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Mirant Corporation Securities Litigation 02-CV-01467-Consolidated Amended Class Action

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c ORIGINA L UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF GEORGIA ATLANTA DIVISIO N IN RE MIRANT CORPORATION SECURITIES LITIGATION FI r OF t~E r* N V 2 5 2OO Z Civil Action NgUTHER 0 . THOMAS, G Wk 1 :02-CV-1467-BBAft Deputy Ste* CONSOLIDATED AMENDED CLASS ACTION COMPLAIN T CHITWOOD & HARLEY Edward H . Nicholson, Jr . Georgia Bar No . 543420 David A. Bai n Georgia Bar No . 032449 William Thomas Lacy, Jr . Georgia Bar No . 431032 Meryl W . Edelstei n Georgia Bar No . 238919 1230 Peachtree Street, N .E . 2300 Promenade II Atlanta, GA 3030 9 Tel : (404) 873-3900 Fax : (404) 876-4476 MILBERG WEISS BERSHAD HYNES & LERACH LLP Kenneth J . Vianal e Maya Saxen a 5355 Town Center Road , Suite 900 Boca Raton , FL 3348 6 Tel: (561) 361-5000 Fax : (561) 367-840 0 Co-Lead Counsel for Plaintiffs 4
Transcript
Page 1: Mirant Corporation Securities Litigation 02-CV-01467-Consolidated Amended Class Action

cORIGINA L

UNITED STATES DISTRICT COURTNORTHERN DISTRICT OF GEORGIA

ATLANTA DIVISION

IN RE MIRANT CORPORATIONSECURITIES LITIGATION

FI

rOF t~Er*

N V 2 5 2OOZ

Civil Action NgUTHER 0. THOMAS, G Wk1 :02-CV-1467-BBAft Deputy Ste*

CONSOLIDATED AMENDED CLASS ACTION COMPLAIN T

CHITWOOD & HARLEYEdward H . Nicholson, Jr .Georgia Bar No . 543420David A. Bai nGeorgia Bar No. 032449William Thomas Lacy, Jr .Georgia Bar No . 431032Meryl W . EdelsteinGeorgia Bar No . 2389191230 Peachtree Street, N .E.2300 Promenade IIAtlanta, GA 30309Tel : (404) 873-3900Fax : (404) 876-4476

MILBERG WEISS BERSHADHYNES & LERACH LLPKenneth J . VianaleMaya Saxena5355 Town Center Road , Suite 900Boca Raton , FL 3348 6Tel: (561) 361-5000Fax : (561) 367-840 0

Co-Lead Counsel for Plaintiffs

4

Page 2: Mirant Corporation Securities Litigation 02-CV-01467-Consolidated Amended Class Action

Table of Contents

1 . SUMMARY OF THE ALLEGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

II . JURISDICTION AND VENUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

III . THE PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

IV . CLASS ACTION ALLEGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 5

V . APPLICABILITY OF FRAUD ON THE MARKET . . . . . . . . . . . . . . . . . 18DOCTRINE AND THE PRESUMPTION OF RELIANCE

VI . SUBSTANTIVE ALLEGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1

A. The California Energy Crisis Opens The Door T oFraud And Manipulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1

1 . The Energy Companies Conspire toCommit Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 6

2 . The Lawsuits Begin : Mirant's Role In Th eCalifornia-Market Fraud Is Slowly Revealed . . . . . . . . . . . . 35

3 . Mirant Engages in "Enron-style" Frau dand Manipulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

4. The CPUC Report Evidences Mirant ' s Fraud . . . . . . . . . . . . 52

5 . Mirant Employees Are Instructed to Delete File sConcerning the California Energy Manipulations . . . . . . . . . 63

B. Mirant's Fraudulent Accounting Results in theIssuance of False Financial Statements . . . . . . . . . . . . . . . . . . . . . . 6 8

C. The Gradual Exposure of Illegal Practices Result s

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Page 3: Mirant Corporation Securities Litigation 02-CV-01467-Consolidated Amended Class Action

in Dramatic Losses to Mirant Investors . . . . . . . . . . . . . . . . . . . . . . 7 3

VII. THE SECURITIES ACT CLAIMS UNDER SECTION S1 I AND 15 THEREOF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 7

A. Overview Of Securities Act Claims . . . . . . . . . . . . . . . . . . . . . . . . . 77

B . Mirant's Initial Public Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 7

C . False Statements in the IPO Prospectus . . . . . . . . . . . . . . . . . . . . . 79

D. The Financial Statements Included In TheProspectus Were Materially Overstated . . . . . . . . . . . . . . . . . . . . . . 82

COUNT I (SECTION 11 ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90

COUNT If (SECTION 15) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92

VIII. THE EXCHANGE ACT CLAIMS UNDER SECTION S10(b) AND 20(a) THEREOF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96

A. Overview of Exchange Act Claims . . . . . . . . . . . . . . . . . . . . . . . . . 96

B . False Statements During The Class Period . . . . . . . . . . . . . . . . . . . 96

1 . The Class Period Begins : Mirant Issues aFalse and Misleading IPO Prospectus . . . . . . . . . . . . . . . . . . 96

2 . Defendants ' False Statements in the ThirdQuarter of 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97

3 . Defendants' Third Quarter 2000 Public Statement sWere Materially False and Misleading . . . . . . . . . . . . . . . . 103

4 . Mirant Issues False Statements Regarding th eFourth Quarter and Year End 2000 . . . . . . . . . . . . . . . . . . . 103

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5 . Defendants' Fourth Quarter and Year-en d2000 Statements Were False and Misleading . . . . . . . . . . . 11 4

6 . Defendants Issue False Statements During theFirst Quarter of 2001 and Sell Millions o fDollars Worth of Mirant Securities . . . . . . . . . . . . . . . . . . . 11 8

7 . Defendants' First Quarter 2001 StatementsWere Materially False and Misleading . . . . . . . . . . . . . . . . 124

8 . The Second Quarter of 2001 : Defendants 'Fraud Escalates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125

9. Defendants' Second Quarter 2001 Statement sWere False and Misleading . . . . . . . . . . . . . . . . . . . . . . . . . 13 0

10 . The Fraud Continues in the Third Quarte rof 2001 and Year-End 2001 . . . . . . . . . . . . . . . . . . . . . . . . . 13 1

11 . Defendants' Public Statements RegardingThird Quarter and Year-end 2001 Result sWere False . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142

12 . Defendants Issue False Financial Result sDuring 2002 as Mirant's Fraud is Slowly Revealed . . . . . . 150

