Thursday, March 2, 2023

Southern Company settles investor lawsuit for $87.5 million, but remains entangled in lawsuits over pensions and Deloitte & Touche's auditing procedures

Southern Company has agreed to settle an investor lawsuit for $87.5 million, according to news reports. The complaint, styled Monroe County Employees' Retirement System v. The Southern Company in the Northern District of Georgia, grew out of allegations that Southern Company executives made misleading statements about the status of construction at the Kemper Plant near De Kalb, Mississippi. (See here and here.)

In a separate case, retirees allege Southern Company has miscalculated their pensions, resulting in underpayment.

In a third case, styled Formby v. Deloitte & Touche, a man sued the Big 4 accounting firm, alleging it misled investors regarding Southern Company's expected completion of the Kemper Plant. That case has been dismissed on statute-of-limitations grounds.

The law firm of Robbins Geller Rudman & Dowd, based in New York City, represented plaintiffs in the investor case. This is from a report at the law firm's Web site

The settlement resolves claims for violation of §§10(b) and 20(a) of the Securities Exchange Act of 1934 stemming from defendants’ issuance of materially misleading statements and omissions regarding the status of construction of the Kemper Plant, a first-of-its-kind “clean coal” power plant in Kemper County, Mississippi, that was designed to transform coal into synthetic gas that could then be used to fuel the power plant.

Plaintiffs alleged that these misstatements and omissions caused The Southern Company’s stock price to be artificially inflated during the class period (April 25, 2012 through October 30, 2013). Despite their class-period assurances to the contrary, defendants were experiencing major construction delays at the Kemper Plant that imperiled the construction completion deadline and the significant tax and other financial incentives tied to the deadline. When the truth was revealed, the artificial inflation left the stock price, and the price dropped significantly. Subsequent to the class period, The Southern Company revealed that construction went billions of dollars over budget and that the technology behind the Kemper Plant was not viable, causing the company to scrap plans to operate the plant as a “clean coal” power plant.

Although defendants denied all of the claims against them, Robbins Geller uncovered critical evidence through extensive document and deposition discovery supporting plaintiffs’ allegations.

Southern Company received almost $1 billion in federal grants and tax credits to complete the Kemper Plant by May 2014. Southern failed to meet that deadline, and the project was plagued by construction delays and cost overruns. From a report at

The initial complaint, filed on January 17, 2017, detailed allegations that the utility company failed to build a coal gasification (or “clean coal”) plant in Mississippi. The company received a funding package of close to $1 billion in U.S. Department of Energy grants and Internal Revenue Service tax credits, provided construction of the plant was completed by May 2014.

Originally slated to cost the company, and its subsidiary Mississippi Power, approximately $2.4 billion – however unexpected delays, as well as construction and related expenses grew to a $7.5 billion money pit. In October 2013, The Southern Company finally acknowledged their delays and cost overruns, which led to a significant stock drop. In fact, the company’s valuation decreased by $1.3 billion.

Investors in the class action were represented by co-lead plaintiff’s Monroe County Employees’ Retirement System and Roofers Local No. 149 Pension Fund.

The law firm of Cohen Milstein Sellers & Toll, which is based in Washington, D.C., represents plaintiffs in the pension case. From a report at the law firm's Web site:

Cohen Milstein Sellers & Toll PLLC, a premier plaintiffs’ class action law firm, represents retirees of the Southern Company Pension Plan (“the Plan”) in a class-action lawsuit against Southern Company and its pension-plan administrators. Plaintiffs allege that Southern Company, the parent company to Southern Company Gas, Alabama Power Company, Georgia Power Company, AGL Resources, Nicor Gas, and Virginia Natural Gas, among other utility companies, is shortchanging their retirees or their surviving spouses in violation of the actuarial equivalence requirements of the Employee Retirement Income Security Act (ERISA).

Plaintiffs seek to recover amounts due to married retirees and their surviving spouses and to reform the Southern Company Pension Plan to ensure full compliance with the protections of ERISA.

The lawsuit, Drummond, et al. v. Southern Company, Inc., et al. was filed before the United States District Court for the Northern District of Georgia on September 2, 2022.

“This is a really troubling issue for the Southern Company retirees who are being shortchanged and forced to live on less retirement income every month,” said Michelle Yau, chair of Cohen Milstein’s Employee Benefits/ERISA practice.

Under Ms. Yau’s leadership, Cohen Milstein is presently engaged in similar litigation against AT&T, CITGO Petroleum, and Luxottica.  Both AT&T and CITGO have passed the motion to dismiss stage. In June, the firm filed for class certification in AT&T.  To read more about joint and survivor annuities, see "Is Your Retirement Plan Imposing a Marriage Penalty? What You Need to Know.”

Claims in Southern Company: Specifically, Plaintiffs claim that Southern Company and the pension-plan administrators used outdated pension-plan mortality tables that resulted in the miscalculation of the joint and survivor annuity paid to some Southern Company retirees, and in unreasonable and excessive charges called “QPSA charges” related to pre-retirement death benefits.

Impacted Individuals: Cohen Milstein is actively signing up individuals who retired from Southern Company or one of its subsidiaries on or after November 1, 2016.

Next Steps: If Southern Company Pension-Plan participants believe they may have been impacted, they should contact their legal counsel or contact: Michelle C. Yau, Partner (email) or at 202.408.4600 or PLEASE CLICK HERE TO CONTACT THE FIRM.

