The Tainted Money Managers Who Might Run the Bailout

Treasury Secretary Henry Paulson found little support for his $700 billion Wall Street bailout while testifying before the Senate Banking Committee on Tuesday, but the varied concerns expressed by committee members did not include Paulson’s plan to turn over implementation of the bailout to private asset managers.

It would be a serious mistake for Congress to assume, as does Paulson, that only experts from the private sector could carry out the purchase of massive quantities of “troubled” assets. The entire bailout proposal is highly dubious, but letting for-profit firms handle the transactions would make a bad plan much worse.

I’ve been writing about the theoretical conflicts of interest that such an arrangement would create, especially if some of the banks getting bailed out also get chosen to help manage the asset purchases. The ethical issues, however, are not entirely in the realm of the hypothetical. While we don’t know exactly which firms would be chosen by Treasury, the overall money management industry has a track record that is far from unblemished.

Yesterday, as Paulson testified along with Federal Reserve Chairman Ben Bernanke and Securities and Exchange Commission Chairman Christopher Cox, Cox’s agency put out a press release announcing that it filed an enforcement action against AmSouth Bank and AmSouth Asset Management “for defrauding AmSouth mutual funds by secretly using a portion of administration fees paid by fund shareholder for marketing and other unrelated expenses that should have been paid by AmSouth itself.” AmSouth, now part of Regions Bank, agreed to pay $11 million to settle the charges.

This case is hardly unique. The SEC’s archive of litigation releases includes a multitude of enforcement actions against small and large money managers and investment advisers. In one of those cases, Stephen J. Treadway, who had been a top executive at PIMCO, agreed in 2006 to pay $572,000 to settle charges of fraud, breaching fiduciary duty and other violations of securities laws. PIMCO is reported to be a leading contender for a bailout money management slot.

Money management firms, which can also function as securities dealers, have also come under fire from state regulators. Earlier this year, the financial giants Citigroup, Merrill Lynch and UBS were pressured by those regulators to buy back some $40 billion in volatile auction-rate securities they had pressed on unsuspecting customers. As the magazine Bloomberg Markets reported last January, state and local governments themselves have often been the victims of unscrupulous money managers who pressured them to invest public funds in extremely risky securities.

Given the discussion by Paulson of using a technique called reverse auctions to purchase toxic assets from banks, it is interesting to note that in 2006 a prominent money manager, Mario Gabelli, agreed to pay $130 million to settle charges that he defrauded the Federal Communications Commission during the auction of cell-phone licenses in the late 1990s.

And these are the kind of firms we are going to put in charge of $700 billion worth of transactions using taxpayer money? That may make sense to a 30-year Wall Street veteran such as Paulson, but Congress should know better.

The Dangers in Outsourcing the Bailout

A number of leading Democrats and Republicans expressed strong misgivings on Monday about the autocratic plan for bailing out Wall Street that Treasury Secretary Henry Paulson wants to ram through Congress. It remains to be seen whether this is mere posturing or serious opposition.

Critics are focusing on vital issues such as cost and oversight, but a lot less attention is being paid to the mechanics of Paulson’s proposal – specifically, the question of who would carry out the federal government’s purchase of $700 billion in “troubled” securities from banks. As I noted in my post on Sunday, the draft legislation circulated over the weekend includes a provision that seems to allow Treasury to contract out the process. Treasury then put out a fact sheet making it quite clear it intends to use private asset managers to manage and dispose of the assets it acquires, though the document does not specifically allude to the purchasing. Paulson himself referred to the use of “professional asset managers” during an appearance on one of the Sunday morning talk shows.

It amazes me that there is not more outrage over this aspect of the plan. Paulson seems to be leaving open the possibility that the same firms that are being bailed out could be hired to run the bailout. This would mean that institutions receiving a monumental giveaway of taxpayer money could turn around and earn yet more by acting as the government’s brokers. Aside from the unseemliness of this arrangement, this would be an egregious conflict of interest.

The alternative proposal floated by Senator Chris Dodd, which accepts Paulson’s language on contracting out, includes a section on conflict of interest. But rather than stating what the rules should be, the draft leaves it up to the Treasury Secretary to do so. There were reports on Monday night that Treasury would go along with the inclusion of a conflict-of-interest provision.