C. The Belated and Gradual Revelation of the Truth . . . . . . . . . . . . . 164

D. Undisclosed Adverse Information . . . . . . . . . . . . . . . . . . . . . . . . . 17 8

E . Additional Scienter Allegations . . . . . . . . . . . . . . . . . . . . . . . . . . . 179

1 . Enhancement of Executive Compensation . . . . . . . . . . . . . . 18 1

2. Incentive to Inflate Mirant's Stock Price t oFacilitate Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185

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Page 5: Mirant Corporation Securities Litigation 02-CV-01467-Consolidated Amended Class Action

3. Incentive to In fl ate Mirant Stock Price toFacilitate Public Offerings During theClass Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 7

4 . Incentive to Inflate Mirant Stock Price Soas to Maintain Compliance with DebtObligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189

5. Falsifying Financial Results to MeetAnalysts' Estimates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 192

F. Statutory Safe Harbor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 194

COUNT III (SECTION 10(b) AND RULE 10b-5 ) . . . . . . . . . . . . . . . . . . . . . 195

COUNT IV (SECTION 20(a)) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200

IX. PRAYER FOR RELIEF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 202

X. JURY DEMAND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203

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Page 6: Mirant Corporation Securities Litigation 02-CV-01467-Consolidated Amended Class Action

I . SUMMARY OF THE ALLEGATION S

1 . This is a class action on behalf of a class (the "Class") of all person s

who purchased or otherwise acquired the securities of Mirant Corporatio n

("Mirant" or "the Company" formerly known as "Southern Energy Company")

between September 26, 2000 and September 5, 2002, inclusive (the "Clas s

Period"), seeking to pursue remedies under the Secu rities Exchange Act of 1934

("Exchange Act"), and on behalf of purchasers of Mirant securities seeking t o

pursue remedies under the Securities Act of 1933 (" the Securities Act."). Lead

Plaintiffs SBA Artsenpensioenfondsen ("SBA Pension Fund"), and Glickenhaus &

Co. and Plaintiffs Harold Froelich, Leonard Greenberg, Douglas Kellner and Larry

Law (collectively, "Plaintiffs") make the following allegations, except as to

allegations specifically pertaining to plaintiffs and plaintiffs' counsel, based upo n

the investigation undertaken by plaintiffs' counsel . This investigation included ,

inter alia, analysis of publicly-available news articles and reports, public filings ,

securities analysts reports and advisories about the Company, press releases an d

other public statements issued by the Company, interviews with former Mirant

employees, media reports about the Company, consultation with a forensi c

accountant, review of data contained in Federal Energy Regulatory Commissio n

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Page 7: Mirant Corporation Securities Litigation 02-CV-01467-Consolidated Amended Class Action

Reports, a California Public Utilities Commission Report, and data compiled b y

the California Independent System Operator . Plaintiffs believe that substantia l

additional evidentiary support will exist for the allegations set forth herein after a

reasonable opportunity for discovery.

2. During the Class Period (September 2 6 , 2000 thought September 5 ,

2002), defendants, including Mirant and its top executives, issued a series of fals e

statements to the investing public. Defendants reported seemingly unstoppabl e

growth in revenue and profitability despite unprecedented competition in the

energy industry, but failed to disclose that Mirant and its competitors, includin g

Enron, Reliant , Duke, Williams, and Dynegy, conspired to manipulate the energy

market in California so as to reap enormous - albeit fraudulent - profits .

3 . During the Class Period , Mirant and its "competitors" followed the

proven profit-generating methods of Enron, using a variety of illegal tactics t o

"game" the California energy market. These practices included : ( 1) "inc-ing" the

market or artificially increasing the load on the energy schedule submitted t o

California market regulators to artificially boost prices ; (2) using "ex-post"

strategies to create the illusion that there were energy shortages ; (3 )

"overscheduling" energy; (4) using "wash" trades to falsely boost the volume o f

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Page 8: Mirant Corporation Securities Litigation 02-CV-01467-Consolidated Amended Class Action

trading revenues ; (5) using "ricochet" trades in which Mirant exported power fro m

California and subsequently imported the same power back into California at an

increased price ; and (6) taking power plants "off-line" by feigning plant outages or

maintenance issues to boost prices, and a variety of other illicit tactics .

4 . These fraudulent practices have been documented in a series o f

lawsuits by the Attorney General of the State of California, as well as in

documents obtained through an investigation by the U .S . Attorney's Office for th e

Northern District of California against Mirant and the other energy companies .

For example , a document provided by Xcel energy company memo ri alized a

conversation between a Mirant energy trader and another trader, describing ho w

they were going to game the market by using `'ex post" trading strategies .

Similarly, a report issued by the California Public Utilities Commissio n

documented Mirant's manipulation of energy prices by taking plants off-line t o

boost energy prices. Aware of the documented existence of Mirant's imprope r

California market practices, Mirant employees were suspiciously instructed to

delete certain specified files concerning Mirant's activities in California, a s

detailed below in herein at Section VI. A. 5 .

5 . It has now been revealed that the "energy crisis" in California - -

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Page 9: Mirant Corporation Securities Litigation 02-CV-01467-Consolidated Amended Class Action

during which Mirant reported "record" profits - - was conjured by Mirant an d

other energy companies using these Enron-style trading tactics to create the

appearance of energy shortages where none existed . Williams Companies, one of

the energy companies responsible for a portion of the fraudulent energ y

manipulations , has now entered into a settlement with California worth over $ 1

billion . Mirant and Southern Company have received subpoenas from the federa l

government in connection with its conduct in California . Ithe Company faces

investigations and/or lawsuits from the United States Attorney's Office, the SEC ,

the Federal Energy Regulatory Commission, and the California Attorney General ,

to say nothing of the private suits filed against Mirant . In a recent filing with th e

Federal Energy Regulatory Commission, California identified over $2 billio n

worth of suspect transactions which exceeded allowable energy rates in the state.

In addition to refunds, Mirant will have to pay civil penalties and fines, and defen d

itself against criminal and civil allegations for its Western Region activities .

Mirant's financial statements during the Class Period were artificially inflate d

through the inclusion of fraudulent revenues obtained from its illegal practices ,

and from its failure to adequately reserve for its conduct in contriving the energ y

"crisis."

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Page 10: Mirant Corporation Securities Litigation 02-CV-01467-Consolidated Amended Class Action

6 . On May 7, 2002, internal memoranda documenting illegal practices i n

California were released by government officials . One of the Enron memo s

detailed that Enron's energy trading fraud was "the oldest trick in the book" and

said that "other market participants " had followed Enron's lead. prices.

