shaky credit was temporarily buttressing that of its crumbling subsidiary. Both lawsuits allege that TXU executives, including Nye and McNally, were well aware of the dangers. Nye told the Observer that the magnitude of TXU’s problems in Europe weren’t clear at the time. “It took everyone by surprise he said. “If you look at the disclosures, they are very clear that risks were there. But nobody in the industry, including the analysts, had any idea that there was that sort of exposure. And I think it was a unique thing for this country.” On June 7, 2002, Murray attended a management meeting with about 15 other TXU executives at the company’s Dallas headquarters. The group discussed the serious risks confronting the corporation, including TXU Europe’s cash drain and the threat of bankruptcy. Treasurer Kirk Oliver said he had just returned from New York, where he had learned that at least one rating agency had TXU “in its cross-hairs” to reduce the company’s rating to below investment grade. Brian Dickie, then TXU’s executive vice president, predicted that the company would have trouble meeting its earnings estimate in the near future. \(The very same day, Dickie sold more than 14,000 shares of his TXU stock at $50 a share for a profit of $717,100, according to public records. Five months later, the stock would be trading near $12 a share. Dickie has since left the company and returned to London. He couldn’t be reached At this and subsequent meetings, Murray argued strenuously that TXU had an obligation to shareholders to disclose the risks that the company faced. He thought the situation could still be salvaged, but TXU had to reveal its problems to the public, lower its earnings estimates, and begin to pay down its short-term debt and marshal cash reserves in order to convince rating agencies that the company deserved to maintain its credit rating. Instead, the corporate leadership simply plunged ahead, undeterred. A few weeks later, on July 25, 2002, TXU released its unrepentant sunny earnings report. In the conference call with analysts that day, Nye described the second quarter as “excellent!’ One analyst asked McNally about reported problems in Britain. Not to worry, he responded. TXU Europe was struggling with a weak market that would soon pick up; the numbers had been crunched, and McNally said he was confident that the temporary European problem would drain TXU That was quite an understatement given that TXU Europe’s demise eventually cost the parent company $4 billion. In their lawsuits, Murray and the shareholders both contend that McNally knowingly lied to the analysts. Murray claims that the day after the conference call, he asked McNally about that 20-cents-per-share prediction. McNally replied that he knew TXU Europe’s problems could cost more, “but that he told the analysts that it would not be worse…so they would not worry about the issue according to Murray’s complaint. In fact, TXU executives had a significant incentive for hiding the company’s financial decay. Releasing such information would no doubt hurt the stock priceand their own bonuses. Because TXU’s stock had remained pricey for a three-year period ending on March 31, 2002, TXU’s bonus structure handsomely rewarded top executives. Nye received a stock bonus of $4.3 million in 2002 \(out of $7.8 million and Dickie $1.07 million, according to TXU’s filings with the In addition to the bonus, Nye also saved himself hundreds of thousands of dollars by selling more than 47,000 of his TXU shares on September 10, 2002. At $44 per share, the sale earned him $2.179 million. Three weeks later, on October 9, the stock was priced at $16.90 a share. At the time, Nye defended his sale, saying that he had long planned to sell the shares to finance a real estate purchase. Still, the shareholder lawsuit raises the possibility that the stock dump may have been insider trading. \(In the e-mailed response to Observer questions, a company spokeswoman said, “The executives of the company have put the interests of the shareholders above their own, and the interests of the shareholders was to grow 6 THE TEXAS OBSERVER 9/10/04