Paulson’s approach to the Big Bailout, particularly the insistence that there be no punitive measures for the banks, shows he is not the right party to oversee ethical issues. Paulson apparently can’t help himself. He still has the mindset of a man who spent more than 30 years working on Wall Street, at Goldman Sachs. He is a living example of the perils of the reverse revolving door: the appointment of a private-sector figure to a key policymaking position affecting his or her former industry.

The weak conflict-of-interest provisions Paulson is likely to impose would probably not address the inherent contradiction in having for-profit money managers running the bailout program. Even if Treasury chooses managers whose firms are not getting bailed out, there is still the danger that they will use their inside knowledge to benefit their non-governmental clients (and themselves) or will collude with buyers to the detriment of the public.

A Reuters story that ran on Monday reported that a leading contender for a federal money management role is Laurence Fink and his firm BlackRock, which was involved in managing the portfolio of Bear Stearns when that firm was sold to JPMorgan Chase as part of an earlier bailout. Last March, BlackRock, which is 49-percent owned by Merrill Lynch (now part of Bank of America), announced it was forming a venture to “acquire and restructure distressed residential mortgage loans.” Will Paulson see that as a conflict of interest – or more likely as a credential?

Letting financial firms that have profited from the mortgage crisis manage the bailout gives the impression that we are permanently in the grip of Big Money. To Paulson’s way of thinking, that’s not a problem, but it could make a bad plan much worse.

Bailout Bonanza?

It appears that the Paulson-Bernanke juggernaut has prevailed, and Congress will quickly approve the most radical federal market intervention in U.S. history with few or no concessions from the financial institutions that created the mess. Meanwhile, President Bush is playing the shill in this $700 billion con game, telling the public yesterday “I believe, when it’s all said and done…that the taxpayer is going to get a lot of that money back.” Fat chance.

Lurking behind the Big Bailout are two other issues that now deserve close attention: how the plan going to be implemented and who stands to make a killing. The draft legislation floated yesterday by Paulson is remarkably simple: a two-and-a-half page document that authorizes Treasury to buy the securities while raising the federal debt limit. There is no provision for creating a new agency to handle the transactions. In fact, the proposal would allow Treasury to outsource the process.

This seems to create the possibility that the same Wall Street investment banks being bailed out could receive contracts from the federal government to handle the transactions through which toxic mortgage-backed securities are removed from their balance sheets. Presumably, the investment banks would expect to be paid for this brokerage service by receiving a percentage fee on each deal. The cost to the federal government would be in the billions, providing a bonanza for Wall Street on top on the enormous benefits from the bailout itself.

Apart from the matter of brokerage fees, there is the question of the terms of the transactions. The draft legislation is silent on what price the federal government should pay for the tainted securities: the price at which the institution purchased them, the value after the write-downs many institutions have implemented, or the current market value. Treasury has floated the idea of using reverse auctions to get the best price, but it is unclear why institutions would bid the price down if the feds are buying everything in sight. Besides, if investment banks are put in charge of purchasing securities from one another, they will have little incentive to get the best deal for Uncle Sam, thus escalating the cost of the bailout.

It would be nice to think that Paulson & Company will take steps to bar this sort of gross conflict of interest as well as a fee windfall, but don’t count on it. If there are any members of Congress still willing to stand on principle, they should insist that no financial institution getting bailed out be eligible to receive a contract to help implement the plan. If the bailout can’t be stopped, let’s at least prevent an additional bonanza for Wall Street.

Rescuing the Rest of Us

Bailing out individual companies such as AIG is one thing. Today’s newspapers are filled with astounding reports that the federal government is devising a plan to bail out the entire financial sector—by taking over all the toxic assets that pollute the balance sheets of banks and other institutions. There is talk that this scheme is patterned on the savings and loan rescue of a generation ago. But unlike that rescue, the idea now is that the feds would, as the New York Times puts it, “take over only distressed assets, not entire institutions.”

“Bailout” hardly begins to capture the magnitude of what is being considered—apparently with bipartisan consent from Congress. This is absolution: the full faith and credit of the United State are being marshaled to absolve financial institutions of their sins. The consequences of years of greed, imprudence and short-sightedness would be wiped clean. With their financial souls thus renewed, we are supposed to believe banks will go forth to lend and invest with care and integrity.

One’s first instinct is to denounce this outrageous use of taxpayer money to rescue wealthy institutions that brought this problem on themselves, and will inevitability do it again. But perhaps that’s not the best response. The severity of the crisis has created openings for unprecedented government intervention. But why should banks get all the benefits? If Uncle Sam’s wallet is wide open, why shouldn’t the rest of us share in the largesse?