California Governor Gray Davis commented on the news by stating that $3 0

billion was extorted from this state by Mirant and its competitors. As a result of

the May 7, 2002 news, Mirant common stock plunged by over 12%, on unusuall y

large trading volume of over 7 million shares to close at $9 .75 per share - an

enormous decline from the stock's Class Period high of nearly $50 per share .

7 . As of May 7, 2002 , the truth conce rn ing Mirant's fraud was far fro m

completely revealed . During the Class Period, defendants also materially

overstated the Company's financial results by failing to record a charge t o

earnings for the impairment of its joint venture in the United Kingdom, "Wester n

Power Distribution ." Despite the fact that The U.K . established price controls i n

the region which materially and adversely impacted Mirant's profitability in tha t

region, and despite the fact that Mirant's joint venture partner took a necessary

write-down for the impairment of WPD, defendants failed to take the necessar y

write-down .

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Page 11: Mirant Corporation Securities Litigation 02-CV-01467-Consolidated Amended Class Action

8 . In addition, Mirant revealed on July 30, 2002, that it had engaged in a

review of "several accounting issues" pertaining to the Company's 2001 financia l

statements, including an $85 million overstatement of a gas inventory asset and a

potential $68 million overstatement of an accounts receivable asset . On

November 7, 2002, defendants filed an amended quarterly report on Form i O-Q- A

restating Mirant ' s financial results for 2001 and 2002 . The Company has now

restated its December 31, 2001 balance sheet, reducing retained earnings for after-

tax charges totaling approximately $51 million, and reducing both energy ri sk

management and marketing assets and liabilities by $820 million to eliminat e

intracompany transactions. As detailed below, defendants overstated Mirant' s

financial results during the Class Period in order to, inter alia : (1) complete

securities offerings in order to generate desperately needed capital ; and (2) sel l

millions of dollars worth of their own Mirant holdings at artificially inflated

prices .

9 . In addition to the false financial results already disclosed by Mirant ,

defendants engaged in other accounting manipulations that were facilitated b y

Mirant's admitted lack of internal financial controls . Defendants included

overstated revenues in Mirant's "PowerBooks" reflecting Mirant's energy trades ,

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Page 12: Mirant Corporation Securities Litigation 02-CV-01467-Consolidated Amended Class Action

and instructed employees simply to "roll it over" to the next month when th e

overstatements were eventually discovered .

10 . The full extent and magnitude of Mirant's accounting fraud has yet t o

be revealed . Defendants stated in the November 7, 2002 10-QIA that there ar e

"other accounting errors that have been identified, which are expected to result i n

a restatement of its statement of income for either or both of 2000 and 2001 and

potentially for interim periods in 2001 and 2002 ." On August 5, 2002, defendants

revealed that the SEC had commenced an investigation into Mirant's accounting .

In response , Mirant's stock price fell by 16% . Mirant stock currently trades at

slightly over $2 per share, and investors bring this action to recover the billion s

lost as a result of defendants ' fraud .

H. JURISDICTION AND VENUE

11 . Plaintiffs bring these claims pursuant to Sections 11 and 15 of the

Securities Act , as amended [15 U .S .C . §§ 77k, 771 (2) and 77o], and under

Sections 10(b) and 20(a) of the Exchange Act (15 U .S.C. §§ 78j(b) and 78t(a)) an d

Rule lOb-5 promulgated thereunder (17 C.F.R . § 240.1Ob-5) .

12 . This Court has jurisdiction of this action pursuant to Section 22 of the

Secu ri ties Act [15 U .S .C . § 77v], and pursuant to 28 U.S .C . §§ 1331, 1337 and

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Page 13: Mirant Corporation Securities Litigation 02-CV-01467-Consolidated Amended Class Action

1367 and Section 27 of the Exchange Act (15 U .S .C . § 78aa) .

13 . Venue is properly laid in this District pursuant to Section 22 of th e

Securities Act and 28 U .S .C.§ 1391(b) and ( c) and Section 27 of the Exchange Ac t

(15 U .S .C §§ 78j(b) and 78t(a)) and SEC Rule lOb-5 promulgated thereunder (1 7

C.F .R. § 240 . l Ob-5) . The acts and conduct complained of herein , including the

preparation, issuance and dissemination of materially false and misleadin g

information to the investing public, occurred in substantial part in this District ,

and Mirant maintains its principal place of business in this District . In connection

with the acts and conduct alleged in this Complaint, defendants, directly o r

indirectly, used the means and instrumentalities of interstate commerce, includin g

the mails and telephonic communications and the facilities of the New York Stock

Exchange (the "NYSE"), a national securities exchange .

III . THE PARTIES

14. Lead Plaintiffs SBA Pension Fund and Glickenhaus & Co . purchased

Mirant securities duri ng the Class Period as set forth in the certifications attached

to their motion Seeking Appointment as Lead Plaintiffs. Plaintiffs Harold

Froehlich and Leonard Greenberg purchased Mirant securities during the Clas s

Period, and Plaintiffs Douglas Kellner and Larry Law purchased Mirant securitie s

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Page 14: Mirant Corporation Securities Litigation 02-CV-01467-Consolidated Amended Class Action

pursuant to or traceable to an offering made by the Company in violation of th e

Securities Act during the Class Period, as set forth in the certifications attached to

the complaints filed in their names . Plaintiffs Kellner and Law are at times

referred to herein as the "Securities Act Plaintiffs ." Plaintiffs have suffered

damages as a result of the wrongful acts of defendants as alleged herein .

15 . Defendant Mirant maintains its principal executive offices at 115 5

Perimeter Center West, Atlanta, Georgia, 30338-5416 . The Company, according

to its own description, is a "global competitive energy company" :

The Company delivers value by integrating an extensive portfolio ofpower and natural gas assets with risk management and marketingexpertise . The Company has facilities in North America, theCaribbean, Europe and Asia . As of December 31, 2001, the Companyowned or controlled more than 22,000 MW (megawatts) of electricgenerating capacity around the world, with approximately 6,800 MWunder development .

On September 27, 2000, Southern Company and Mirant announced the pricing o f

the initial public offering (the "Offering" or the "IPO") of Mirant . Mirant sol d

66 .7 million shares (19 .7 percent of the total Mirant shares outstanding), wit h

Southern Company holding the remaining 272 million shares, (80 .3 percent) and

stating its intent to spin off these remaining shares to Southern Company

shareholders. The Offering, along with a concurrent securities offering, raised

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Page 15: Mirant Corporation Securities Litigation 02-CV-01467-Consolidated Amended Class Action

over $1 .8 billion . Subsequently, Southern Company approved the spinoff on o r

about April 3, 2001, in the form of a special dividend , which distributed th e

remaining 272 million shares to Southern Company shareholders of record .

