Shareholder Sues Over Avista Losses Class-Action Suit Claims Securities Violations

A small investor in Avista Corp. Friday filed a class-action lawsuit against the Spokane company for alleged violations of securities laws.

The complaint filed in U.S. District Court claims a subsidiary, Avista Utilities, engaged in speculation in electricity markets that resulted in a $126 million third-quarter loss.

The June 21 disclosure of the trading losses dropped the price of an Avista share to $19, down almost 50 percent from April 7.

The result was an $800 million reduction in Avista’s market capitalization.

The lawsuit, if certified as a class action, would include all those who bought Avista shares between April 7 and June 21.

The lone plaintiff so far is New York investor John Bain, who bought 50 Avista shares on April 17 for $31.90 each.

Besides Avista, the complaint names Chairman Tom Matthews and Senior Vice President Jon Eliassen.

Avista spokeswoman Laurine Jue said the company had not been served with a copy of the suit late Friday and had no comment.

Bain attorney Karl Barth of Seattle said April 7 was the day an Avista Utilities trader made a series of deals that went beyond the hedging the company does to reduce the risk of price swings in electricity and natural gas.

The company either approved those trades or failed to properly monitor the trader, he said.

“Either way, the company is going to be liable,” Barth said. “The company has a responsibility to monitor these guys.”

The company, according to the complaint, was selling power for delivery in future months at $19 per megawatt. Officials expected seasonal energy markets would allow the company to buy the energy needed to cover those commitments at a lower cost.

Instead, May prices soared to $60 per megawatt. The price in June was $100-plus.

“Defendants were aware - at least by early May - that the (trades) exposed the Company to significant risk, but decided not to hedge this risk, or to inform the market of this material deviation from its previously stated risk management policies,” the complaint says.

Matthews and Eliassen, the complaint adds, concealed the activity to protect their positions, salaries and securities holdings.

And they admittedly did not take action to reduce the potential losses.

“Their gamble backfired,” the complaint says.

The suit seeks unspecified compensation for class members, interest, whatever extraordinary relief the judge deems appropriate, and attorney’s fees.

Barth said the suit filed by his firm, Hagens Berman LLP, and three others will likely not be the last.

Others will file similar complaints, then attempt to round up more class members in an effort to be made the lead plaintiff, he said.

Hagens Berman specializes in shareholder litigation.