If banks are going to have their balance sheets cleansed, why can’t the same be done for the household accounts of America’s working families? Here’s the outline of a program for bailing out the rest of us:

  • Wipe out unpaid medical debts of the uninsured and the underinsured;
  • Wipe out credit card debt for all households with less than the median income;
  • Wipe out subprime mortgages and give immediate title to the homeowners;
  • Wipe out payday loans and all other predatory lending obligations;
  • Wipe out unpaid student loan debt for those earning less than the median income; and
  • Wipe out auto loans and other installment loans for those earning less than the median income.

Sounds unrealistic, ridiculously expensive? Probably so, but it would be no less outlandish than the proposals being made to benefit financial institutions that have brought the country to the brink of economic collapse. If now is a time for bold moves, let’s see some audacity on behalf of the many, not only the few.

AIG: Laissez-Faire R.I.P.

The federal government’s takeover of American International Group marks the end of three decades during which we have been made to worship at the altar of “free” markets and deregulation. The religion of unbridled capitalism is dead, replaced by a new theology of ad hoc intervention and selective lemon socialism.

Treasury Secretary Hank Paulson and Federal Reserve Chairman Ben Bernanke are reshaping the financial landscape with the zeal of 1920s Soviet central planners. The difference is that they don’t seem to have a five-year plan. They are rushing from crisis to crisis, making up policies as they go along.

Bear Stearns is forced to merge into JPMorgan Chase, with the Fed backing up some of Bear’s riskier investments. Fannie Mae and Freddie Mac are placed into federal “conservatorship.” Merrill Lynch is thrust into a shotgun marriage with Bank of America. Lehman Brothers is forced to file for Chapter 11 bankruptcy, paving the way for Barclays to swoop in and buy its viable assets at a bargain-basement price. AIG is given a cash infusion of $85 billion, in exchange for which the federal government becomes an 80-percent owner of the insurance company.

The “invisible hand” of the market has been replaced by a ham-handed approach that puts expedience over coherence or prudence. The desperate way in which these emergencies are being handled is indicative of just how screwed up the financial system has become.

In many ways, the crisis at AIG is the most troubling of all. Unlike Bear, Merrill and Lehman, AIG was not supposed to be part of the casino-like world of investment banking. As an insurance company, it presumably had a responsibility to be somewhat more staid. In fact, it does have units—property & casualty coverage, aircraft leasing, etc.—that are doing well and will probably be sold off to raise cash.

What brought AIG down is its Financial Services segment and particularly its “credit products,” described opaquely in its 10-K filing as “credit protection written through credit default swaps on super senior risk tranches of diversified pools of loans and debt securities.” AIG, it seems, has been insuring the esoteric financial investments being made by others. It may be a good idea for investors — especially institutions like pension funds — to arrange for some protection when putting money in risky securities. But it turned out that the party doing the insuring, AIG, lost control of the process.

Last February, AIG disclosed that its auditors had found a “material weakness” in the company’s oversight of its credit default swap portfolio. That’s a polite way of saying it might have been cooking the books in terms of its exposure to swaps relating to mortgage-backed securities that were plunging in value.  It later came out that the Securities and Exchange Commission and the Justice Department were investigating whether AIG deliberately overstated the value of its swap position.

So let’s see if I got this straight. A company that was supposed to provide protection for speculators became a speculator itself and may have tried to hide how deep a financial hole it had fallen into.  And the same federal government that was investigating AIG now owns it. A fitting symbol of the end of market fundamentalism.

Addendum: Here’s some coverage of one of the previous instances in which AIG faced a government takeover—when the revolutionary government of Iran nationalized its subsidiary in that country in 1979. It remains to be seen whether the current takeover turns out any better. Click on the following link to see an excerpt from the New York Times of June 26, 1979.  The reference to AIG is in the last paragraph. Continue reading “AIG: Laissez-Faire R.I.P.”

Lehman’s Bad Karma

The downfall of Lehman Brothers is bad news for its employees and shareholders, but it is difficult to avoid the feeling that, apart from the laws of the market, the law of karma may be at work as well.