Shareholders as of the record date received .4 shares of Mirant for every share o f

Southern Company common stock they owned . On January 19, 2001, th e

Company announced that as part of its separation from Southern Company, th e

Company was changing its name from Southern Energy, Inc . to Miran t

Corporation. The Company began doing business as Mirant on January 22, 2001 .

Mirant's wholly-owned subsidiaries include Mirant California L .L .C ., Mirant

Delta L.L.C ., Mirant Po rtrero LLC, Mirant Americas Energy Marketing L .P . ,

Mirant California Investments Inc ., and Mirant Americas Inc ., which operated in

the State of California .

16 . The following individuals, at all times relevant to this action , served

the Company in the capacities listed below and received substantial compensation :

Name

S . Marce Fuller

Raymond Hil l

Richard Pershing

James A . Ward

Pncitin n

Chief Executive Officer

Chief Financial Officer andExecutive Vice President

Executive Vice President andCEO of Mirant North America

Principal Accounting Officer

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Page 16: Mirant Corporation Securities Litigation 02-CV-01467-Consolidated Amended Class Action

Defendants Fuller, Hill, Pershing, and Ward are referred to hereinafter as th e

"Individual Defendants ." In insider transactions that were suspicious both i n

timing and amount, the Individual Defendants took advantage of their inside r

knowledge and the artificial increase in Mirant's stock price by selling more tha n

$8 .2 million of their own stock during the Class Period . Defendant Fuller sold

more than 47,000 shares during the Class Period, reaping illicit proceeds of at leas t

$1,700,000; Defendant Hill sold approximately 27,000 shares during the Class

Period, reaping illicit proceeds of at least $1,000,000 ; Defendant Pershing sol d

approximately 101,000 shares during the Class Period, reaping illicit proceeds o f

at least $3,800,000 ; and Defendant Ward sold more than 44,000 shares during th e

Class Period , reaping illicit proceeds of at least $1,700,000 .

17. By reason of their management positions and their ability to mak e

public statements in the name of Mirant, the Individual Defendants were and are

controlling persons and had the power and influence to cause (and did cause)

Mirant to engage in the unlawful conduct complained of herein.

18 . Because of their executive and managerial positions with Mirant ,

each of the Individual Defendants had access to the adverse non-publi c

information about the business, finances, markets and present and future busines s

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prospects of Mirant particularized herein via access to internal corporate

documents, conversations or connections with corporate officers or employees ,

attendance at management and/or Board of Directors' meetings and committees

thereof and/or via reports and other information provided to them in connectio n

therewith .

19 . Mirant and the Individual Defendants had a duty promptly t o

disseminate accurate and truthful information with respect to Mirant's operation s

and financial condition or to cause and direct that such information b e

disseminated and to correct promptly any previously disseminated information tha t

was misleading to the market . As a result of their failure to do so, the price o f

Mirant secu ri ties was artificially inflated during the Class Period , damaging

Plaintiffs and the Class .

20. The Individual Defendants , because of their positions with Mirant ,

controlled the contents of quarterly and annual reports, press releases and

presentations to securities analysts. Each Individual Defendant was provided wit h

copies of the reports and press releases alleged herein to be misleading prior to o r

shortly after their issuance and had the ability and opportunity to prevent their

issuance or cause them to be corrected . Because of their positions and access t o

material non-public information available to them, each of these defendants kne w

that the adverse facts specified herein had not been disclosed to and were bein g

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concealed from the public and that the positive representations that were being

made were then false and misleading . As a result, each of the Individual

Defendants is responsible for the accuracy of Mirant's corporate releases detailed

herein as "group-published" information and is therefore responsible and liable for

the representations contained therein .

21 . Mirant and each of the Individual Defendants is liable as a primary

violator in making false and misleading statements and for participating in a

fraudulent scheme and course of business that operated as a fraud or deceit o n

purchasers of Mirant securities during the Class Period . All of these defendants

had motives to pursue a fraudulent scheme in furtherance of their common goal,

i .e., inflating the reported profits of Mirant and the trading price of Miran t

securities by making false and misleading statements and concealing material

adverse information . The fraudulent scheme and course of business was designed

to and did: (i) deceive the investing public, including plaintiff and other Class

members; (ii) artificially inflate the price of Mirant securities during the Class

Period; (iii) cause plaintiff and other members of the Class to purchase Mirant

securities at inflated prices ; (iv) allow Mirant insiders to sell their own Mirant

securities at artificially inflated prices while privy to material, adverse knowledge

regarding the Company's fraudulent practices ; (v) conceal the true financial

condition of Mirant; (vi) enhance executive compensation ; (vii) facilitate

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Page 19: Mirant Corporation Securities Litigation 02-CV-01467-Consolidated Amended Class Action

acquisitions and public offerings during the Class Period ; and (viii) maintai n

compliance with debt obligations .

22 . In addition to Mirant and the Individual Defendants, the followin g

individuals are named as defendants in the Secu rities Act claim(s), as signato ries

to Mirant's false and misleading IPO Prospectus, in the following capacities : (1 )

Defendant A .W. Dahlberg - Chairman of the Board and Director ; (2) Defendant H .

Allen Franklin - Director ; (3) Defendant Elmer B . Harris - Director ; and (4)

Defendant W .L. Westbrook - Director . Defendants Dahlberg, Franklin, Harris ,

and Westbrook were, at all relevant times, Directors of Mirant (collectively, the

"Director Defendants"). The Director Defendants signed Mirant's Prospectus ,

which included materially false statements and omissions, as described below .

23 . Defendant Goldman, Sachs & Co. and Defendant Morgan Stanle y

Dean Witter ("Morgan Stanley") acted as lead underwriters for the IPO, and the

following defendants also served as underw ri ters for the Offering : Defendant Ban c

of America Securities LLC, Defendant Credit Suisse First Boston Corporation . ,

Defendant J .P . Morgan Securities Inc ., Defendant Lehman Brothers Inc . ,

Defendant Salomon Smith Barney Inc ., Defendant ABN AMRO Incorporated ,

Defendant Blaylock & Partners, L .P., Defendant Chase Securities Inc ., Defendant

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Page 20: Mirant Corporation Securities Litigation 02-CV-01467-Consolidated Amended Class Action

Commerzbank Aktiengesellschaft, and Defendant The Williams Capital Group ,

L.P . (collectively, the "Underwriter Defendants"). The Underwriter Defendants

are full-se rvice investment firms, and sold the securities presented in the IPO on a

firm commitment basis , a contractual agreement under which they agreed to

purchase all of the shares for sale in the Offering for resale to the investing public .

