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PG&E Investors Lose Bid to File One Massive Securities Fraud Claim

Investors claiming Pacific Gas and Electric misled them about its wildfire safety practices cannot file one massive claim seeking billions in damages but they will get extra time to file individual claims, a federal bankruptcy judge ruled Monday.

SAN FRANCISCO (CN) – Investors claiming Pacific Gas and Electric misled them about its wildfire safety practices cannot file one massive claim seeking billions in damages, but they will get extra time to file individual claims, a federal bankruptcy judge ruled Monday.

The investors sought to certify a class of all PG&E shareholders who bought stock from April 2015 to November 2018 and noteholders who purchased bonds between March 2016 and April 2018. They claim PG&E artificially inflated its stock price by withholding information and making fraudulent statements about its safety record and compliance with state regulations.

The company has been accused of neglecting maintenance and failing to clear vegetation around power lines in the years leading up to destructive wildfires in 2017 and 2018 that killed 129 people and destroyed nearly 28,000 buildings. 

The investors say PG&E failed to notify those who sold shares before the company filed for bankruptcy on Jan. 29, 2019, of their right to file claims for damages in the bankruptcy case.

In a 5-page ruling issued Monday, U.S. Bankruptcy Judge Dennis Montali agreed that PG&E should have notified all investors of their right to file claims, but he also concluded that letting them file one massive claim at this late stage could derail PG&E’s ability to exit bankruptcy by a June 30, 2020, deadline. That’s the date PG&E must resolve its bankruptcy case in order to access a state-established $21 billion insurance fund to protect it from future wildfire liabilities.

“At this juncture, it appears granting the motion may result in more chaos than certainty,” Montali wrote.

PG&E told the court in January that it could not identify and notify all shareholders due to the “confidential nature of beneficial holder identities and the complex chain of intermediary entities through which public securities are held.” However, the company later changed course, telling the court on Feb. 14 that it could notify each shareholder of their right to file claims within seven days by going through the financial institutions used to make stock purchases.

At a hearing last month, an attorney for fire victims joined PG&E in urging the bankruptcy court to reject the request to file a securities class proof of claim. David Richardson, a lawyer with the Tort Claimants Committee that represents fire victims, argued the investors have no right to seek damages in PG&E’s bankruptcy case because their claims were “derivative,” resulting directly from wildfires and not due to the company’s alleged misrepresentations. 

In a separate memo filed Monday, Montali said he was inclined to set a new deadline of April 15 for investors to file securities claims in the bankruptcy case. Montali also noted that bankruptcy laws require securities claims be given a lower priority than other types of claims.

PG&E is currently working on a disclosure statement, which all impaired parties, or those who will not get 100% of what is owed to them, have a right to object to. The disclosure statement is meant to educate impaired parties about details of PG&E’s restructuring plan so they can decide whether to vote yay or nay on it by a May 15 deadline. The votes will help influence the judge’s decision on whether to confirm PG&E’s plan for exiting bankruptcy.

Under PG&E’s current plan, bondholders will be deemed unimpaired but shareholders will be considered impaired and able to object to the disclosure statement. The deadline to object to PG&E’s disclosure statement is March 6.

With that deadline quickly approaching, Montali said the “insufficient time” to notify shareholders of the deadline is “a problem of concern to the court that must be dealt with in the coming weeks.”

Public Employees Retirement Association of New Mexico was appointed lead plaintiff in one of four securities class actions filed in 2018 and 2019 against PG&E. The lawsuits, overseen by U.S. District Judge Edward Davila in San Jose, were automatically stayed when PG&E filed for bankruptcy in January 2019.

PG&E and Michael Etkin, a lawyer representing the investor plaintiffs, did not immediately return requests for comment Monday evening.

Also on Monday, a petition signed by 1,630 fire victims was submitted to the bankruptcy court opposing PG&E’s $13.5 billion settlement with fire survivors. The objectors argued that $13.5 billion is not enough money, that $6.75 billion hinges on PG&E’s “volatile” stock price going up, and that fire victims must settle for periodic payments while insurers get a deal with $11 billion in cash up front. Both settlements were approved by the bankruptcy court in December. 

Approximately 80,000 fire victims filed claims for recovery in PG&E’s bankruptcy case by the deadline of Dec. 31, 2019. Each of those fire victims has the power to vote yes or no on PG&E’s plan for exiting bankruptcy. A hearing on confirmation of PG&E’s bankruptcy plan is scheduled for May 27 in San Francisco.

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Categories / Business, Environment, Securities

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