May 28, 2002; Greed Gauge Stocks Stumbling

Along with the change in currency values we have seen further erosion in investor confidence as more shady practices are disclosed in the energy infrastructure industry.  The embarrassments include restated accounts, self-dealing, hidden debt, and false transactions.  Yet the shady practice that disturbs us most gets almost no critical attention.  In fact more blatantly conflicted transactions continue to be announced.  One of the latest is Enbridge making a billion dollar transfer of assets from the parent to its limited partnership, Enbridge Energy Partners (EEP), fourth ranked on the Greed Gauge.  The transfer is made at inflated prices that the limited partners are expected to pay only to find that in a few years the general partner, who is also the seller, allocates a disproportionate share of cash flow to itself. 

A backlog of new equity financing seems to be building up.  Perhaps some of the offerings have been quietly delayed.  Underwriters under investigation by government agencies for conflicts of interest may be having second thoughts about misrepresenting investments in partnerships sponsored by El Paso, Dynegy and Williams.  Perhaps the Securities and Exchange Commission is taking a closer look at the filings for new offerings. 

The top ranked entity on the Greed Gauge seems to continue to skate free of much serious critical scrutiny.  After a previous postponement, this is supposed to be the month that Kinder Morgan raises perhaps a billion dollars in the version of its partnership tax-engineered for institutional investors.  By our reckoning institutions would be paying some $35 for a security worth perhaps a third of that. 

We strongly recommend the sale of Kinder Morgan on the basis of what we know, but a lot is not disclosed.   Kinder Morgan’s largest customer is Reliant, another Houston company that recently admitted financial wrongdoing.  One insider knows.  Mr. Morgan has sold $50 million of his stock this year.  The last transaction took place at the peak of a mysterious temporary run up in share price.