As for the complaint against Deloitte & Touche, the Securities Class Action Clearinghouse at Stanford University provides this report:

According to the Complaint, . . . Deloitte & Touche LLP was retained by The Southern Company as its independent auditor and issued reports on Southern’s financial statements for at least the years 2011 through 2020. In each of those reports, Deloitte & Touche LLP certified that it had audited those statements in accordance with GAAP (Generally Accepted Accounting Principles) and that the statements presented the financial position of Southern fairly and in conformity with GAAP. Every audit report was a “clean opinion”—an unqualified report that the financial statements were fairly presented in all material respects. This is the highest level of audit report a CPA may issue.

The Complaint alleges that Deloitte knew, or was reckless in not knowing, that Southern’s reported annual and quarterly financial results for the fiscal years ended December 31, 2013 through December 31, 2019, which were disseminated to the investing public, were not presented in accordance with GAAP; and that the audits they conducted were not performed in accordance with PCAOB (Public Company Accounting Oversight Board) standards and, therefore, each of Deloitte’s unqualified audit reports during the Class Period were materially false and misleading.

On June 1, 2022, the Court issued an Order appointing Lead Plaintiff and Counsel. On August 15, Defendants filed a Motion to Dismiss the Complaint. On February 13, 2023, the Court issued an Order granting Defendants' Motion to Dismiss. The case was dismissed on statute of limitations grounds.

 Longtime Alabama attorney Donald Watkins has reported at his Web site about Deloitte & Touche's questionable auditing practices regarding Southern Company. Under the headline "Did Deloitte & Touche Fail To Detect The Southern Company's Racketeering Scheme?" Watkins writes:

Deloitte & Touche was retained by the Southern Company as its independent auditor and issued annual reports on Southern’s financial condition for the period of 2011 through 2021. These reports were issued when the Southern Company and its affiliates were engaged in running and paying for an interstate, racketeering enterprise that included acts of conspiracy, bribery, extortion, money laundering, abuse of the legal process, price fixing, and obstruction of justice.

In each of the Southern Company’s financial reports for the period of 2011 through 2021, Deloitte & Touche certified that: (a) it had audited these statements in accordance with GAAP and (b) the statements fairly presented the Southern Company's financial condition in conformity with GAAP.

Each audit report issued during this period was a “clean opinion”-- an unqualified report that the annual financial statement was fair and accurate in all material respects. This rating is the highest level of audit report that a certified public accounting firm may issue.

In none of the Southern Company's annual financial reports for the period of 2011 through 2021 did Deloitte & Touche make any mention of the company’s long-running and ongoing interstate racketeering enterprise.

This criminal racketeering enterprise also allowed the Southern company and its affiliates to reap $59.7 billion in operating revenues in 2022. Of this amount, the Southern Company set aside $7.8 billion for dividends to shareholders.
The reported operating revenues for 2022 represent a substantial improvement over the company’s operating revenues in 2021. The revenues of Southern Company, itself, were up by 26.7%. Operating revenues at Alabama Power were up by 21.9%. Georgia Power was up by 25.1%, while Mississippi Power was up by 28.1%. Operating revenues at Southern Power were up by 52%. Finally, revenues at Southern Gas Company were up by 36.1%.

This remarkable jump in operating revenues from 2021 to 2022 occurred at a time when most of the Southern Company’s nine million customers were struggling to keep their financial heads above water. State public service commissions allowed the Southern Company affiliates to gouge their customers on utility bills.

State and federal law enforcement officials in the Southern Company's market territories also turned their heads to the obscene price gouging and entrenched racketeering activities.

Deloitte & Touche was in a position to alert the public to rampant wrongdoing, and it failed to do so, Watkins writes:

As we first reported on December 26, 2021, the Southern Company and Alabama Power paid Matrix, LLC, a Montgomery, Alabama-based public relations firm, and its owner, Joe Perkins, $2.5 million from January 1, 2018, to July 31, 2019, to carry out a lot of their racketeering activities.

During the course of a nearly two-decade racketeering enterprise, Matrix and Perkins were paid tens of millions of dollars, all “without invoicing.”

During this period, the Southern Company, Alabama Power Company, and Georgia Power Company used Matrix and Joe Perkins as their special breed of well-fed, zealously protected, vicious, Pit bulls. From time to time, these utility companies would let Matrix and Perkins out of their kennels and direct them to maul critics, political adversaries, and anybody else who posed a real or perceived threat to their (a) monopoly in electrical power generation and (b) longtime suppression of effective regulatory oversight.

The major goals of the racketeering enterprise were publicly disclosed for the first time in litigation by former Matrix CEO Jeff Pitts against Joe Perkins in a Florida court. . . . The racketeering goals and implementation activities were later rolled out in Georgia, Mississippi, Tennessee, Illinois, and Virginia.

Often, the payments to Matrix/Perkins were spread across multiple Southern Company affiliates to evade detection in an external audit. They were purportedly authorized under secret contracts and special work orders. On many occasions, these payments were laundered through third-party vendors and affiliated industry groups.

It does not appear that Deloitte & Touche audited the payments to Matrix/Perkins. As such, the racketeering activities described by Jeff Pitts flourished for many years.

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