Washington Public Power Supply System Securities Litigation
Hagens Berman’s Steve Berman represented bondholders and the bondholder trustee in a class-action lawsuit stemming from the failure of two Washington Public Power Supply System (WPPSS) nuclear projects. The case was one of the most complex and lengthy securities fraud cases ever filed. The default was one of the largest municipal bond defaults in history. After years of litigation, plaintiffs were awarded a $700 million settlement agreement brought against more than 200 defendants.
WPPSS originally aimed to build 20 nuclear power plants to provide electricity to the Pacific Northwest. Only one functioning plant was completed. Construction of two of the plants was financed through bonds guaranteed by a consortium of 88 public utilities in the region. These backers would later learn that the bonds were sold on false pretenses, in violation of both state and federal securities laws.
Mismanagement, massive cost overruns and feasibility concerns lead to the project’s termination in 1982, and a default of the obligations in the amount of $2.25 billion in 1983, causing thousands of trusting bondholders to lose massive amounts of money. An investigation revealed that many of the project’s directors and managers did not have the necessary experience to work on large-scale nuclear power plants.
When plants 4 and 5 were abandoned, Hagens Berman brought a class action on behalf of bondholders and a trustee against WPPSS and more than 200 defendants, including the 88 public utilities, as well as engineers, directors and investment firms.
Litigation took more than seven years and included multiple appeals, numerous defense motions to attempt to dismiss the case, and several months of trial.
The Securities and Exchange Commission performed its own investigation into the default. Merrill Lynch, Smith Barney, Salomon Bros. and Bache underwrote many of the bonds. Among the SEC concerns was the belief that institutional investors and brokerage firms “dumped” the bonds on the public after they became aware of problems at the plant construction sites.
Berman and other lawyers were able to force a $700 million settlement against the multiple defendants, and overall, there were 22 separate settlement agreements reached. Hagens Berman also represented Chemical Bank in the securities fraud litigation and helped the bank recover $55 million in costs misallocated among the WPPSS nuclear projects.
Plant 2 was successfully completed in 1984 and now operates under the name, Columbia Generating Station. WPPSS ultimately changed its name to Energy Northwest in November 1998 in the hopes of creating a new image.
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