DLJ faces writs over Energy collapse

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The Independent Online

Donaldson Lufkin Jenrette, the US investment bank that recently arranged a rights issue for Independent Energy, is set to face legal action from investors who subscribed for shares in the collapsed utility supplier.

Donaldson Lufkin Jenrette, the US investment bank that recently arranged a rights issue for Independent Energy, is set to face legal action from investors who subscribed for shares in the collapsed utility supplier.

Independent Energy announced on Friday that it had called in receivers after failing to resolve the billing problems that have sent its shares from a high of £36.17 to 500p, where they were suspended on Friday.

In March, DLJ sent out a prospectus offering more than $200m (£139m) of Independent Energy American Depositary Shares at $49.25 (£34.26) each. The rights issue was taken up by a group of US institutions.

The prospectus also shows that DLJ sold its own 250,000 shares at the time of the issue, the Independent on Sunday can reveal. Also, three directors - Robert Jones, Burt Keenan and John Sulley - sold shares worth more than £30m.

It does make reference to the problems that meant that Independent Energy was unable to bill customers to whom it had supplied gas and electricity.

However, the prospectus goes on: "We have modified the software provided by a third-party vendor in a manner that we believe now enables us to identify and correct faulty data and thereby bill our sub-100kW (kiloWatt) customers in a timely and accurate manner."

DLJ, which received a fee of almost $9m to underwrite the issue, declined to comment. But the collapse of Independent Energy comes at an embarrassing time for Credit Suisse First Boston, which last month paid £7.9bn to acquire DLJ.

DLJ's chief executive, Joe Roby, is to pick up £57m from the deal, and many DLJ bankers are likely to receive six- and seven-figure golden handcuffs to prevent them from jumping ship.

At the 500p suspension price, subscribers to the rights issue have already lost more than 85 per cent of their investment. Hopes for recovering any of their funds will depend on KPMG, the receiver, which has begun to look for a buyer for Independent Energy.

It said on Friday that several expressions of interest had already been received. The propensity for out-of-pocket American investors to resort to the law was revealed last month when GTech shareholders issued a writ against the company for allegedly misleading statements.

Independent Energy, one of a new breed of virtual utility suppliers, had become a £1bn stock market dealing within four years of floating in 1996 for £13m. Its problems first surfaced in February when the company blamed the difficulty of reading meters installed by previous suppliers for its failure to bill some customers.

In May, Ofgen, the electricity and gas industry regulator, ordered Independent Energy not to take on any new customers until it had sorted out its billing problems.

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