At all times, the Underwriter Defendants were engaged in the business of

investment banking, underwriting, and selling securities to the investing public .

24 . Defendant Southern Company maintains its p rincipal executive

offices at 270 Peachtree Street , N .W., Atlanta, Georgia 30303 . Southe rn

Company, according to its own description, i s

a holding company for Alabama Power Company, Georgia PowerCompany, Gulf Power Company, Mississippi Power Company andSavannah Electric and Power Company, each of which is an operatingpublic utility company. The operating companies supply electricservice in the states of Alabama, Georgia, Florida, and Mississippi,respectively.

Southern Company's wholly-owned subsidiaries include Southern LINC, Souther n

Nuclear, SCS, Southern Management Development (formerly Energy Solutions) ,

Southern Telecom, and Southern Power .

IV. CLASS ACTION ALLEGATION S

25. Plaintiffs bring this action as a class action pursuant to Rule 23(a) an d

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(b)(3) of the Federal Rules of Civil Procedure on behalf of a class (the "Class" )

consisting of all persons who purchased the securities of Mirant betwee n

September 26, 2000 and September 5, 2002, inclusive (the "Class Period"), and al l

persons who purchased the securities of Mirant pursuant to or traceable to an

offering during the Class Period, including the IPO (the "Offering Subclass") .

Excluded from the Class are the defendants herein, members of each Individua l

Defendant's immediate family, any entity in which any defendant has a controllin g

interest, and the legal affiliates, representatives, heirs, controlling persons ,

successors, and predecessors in interest or assigns of any such excluded party .

26 . Because Mirant has millions of shares of securities outstanding, an d

because the Company's securities were actively traded, members of the Class are

so numerous that joinder of all members is impracticable . As of June 30, 2002 ,

Mirant had 402,923,915 shares of common stock outstanding . While the exac t

number of Class members can only be determined by appropriate discovery ,

Plaintiffs believe that Class members number at least in the thousands and that

they are geographically dispersed .

27. Plaintiffs' claims are typical of the claims of the members of th e

Class, because plaintiffs and all of the Class members sustained damages arisin g

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out of defendants' wrongful conduct complained of herein, which kept the price o f

Mirant securities artificially high throughout the Class Period and induced

Plaintiffs and Class members to buy Mirant securities .

28 . Plaintiffs will fairly and adequately protect the interests of the Class

members and has retained counsel who are experienced and competent in clas s

and securities litigation. Plaintiffs have no interests that are contrary to or i n

conflict with the members of the Class plaintiffs seek to represent .

29. A class action is superi or to all other available methods for the fai r

and efficient adjudication of this controversy, since joinder of all members i s

impracticable. Furthermore, as the damages suffered by individual members of th e

Class may be relatively small, the expense and burden of individual litigation

make it impossible for the members of the Class individually to redress the wrong s

done to them . There will be no difficulty in the management of this action as a

class action.

30. Questions of law and fact common to the members of the Clas s

predominate over any questions that may affect only individual members, in tha t

defendants have acted on grounds generally applicable to the entire Class . Among

the questions of law and fact common to the Class are :

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(a) whether the federal securities laws were violated by defendants '

acts as alleged herein ;

(b) whether the Company's publicly disseminated releases and

statements during the Class Period omitted and/or misrepresented material facts

and whether defendants breached any duty to convey material facts or to correc t

material facts previously disseminated ;

(c) whether defendants participated in and pursued the fraudulen t

scheme or course of business complained of;

(d) whether the defendants acted willfully , with knowledge or

recklessly, in omitting and/or misrepresenting mate rial facts ;

(e) whether the market prices of Mirant securities during the Clas s

Period were artificially inflated due to the material nondisclosures and/or

misrepresentations complained of herein ; and

(f) whether the members of the Class have sustained damages and,

if so, what is the appropriate measure of damages .

V. APPLICABILITY OF FRAUD ON THE MARKETDOCTRINE AND THE PRESUMPTION OF RELIANCE

31 . With regard to Counts III and IV arising under Sections 10(b) an d

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20(a) and Rule I Ob-5, Plaintiffs will rely, in part, upon the presumption of relianc e

established by the fraud-on-the-market doctrine in that, among other things :

(a) Defendants made public misrepresentations or failed to

disclose facts during the Class Period ;

(b) the omissions and misrepresentations were material ;

(c) Mirant securities traded in an efficient market ;

(d) The misrepresentations alleged would tend to induce a

reasonable investor to misjudge the value of the Company's securities ; and

(e) Plaintiffs and the other members of the Class purchased Mirant

securities between the time Defendants misrepresented or failed to disclos e

material facts and the time the true facts were disclosed, without knowledge of th e

misrepresented or omitted facts .

32. At all relevant times, the market for Mirant securities was an efficient

market for the following reasons , among others :

(a) Mirant securities were listed and actively traded during th e

Class Period on the NYSE exchange , an open , highly efficient and automated

market . The average daily volume of Mirant's common stock during the Clas s

Period was 3,596,984 shares based on information from the Yahoo Financ e

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website . The total number of shares traded during the Class Period wa s

1,741,573,700 shares .

(b) As a regulated issuer, Mirant regularly made public filings ,

including its Forms 10-K, Forms 10-Q and related press releases, with the SEC .

Additionally, Mirant met the eligibility requirements for filing a SEC Form S- 3

and, in fact, filed a number of them during the Class Period, as recently as October

2001 .

(c) Mirant was followed by analysts from major brokerage s

including Legg Mason, Wachovia Securities, Banc of America Securities ,

Salomon Smith Barney, Thomas Weisel, Gerard Klauer Mattison, Deutsche Ban c

Alex Brown Inc ., Merrill Lynch, Raymond James, Morgan Stanley, Bear Stearns ,

First Union Securities, Friedman Billings, and Lehman Brothers . The reports o f

these analysts were redistributed to the brokerages' sales force, their customers ,

and the public at large; and

(d) Mirant regularly communicated with public investors vi a

established market communication mechanisms, including the Company's website,

regular disseminations of press releases on the major news wire services, and othe r

wide-ranging public disclosures, such as communications with the financial pres s

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and other similar reporting services .