After all, Lehman was a firm built on a slave economy. It was founded as a cotton brokerage by a German family that emigrated to Alabama in the 1840s. According to Robert Rosen’s book The Jewish Confederates, partner Mayer Lehman (image) was an active supporter of the Confederacy. In 1864, the governor of Alabama enlisted him in an effort to help Southern prisoners of war being held in the North, describing him in a letter to Jefferson Davis as “a foreigner” but “thoroughly identified with us.” The Lehmans helped rebuild the economy of Alabama after the Civil War.

Some 130 years later, Lehman Brothers got involved in financing what some have called a new form of slavery: private prisons. During the late 1990s Lehman was a key underwriter for securities issued by Corrections Corporation of America, by CCA’s real estate investment trust spinoff, and by some of CCA competitors.

More relevant to the current crisis is the fact that Lehman was a pioneer in the dubious business of packaging subprime loans as collateral for high-yield bonds. It provided major financial backing for First Alliance Corp., a leading practitioner of predatory lending. For this reason, Lehman was targeted by activist groups such as ACORN, and in 2000 the firm was sued by some of First Alliance’s victims. A federal jury in the case later found that Lehman had aided and abetted First Alliance in its scheme to cheat borrowers.

Despite these early signs that securitization of shaky mortgages might have drawbacks, Lehman charged ahead. Not only did it encourage investors to take the plunge, the firm filled its own balance sheet with some $300 billion in mortgage-backed securities. Lehman paved the way for the crisis that is roiling the financial world and became one of its prime victims.

According to a 2004 article in the Wall Street Journal, Lehman CEO Richard Fuld used to tape critiques of his son’s hockey performance while watching games from the bleachers. When the boy played better, he was rewarded with Lehman stock. Assuming he held onto those shares, one can only wonder how the younger Fuld feels now that the fruits of his efforts are virtually worthless. Perhaps a bit like all those people who lost their homes to the predatory lending backed by his father’s firm.

“Ethical Failure” and Offshore Oil Drilling

The phrase repeatedly chanted at the recent Republican convention — “Drill, Baby, Drill” — now sounds pornographic in the wake of the new sex and money scandal involving oil drilling companies and the federal agency that is supposed to oversee them. The Interior Department’s Inspector General has just come out with allegations that more than a dozen current and former staffers at Interior’s Minerals Management Service received improper gifts from industry representatives, who also put on wild parties for MMS employees. Gregory Smith, former director of the royalty-in-kind program at MMS, was also accused of having an illicit sexual relationship with an subordinate and paying her to buy cocaine.

The three reports just submitted by Interior IG Earl E. Devaney (photo) may be the most salacious government documents since the 1998 Starr Report on President Bill Clinton’s sexual peccadilloes.

Although the Interior Department website prominently features Secretary Dirk Kempthorne’s outraged response to the revelations, it does not see fit to provide the reports themselves. Fortunately, ProPublica, the online investigative reporting site, has posted the reports for all to view. Here are some highlights:

First there is a cover memo from Devaney decrying what he calls “a culture of ethical failure” in which some MMS employees adopted a “private sector approach to essentially everything they did. This included effectively opting themselves out of the Ethics in Government Act.” The private sector itself also comes in for criticism. Devaney suggests that the oil companies overseen by MMS were not especially helpful in an investigation that took more than two years and cost nearly $5.3 million. Chevron, Devaney states, refused to cooperate with the probe.

The first of the three reports focuses on Smith, who seems to have been confused about who was actually employing him. The report says he spent a substantial amount of his paid time doing work not for the federal government but for a private firm called Geomatrix Consultants that worked for oil industry clients. Smith also is said to have received improper gifts from employees of Chevron, Shell and a small operator called Gary Williams Energy Company.

The second report focuses on the people who worked under Smith. Apparently following his lead, many of them, according to Devaney, “developed inappropriate relationships with representatives of oil companies doing business with” MMS. Some of these relationships were pecuniary: two staffers were said to have received prohibited gifts from major oil companies on at least 135 occasions. Here, too, the gifts came from Chevron, Shell and Gary Williams as well as Hess. The report also reports on some brief “intimate” relationships a couple of MMS employees had with oil industry people. The sexual misconduct seems to have been a lot more limited than the other hanky panky, but it is irresistible to talk about regulatory agency employees’ being literally in bed with the industry at a time when some major oil companies are involved in a multi-billion-dollar dispute with MMS.

The final report focuses on Lucy Denett, the former associate director of minerals revenue management and the highest-ranking MMS staffer to have been caught up in the scandal. Denett is mainly accused of being overly generous to her Special Assistant Jimmy Mayberry as he was getting ready for retirement. According to the report, she improperly arranged a lucrative consulting contract for the firm Mayberry was going to set up after he left the agency.

