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Post date: April 29 1999

Report Finds Lilco Payout Irretrievable

Attorney General Spitzer has completed an investigation into the takeover of the Long Island Lighting Company (LILCO) and concluded that the huge payout to the company's senior executives cannot be recovered.

In releasing the results of an investigation by his office, Spitzer said that "a pattern of deception by the company's CEO and senior officers, as well as a dereliction of duty by the company's board, led to an outrageous giveaway."

In May 1998, after years of efforts to free Long Island residents from the burden of the highest electric rates in the country, LILCO was formally taken over by the Long Island Power Authority (LIPA), a specially formed state public benefit corporation.

Just days after closing of the deal, it was revealed that LILCO had awarded its top level executives a severance package worth more than $67 million, including $42 million to CEO William J. Catacosinos. The payments came despite the fact that Catacosinos and his fellow officers had secured similar positions with the new corporation.

Spitzer expressed a strong desire to recover the funds, but he noted that the severance package included ironclad corporate indemnification agreements and other provisions holding the executives harmless from any cost, liability, or legal expense relating to their conduct as officers and directors of LILCO.

As part of an agreement between Spitzer's office and the LILCO successor company, Keyspan, the company will pay the state $1.5 million. The money will be used to cover the costs of the investigation, as well as for investor protection and education programs.

"Our report and its recommendations, as well as the money being paid by Keyspan will send a clear and strong message to other utilities that these type of giveaways will not be tolerated in the future," Spitzer said.

Spitzer reached these conclusions as a result of the investigation:

  • LILCO's officers and directors failed to make full and timely disclosure to its shareholders about the executive compensation packages. The disclosures were incomplete and obscure, and conflicted in part with the truth;
  • LILCO's officers withheld from the Board of Directors important information concerning both the planning of the compensation packages and their computed present value;
  • The LILCO Board failed to ask appropriate questions that would have resulted in a full and timely disclosure about the compensation packages;
  • Catacosinos may have intentionally concealed facts about the packages from the board and LILCO's partners in the transaction; and
  • LILCO did not charge its customers for the executive compensation packages.