33 . As a result, the markets for Mirant securities digested curren t

information regarding the Company from the publicly available sources described

above and reflected such information in the prices of Mirant's securities . As

would be expected where a security is traded in an efficient market, material new s

concern ing Mirant's business had an immediate effect on the market price o f

Mirant's secu rities, as evidenced by the rapid decline in market price in th e

immediate aftermath of Mirant's corrective disclosures as described herein . Under

these circumstances, all purchasers of Mirant's securities during the Class Period

suffered similar injury due to the fact that the price of Mirant securities was

artificially inflated throughout the Class Period. At the times they purchased o r

otherwise acquired Mirant's securities, Plaintiffs and other members of the Clas s

were without knowledge of the facts concerning the wrongful conduct alleged

herein and could not reasonably have discovered those facts . As a result, the

presumption of reliance applies. Plaintiffs will also rely, in part, upon th e

presumption of reliance established by a material omission .

VI. SUBSTANTIVE ALLEGATIONS

A. The California Energy Crisis Opens The Door To Fraud And

Manipulation

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34 . The energy crisis in California enabled companies like Mirant, th e

sixth largest power supplier in California, to reap illegal profits, artificiall y

manipulate energy prices, and report materially overstated financial results .

According to a former Project Director employed at Mirant between July 1998 an d

March 2002, Mirant was making a "killing" in California during the crisis . On

May 9, 2002, The Atlanta Journal and Constitution featured an article on Mirant' s

involvement in the California crisis entitled "Mirant Role in California Powe r

Crisis Studied More ." The California crisis dates back to 1996, when Governo r

Pete Wilson signed energy deregulation legislation requiring energy utilities t o

transfer operational control of their transmission lines to an independent agency ,

known as the Independent System Operator ("ISO") . The legislation also created

incentives for utilities to sell off their generating plants to p ri vate companies .

Instead of the utilities setting rates regulated by the state, the legislation create d

the California Power Exchange ("CPX"), a private nonprofit organization to set

prices at auction (as described on PBS Frontline at www.pbs .org/wg . . ./ blackout/

californialtimeline .html .). Until 1998, the California Public Utilities Commission

("CPUC") set electricity prices in California . Californ ia switched from a system i n

which electricity prices were determined by regulation to one in which prices wer e

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supposed to be set by competition .

35 . The CPX oversees the sale of electricity for the market day and on e

day preceding the market day, and the ISO maintains a "Real Time Imbalance

Market," an "Ancillary Services Market" and a "Congestion Management

Market ." Rates were capped for consumers until utilities divested themselves o f

power generation plants . By 1999, San Diego Gas & Electric Company became

the first utility to lift the consumer price cap, and within a year, electricity prices

tripled. Although the legislation was intended to introduce competition into th e

electricity markets and ultimately reduce rates for electrical power, energ y

companies illegally manipulated the California wholesale electricity markets ,

which resulted in energy shortages, rotating power outages, and artificially high

prices . See generally Complaint , Pier 23 Restaurant v. PG&E Energy Trading et.

al., Case No . 318343 ( Superior Court, County of San Francisco , Jan. 24, 2001).

36. By May of 2000, the ISO declared the first Stage 2 power alert, which

occurs when heavy power usage contributes to power reserves dropping to 5

percent. One month later, California suffered its largest planned blackout since

World War II, when localized, rolling blackouts affected 97,000 Pacific Gas &

Electric consumers in San Francisco due to ISO-ordered blackouts . It has now

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been revealed that California's blackouts were not the result of actual energ y

shortages ; instead, the blackouts were artificially created by Mirant and other

energy traders . As summarized in a January 18, 2001 "memo to clients" issued b y

Credit Suisse First Boston,"ft]he rolling blackouts in California are more likely

intended to soften up the legislature and the voters to the need for rate increase .

. . The unthinkable rarely will be permitted to happen ." By August of 2000,

Governor Davis called for an investigation into possible price manipulation in th e

wholesale electricity marketplace.

37 . During the winter of 2000, the ISO declared the first statewide Stage

3 power alert, which occurs when power reserves dip below 3 percent. The

federal government intervened and issued an emergency order for out-of-stat e

power suppliers to sell electricity to California at 'just and reasonable" rates. Out-

of-state generators had been refusing to sell to California because they feared tha t

they would not receive payment from California' s cash-strapped utilities.

38 . Between January and March of 2001, more rolling blackouts were

ordered by the ISO, affecting several hundred thousand consumers in California .

On March 1, 2001, the ISO filed a report with the Federal Energy Regulatory

Commission (FERC), alleging that power generators overcharged California by

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$6 .2 billion for electricity sold in California during the year 2000. Several days

later, the FERC ordered 13 generating companies , including Mirant, to refund $69

million to California utilities or provide justification for charging prices above the

threshold of $273 per megawatt -hour during peak hours in January 2001 .

Additional refunds were ordered on March 16, 2001 . As detailed below, th e

illegal charges that resulted in the subsequent ordering of refunds were

fraudulently manufactured by energy companies, including Mirant .

39 . Mirant's illegal activities in the California market were facilitated b y

a conspiracy among the top energy companies, who planned and coordinated th e

California manipulations , including : 1) fraudulently withholding power in order

to artificially inflate energy prices ; 2) deliberately failing to bid all availabl e

power; 3) falsely claiming that power plants required the maintenance and shuttin g

down of plants to restrict supply; and 4) engaging in Enron-style manipulations to

boost the bottom line . As set forth herein, once the California Attorney General

commenced lawsuits against Mirant for its illegal activities, Mirant

management instructed its Information Department employees to delete

information from Mirant's computer hard drives and servers concernin g

Mirant 's California operations . See Section VI . A., infra.

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40 . These former high-flying energy companies are now the subject o f

grand jury investigations and extensive government lawsuits . As detailed in

Section VI . C., infra., Williams Companies entered into a settlement worth over $ 1

billion with the State of California, and the remaining participants in the

California fraud are involved in litigation to determine the refund methodolog y

that will be used to reimburse California for their illegal profits .

1 . The Energy Companies Conspire to Commit Fraud

41 . As Mirant summarized in its quarterly report on Form 10-Q for th e

third quarter of 2001, due to increased competition and the effects of deregulation

during the Class Period, Mirant faced reduced energy prices and vigorou s

competition from established energy companies such as Enron, Reliant, Dynegy ,

Williams, and Duke. The 10-Q stated :

[M]any states and countries are considering or implementing differenttypes of regulatory and privatization initiatives that are aimed atincreasing competition in the power industry . Increased competitionthat has resulted from some of these initiatives has alreadycontributed to a reduction in electricity prices and put pressure onelectric utilities to lower their costs, including the cost of purchasedelectricity. Additionally, our business is rapidly becoming morecompetitive due to technological advances in power generation,e-commerce enabling new ways of conducting business, the increasedrole of full service providers and increased efficiency of energymarkets .