Mayberry is said to have pleaded guilty to a criminal charge. The cases against Smith and Denett were referred to the Justice Department. Devaney asks Interior Secretary Kempthorne to take disciplinary action against the remaining employees involved. It would be nice if someone thought to take some action against those drilling companies, which seemed to have had no hesitation in corrupting federal employees. But then again, “ethical failure” is nothing new in the oil industry.

American Corporate Idol

Forget American Idol and Dancing With the Stars—here’s the contest you’ve been waiting for: the U.S. Chamber of Commerce 2008 Corporate Citizenship Awards. According to a press release put out by the Chamber, the awards “recognize companies, chambers of commerce, and business associations for making positive contributions to their communities, advancing important economic and social goals, and demonstrating ethical leadership and sound stewardship.”

The Chamber has just announced the finalists for each of the award categories. The winners in most of the categories will be chosen by “a panel of distinguished leaders in the field of corporate citizenship,” including Harvard Business School Professor Michael Porter, past winners and the board of directors of the Chamber’s Business Civic Leadership Center.

Let’s focus on the Large Business Award, which is given to companies with annual revenue of more than $5 billion. Although the public is not invited to vote in this category, we can cheer on our favorite contestant—once we figure out which one that should be. Let’s mull that over.

One of the most familiar names among the finalists is Verizon Communications, a telecom behemoth with $93 billion in revenues. Although the company’s traditional phone service business is highly unionized, its Verizon Wireless and Verizon Business units have vehemently opposed organizing drives by their employees.

Another finalist is Bank of America, which is now the parent of Countrywide Financial, the poster child for predatory mortgage lending currently being sued by various states for deceptive practices. B of A itself paid $460 million in 2005 to settle charges related to its marketing of WorldCom securities just before the scandal-ridden company filed for bankruptcy.

Also competing is Siemens USA, the American subsidiary of German industrial engineering giant Siemens AG. The parent company has been embroiled in a major bribery scandal that has resulted in the resignation of various managers, including some who have been convicted of misuse of funds.

Then there’s KPMG, one of the Big Four auditing and tax advisory firms. In 2005 more than a dozen of KPMG’s executives were indicted for promoting fraudulent tax shelters. The firm itself reached a deferred-prosecution agreement with the Justice Department but had to pay $456 million in fines.

The last finalist is known mainly to truck drivers. Pilot Travel Centers operates more than 300 truck stops in 41 states. It’s amazing to learn that this seemingly modest business has annual revenues of more than $13 billion. There’s not much objectionable about Pilot (except perhaps the fast food), but it turns out that Pilot is half-owned by Marathon Oil. In addition to having been identified as a potentially responsible party at ten different toxic waste sites, Marathon was one of a group of oil companies that agreed earlier this year to pay a total of $423 million to settle charges that they contaminated public water supplies with the gasoline additive MTBE.

Decisions, decisions. Should we go with the (alleged) union-buster, predatory lender, bribe-payer, tax cheat or polluter? Perhaps it’s best that the judging is being done by professionals, who are best equipped to appreciate the contestants’ unique qualities.

Shell’s Troubled Relationship with the Truth

Oil giant Royal Dutch Shell is facing accusations that it manipulated a supposedly independent environmental audit of a huge Russian oil and gas project in which it is involved. Nick Mathiason of the British newspaper The Observer reports that he obtained dozens of internal e-mails showing that Shell officials in London sought to influence the conclusions of a review of Sakhalin II being conducted by AEA Technology. The audit was used by financial institutions in making funding decisions about the $22 billion project.

The Observer quotes Doug Norlen of the group Pacific Environment as saying: “Shell stage-managed the whole process. They set the agenda, scheduled meetings and even participated in the editing of sections. I believe this to be a stark and vivid example of manipulation.” The Shell website contains a page on which it touts the favorable findings of the AEA report.

Pacific Environment, a non-profit advocacy organization based in San Francisco, has done pioneering environmental work on the Russian Far East and Siberia, collaborating with Russian activists who formed Sakhalin Environment Watch. The groups have been highly critical of the offshore Sakhalin II project because it threatens the survival of the world’s most endangered species of whales—Western Pacific Grays (photo). The campaign has pressured Shell and its partners to adopt stronger environmental protections or abandon the project.

