Catch of the Week: SCANA to pay $137.5 Million in Fines & Disgorgement Following Failure of Nuclear Plant Construction; Executives Face Jail Time
In 2017, the publicly-traded company SCANA Corp. (now Dominion Energy) announced that it was abandoning its plans to expand South Carolina’s Virgil C. Summer Nuclear Station. A settlement reached this week resolves claims of fraud by SCANA in the project. For years, SCANA had publicly claimed it was making progress on the construction and would complete it in time to qualify for $1.4 billion in federal production tax credits. These public statements enabled the company to sell $1 billion in corporate bonds and secure regulatory approval for a $1 billion rate hike to finance the project.
According to the SEC when it filed its complaint earlier this year, the true facts were very different: the company and its executives knew for years that the project was substantially delayed, would miss a deadline to qualify for the tax credits, and was not financially viable without those tax credits. After years of rosy projections, the project “essentially collapsed” in mid-2017: the lead contractor, Westinghouse, declared bankruptcy, and SCANA, knowing that the project would take years to complete and require substantial additional funding, abandoned the project, leaving investors with hundreds of millions of dollars in losses. And, ratepayers were left with nothing to show for the $1 billion in higher rates that they had paid to finance the project.
Now, SCANA’s successor Dominion has agreed to pay $25 million as a civil penalty to the SEC and disgorge $112.5 million to investors and ratepayers. The settlement remains subject to court approval.
In addition to the SEC settlement, the former CEO of SCANA, Kevin Marsh, pleaded guilty on November 24 to fraud charges. News reports indicate that his plea agreement provided for a prison term of 18-36 months and the payment of $5 million in restitution. Civil litigation against Marsh continues. Former SCANA COO Stephen Byrne has also pleaded guilty to fraud.
While the recovery is substantial, the losses far exceed planned payments, and South Carolina is left with half-completed nuclear power plants.
Securities law require that companies and their executives must provide truthful information to investors; SCANA and its executives failed in this regard. With the scope of the fraud alleged, and the number of parties involved, the fact that SCANA’s public statements were at odds with the truth must have been known by many. Among the allegations in the SEC complaint:
- A SCANA executive wrote that company officers “flew around the country showing the same . . . construction pictures from different angles and played our fiddles while the whole mf was going up in flames.”
- As early as 2014, Byrne and Marsh expressed a lack of confidence in Westinghouse’s construction scheduling, noting that the contractor was “not meeting critical milestones,” had “made promise after promise, but fulfilled few of them,” and “lacked credibility” in its projected schedule. Despite this, the company continued to claim that “substantial progress” had been made, forecasting completion dates that would secure the company’s right to the tax credits.
- In 2015, SCANA hired Bechtel Power Corp. to conduct an independent assessment of the project, an assessment made necessary by the significant delays in the project. However, SCANA concealed that it had retained Bechtel for this purpose – and, when Bechtel reported to SCANA about the numerous problems at the project and forecasted completion dates that would blow the tax credit deadline, SCANA and its executives concealed this information.
- In 2016, Byrne told SCANA’s board that most project milestones had not been met and that “the percentage of schedule activities completed on time is well below the goal and does not allow for a reliable Integrated Project Schedule.” Two days later, on an earnings call, Byrne stated that the forecast completion dates remained the same.
Whistleblowers play a critical role in exposing wrongdoing of the type alleged in the SCANA complaint. Where investors and the markets are not receiving accurate and truthful information, the SEC Whistleblower Program provides financial incentives to whistleblowers to come forward with that information. While the decision to be a whistleblower is rarely an easy one, their voices bring important facts to light and can bring accountability for wrongdoing.
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