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42 . As a result, many of these companies conspired to engage i n

fraudulent practices in order to artificially drive up energy prices to compensat e

for p ri ce reductions , and reap unprecedented profits. Five energy companies -

Williams, Mirant, Reliant, Duke, and Dynegy - combined to restrict trade i n

electricity, to limit production of electricity, and to prevent competition . These

five companies owned or controlled 19 gas-fired electricity generation plants that

set the price of electricity when demand exceeded 20,000 megawatts, and used the

market power that these generators provided to them in order to artificially raise

prices by restricting output .

43 . According to press releases and SEC filings, Williams, Mirant ,

Reliant, Duke, and Dynegy's purchase of the 19 gas-fired units was carried out i n

eight states over a 17-month period, for a total purchase price of just under $3

billion . Mirant, through Southern Energy Delta L .L.C . and Southern Energy

Potrero L.L.C., purchased the Contra Costa, Pittsburg and Potrero power plans i n

California. The energy companies' business plans were directed at controllin g

electric generation plants strategically located in the California market that would

allow them to exercise market power over electric prices in California markets, a s

well as those markets whose power prices were affected by supply and demand i n

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California, such as Washington and Nevada .

44. According to a complaint filed by Public Utility District No . 1 of

Snohomish County, Washington, (Public Utility District No. I of Snohomish

County v. Dynegy et al., Case No. 02-5553 (C .D. Cal . July 5, 2002)) ("Snohomis h

Cpl .") R. Steve Letbetter , CEO of Reliant, outlined Williams, Mirant , Reliant,

Duke, and Dynegy's motive and business plan to raise electricity prices i n

California. In a February 10, 2000 presentation to Cambridge Energy Associatio n

("CERA") (an energy executives insider group ), Letbetter talked of how the "ga p

between the performance of electricity utility stocks and that of the broader market

is a concern to all of us on this panel and to many people in this room ." Letbetter

admitted, "I know we've all given a lot of thought to what it will take to improv e

valuations." He continued :

We feel that we're doing all the right things ; we've transformed ourcompanies to compete in the new businesses that didn't exist a fewyears ago and even in some businesses that exist only in ou rimaginations today . And we're scratching our heads because,although our companies look a lot different than they used to, ourstock stubbornly persist in behaving like utilities .

As an industry, we sometimes have had a rather spotty performancerecord and a history of unkept promises .

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45 . Letbetter went on to lay out his solution to the "performance gap . "

"We must delivery near-term earnings and begin to produce greater earnings

growth than we did in the past ." He declared that this is "the only way we can

expect our stocks to stop behaving like utilities and catch up with the

transformation that many of our companies already have undergone ." Id.

46. Letbetter explained why Williams, Mirant, Reliant, Duke, an d

Dynegy had reorganized themselves to be "integrated energy services companies" :

Integrated energy services companies operating in competitive

markets aren't like regulated utilities, and they will appeal to a

different type of investor . Investors are sending a clear signal thatthey would prefer to invest in pure plays . Reliant, for example, hasbuilt a substantial unregulated wholesale business including a top-tier

power generation business that will have over 20,000 megawatts in

operation by 2002 . Id .

47 . Letbetter told his fellow energy executives that if they were to gai n

the pure play investors' "con fidence in our ability to expand and operate in

competitive markets, we must be able to demonstrate that our strategi c

investments are adding value and we must choose investments that will produc e

earnings accretion quickly." Id.

48. Letbetter then admitted that Reliant Energy's strategy would be to

obtain significant market share in targeted regions like California and then extrac t

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higher prices :

Our energy services strategy is to build a significant market presencein power generation in multiple regions of the country and thenextract additional value of those assets through our trading andmarketing operations . (February 10 2002 Remarks by R . SteveLetbetter before the Cambridge Energy Research Associates .)

49. Reliant and Mirant's strategy was to aggressively take advantage of

shortages by taking control of existing or new generation in those areas . Reliant

admitted in its public filings that its objective was to "[t]arget strategic asse t

portfolios in our regional markets" :

We target strategic portfolios of base-load , intermediate and peakinggeneration facilities and power contracts in each of our regionalmarkets based on 12revailing supply and demand fundamentals inorder to be able to meet the fully electricity requirements ofcustomers . ( Emphasis in o ri ginal . )

50 . Defendant Dahlberg admitted in a May 26, 1999 news release that

the "landscape of the future energy business will be dominated by a few

companies ." He admitted, "there will be about a half-dozen national energy

providers. Mirant intends to be one of those companies . "

51 . Williams, Mirant , Reliant , Duke, and Dynegy followed the plan, as

detailed in the Letbetter CERA remarks, to extract more money out of strategi c

generation . CERA performed a multi-client study and repo rted that power plant s

up for sale in California would provide purchasers with market power because

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there were potential shortages in California's electric energy market . See,

Snohomish Cpl . at 19.

52. Mirant built and acquired a portfolio of power-generating assets tha t

made it, according to its public filings, "one of the world's largest independen t

power producers ." Mirant, in combination with its co-conspirators, used it s

technical skills "in the acquisition, development, financing and operation of powe r

generation facilities and gas transportation and storage assets ." Mirant and the

other energy companies systematically exercised their market power t o

fraudulently raise prices and restrict output .

53 . Williams, Mirant, Reliant, Duke, and Dynegy delivered fraudulen t

and false messages to the public about their intent to create a competitive electri c

market in California . For example, in a May 22, 2002 press release, Defendant

Fuller affirmed Mirant's commitment to fostering the growth of "competitive "

energy companies in California . See Section VIII. B ., infra . While these

companies were telling the public they intended to and were helping to create a

competitive market for electricity that would lower prices, they delivered a

different message to their investment bankers . These companies told thei r

investment bankers that prices would be increased because the defendants woul d

be able to exercise market power over the electricity prices charged to Californi a

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consumers , and that once they captured the 17,000 MW of gas-fire plants in

California, they would use their power to raise electricity prices in California an d

thereby raise rates . See Snohomish Cpl . at 19.

