Saturday, May 11, 2002

Lazy Susan

Lazy Susan deals work like this: Company A gives Company B a $100 million contract. Company B repays Company A $100 million after an insignificant amount of time for "services rendered." Both companies thus show a $100 million bounce in revenues, which can then be duly recorded in "revenue growth" statistics used to con investors into thinking that both Company A and Company B are "growing" rapidly.

Lazy Susan deals have been rampant in the telecommunications industry and are now popping up everywhere in the independent power production and trading business. Today's New York Times focuses on Reliant Resources, a large-ish independent power producer and trader. Reliant had to cancel a $500 million bond offering amid allegations that it had inflated revenue growth through the use of Lazy Susans. Two other major power independents, CMS Energy and Dynegy, are also being investigated by the SEC for possible Lazy Susan arrangements.

The issue of corporate dishonesty and malfeasance is not going away. The more we know, the worse it gets.