The campaign became more complicated in late 2006, when Shell was forced by Russia to sell half of its holdings in the project at a bargain-basement price to Gazprom, which is publicly traded but controlled by the Russian government. This gave Gazprom a majority stake of 55 percent, with Shell’s interest reduced to 27.5 percent. The holdings of the other partners, Mitsui and Mitsubishi, were also slashed.

In its diminished position, Shell was even more vulnerable to attacks in the Russian and foreign press in mid-2007 after it was revealed that David Greer, the deputy chief executive of Sakhalin II, had sent out a motivational memo to his staff containing unattributed passages taken from a speech made by U.S. General George S. Patton on the eve of D-Day in 1944. Amid the ensuing furor over plagiarism, Greer resigned.

Shell’s integrity problems are not limited to Sakhalin II. In January 2004 the company admitted that had overstated its proven petroleum reserves by 20 percent. It later came out that that top executives at the company knew of the situation two years before it was publicly disclosed. Shell ended up paying penalties of about $150 million to U.S. and British authorities for the misreporting.

In his Observer article, Mathiason notes that environmental campaigners are worried that Shell’s behavior with the Sakhalin II report could be repeated in audits involving other projects such as its oil drilling leases in Alaska’s Chukchi Sea. Given the company’s troubled relationship with the truth, that concern is quite legitimate.

Will Xcel Settlement Lead to Meaningful Climate-Change Risk Disclosure?

Utility holding company Xcel Energy is getting lots of free publicity this week, since its name is on the arena in St. Paul, Minnesota where the Republican Party is holding its national convention. Last week, the company was being named in a different context.

While much of the attention of the country was focused on the Democratic National Convention, New York Attorney General Andrew Cuomo announced that Xcel had settled litigation brought against it by the state by agreeing to disclose the financial risks that climate change poses to the company and its investors. Minneapolis-based Xcel is itself a major contributor to global warming thanks to its ownership of more than a dozen coal-fired electric power plants in states such as Colorado, Minnesota and Texas.

Last year, Cuomo launched an investigation of Xcel and four other energy companies — AES, Dominion, Dynergy and Peabody — that were building new coal plants around the country. In Xcel’s case, the plant is Comanche 3 in Colorado (seen above in an Xcel photo simulation), which is expected to be completed next year. The probe was based on New York’s Martin Act, the same securities law that Cuomo’s predecessor Eliot Spitzer used in prosecuting Wall Street investment banks and major insurance companies.

The settlement with Xcel (the cases involving the other companies are ongoing) is a milestone in the effort to get publicly traded companies to reveal more about the potential financial consequences of climate change. Cuomo’s use of his prosecutorial powers is only one front in that effort. Institutional shareholders, working through the Investor Network on Climate Risk, have been pushing companies through shareholder resolutions while urging the Securities and Exchange Commission to mandate better disclosure. At the same time, the Carbon Disclosure Project is urging large companies to directly report their estimated CO2 emissions.

Under the settlement with Cuomo, Xcel will be required to include in its annual 10-K filing with the SEC a discussion of financial risks relating to:

  • present and probable future climate change regulation and legislation;
  • climate-change related litigation; and
  • physical impacts of climate change.

In addition, Xcel will have to provide various climate change disclosures on its operations, including:

  • current carbon emissions;
  • projected increases in carbon emissions from planned coal-fired power plants;
  • company strategies for reducing, offsetting, limiting, or otherwise managing its global warming pollution emissions and expected global warming emissions reductions from these actions;
  • and corporate governance actions related to climate change, including whether environmental performance is incorporated into officer compensation.

Although Cuomo’s agreement with Xcel applies only to that company, it could give a boost to other efforts to get large corporations to own up to the financial and other consequences of the growing climate crisis.

For this to happen, shareholder activists and others have to make sure that when companies accede to demands for climate-risk disclosure the result is meaningful. Xcel’s last 10-K filing, issued before the settlement, refers to climate change and emphasizes the need to reduce greenhouse gas emissions. When mentioning the New York State case, the company thus argues that it is already making the disclosures sought by Cuomo. Yet its main emphasis in the 10-K is on reassuring investors that the company is prepared for climate change, while there is no acknowledgment that building new plants such as Comanche 3 is exacerbating the problem. That’s not risk disclosure—it’s corporate spin.

If this same sort of rhetoric and evasion appear in the company’s next 10-K, let’s hope Cuomo prosecutes Xcel for violating the settlement agreement.