54 . Mirant also admitted the importance of the Company's tradin g

operations to their profitability, in a February 1, 2000 press release issued by

Southern Company, Defendant Dahlberg stated : "When we began to operate

beyond our traditional businesses in the Southeast, we knew it would be importan t

to link our newly acquired power plants to a vigorous trading and marketin g

operation." Mirant has devoted major assets to its trading floor operation :

The trading floor, staffed by some of the nation's top energy tradersand marketers, is a clearinghouse for transactions involvingelectricity, natural gas, coal and oil . These traders and marketers,backed by teams of experts in mathematics, physics, economics,meteorology and other disciplines, also essentially trade in risk,hedging against events that can impact the value of energycommodities - their environmental costs or the weather, for example .The trading floor is operated by Southern Company EnergyMarketing, a joint venture of Southern Company subsidiary SouthernEnergy Inc . and Vastar Resources, Inc. `It's important to link assetsto energy trading. Assets like power plants are most profitable whenused efficiently with a complete understanding of market conditionsand available options,' said S . Marce Fuller, President and CEO ofSouthern Energy Inc . `The only way you can understand all of thatfully is to be in the business of trading energy commodities . '

`In many cases, the fuel going into our newly acquired power plantsand the electricity coming out of them are bought and sold on thisfloor, allowing us to make the most profitable use of our Nort h

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American investments, said Gary Morsches, president of SouthernCompany Energy Marketing . `We're also demonstrating we canbring the same advantages to other companies' assets . '

55 . Mirant is also a member of the Intercontinental Exchange (ICE) ,

whose trading activities also go unregulated . ICE was formed by six tradin g

companies , which created the "world' s largest on-line , over-the-counter (OTC)

market for energy and metals ." The founding partners included Mirant, Reliant ,

Duke, Williams, and Dynegy . Key partners in ICE were Goldman Sachs an d

Morgan Stanley .

56 . The ICE platform has several features that support collusive behavio r

amongst market participants :

The ICE platform will be password-protected and will be accessibleonly by approved participants . Each participant will be required toidentify those other participants that it has approved as counterparties .The approval of other participants as counterparties, however, as wellas the standards to be applied in making such determinations (whichmay include credit or other considerations), will be left to eachparticipant in its discretion . The Platform will then employ `filters' toensure that each participant enters into transactions only with thoseother participants that it has approved as counterparties .

The Platform will utilize an electronic trading and matching systemthat participants will access either through the Internet or throughdedicated communication lines and that will allow participants to postbids and offers on a real-time basis . The Platform will be availableon a 24-hour, 5-day per week basis (subject to maintenancerequirements and prevailing market conventions) .

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57 . Once Williams, Mirant, Reliant, Duke, and Dynegy took control o f

the power to set prices in California's portion of the West Coast electric market ,

prices began their upward trend . In 1998, total electricity costs were about $5 . 6

billion. In 1999, they increased 32% to $7 .4 billion . In 2000, they skyrocketed

278% to $28 billion, and they were expected to increase to $70 billion in 2001 .

58 . Williams, Mirant, Reliant, Duke, and Dynegy's financial performanc e

reports show they have and continue to take billions of dollars from California as a

result of the elevated prices being charged in that state . On January 18, 2001 ,

Duke repo rted a $744 million profit , a 374% increase from 1999 . The next day ,

on January 19, 2001, Mirant Company announced a $1 .40 billion profit .

59. As a result of their collusion, each of these energy companies reporte d

substantial increases in profits for the beginning of 2001, as shown the followin g

bar chart . Moreover, during a period that analysts recognized as the start of a

recession , with U.S . corporate profits down 12% in the first six months of 200 1

compared to the same period in 2000 - Mirant and other energy companie s

experienced unprecedented profits , as shown in the following line graph .

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$100

0

$500

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6,

$10(

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Page 41: Mirant Corporation Securities Litigation 02-CV-01467-Consolidated Amended Class Action

0

~e

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Page 42: Mirant Corporation Securities Litigation 02-CV-01467-Consolidated Amended Class Action

60. As a result of Mirant ' s collusive agreement with these energ y

companies, Mirant was able to artificially inflate prices in California, create

artificial shortages of capacity, and use other fraudulent means to manipulate the

California market and report falsely inflated financial results during the Class

Period .

2. The Lawsuits Begin: Mirant's Role In The California-Market Fraud IsSlowly Revealed

61 . On January 24, 2001, a lawsuit was filed against Southern Energ y

(now Mirant ) and other power companies in Pier 23 Restaurant v. PG&E Energy

Trading et al., Case No . 318343 (Superior Court, County of San Francisco) . The

Complaint alleged that Mirant and the other defendants "unfairly and unlawfull y

manipulated the supply and price of electricity exchanged on the Wholesal e

Electricity Markets ." Pier 23 Cpl., 138 .

62 . According to the Pier 23 complaint, the CPX is :

[T]he primary exchange where wholesale electricity is bought andsold . The CPX holds auctions in which sellers and buyers ofelectricity submit bids for both price and quantity of electricity on anhourly basis. The highest accepted bid in a particular hourly auctionestablishes the wholesale price of energy for that hour. All sellerswithin that hour receive the identical price even if they bid lower . . .The ISO monitors the long distance, high voltage power lines thatmake up the bulk of California's power grid and insures that, at anygiven time, the supply of electricity meets the State's demands .Approximately 75% of California's electricity is distributed through

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the ISO-managed power grid . If an insufficient amount of electricityis bid into the CPX market, the ISO must obtain energy from the RealTime Imbalance Market to insure that California's electricity demandsare met. The Real Time Market price is also determined by an hourlymarket clearing bid. Under this single price auction system, all sellersof electricity in the Real Time Market automatically receive the samemarket clearing price, even if they were willing to sell and had in factbid to sell electricity at lower prices .

Pier 23 Cpl., J~ 40-42 .

63 . Although the Real Time Imbalance Market was designed to correc t

short term imbalances in supply and demand, defendants in the Pier 23 action,

including Mirant, channeled a substantial portion of the State's wholesal e

electricity sales through a more profitable market by holding back their bids an d

causing the ISO to artificially perceive a shortage of wholesale electricity. The IS O

would then turn to the Real Time Market to purchase additional electricity to mee t

demand. Once the ISO began purchasing power in the Real Time Market, Mirant

was able to submit artificially-created higher bids . Mirant also drove up prices i n

the Replacement Reserve Market by withholding power supplies during periods o f

power markets . Pier 23 Cpl ., ¶¶ 43-45 .

64. The Pier 23 Complaint alleged that Mirant engaged in unlawful an d

unfair business practices, including : (a) unfairly withholding bids and otherwis e

limiting the amount of electricity in the Wholesale Electricity Markets, a tactic

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called "gaming the market," which resulted in inflated energy prices and rotating

power outages; (b) illegally exchanging and obtaining information regardin g

competitors' bidding practices and the State's energy supply ; (c) unfairly limiting

the amount of available energy supply in California to raise the market clearing bid

for electricity ; and (d) misusing confidential real time generator capacity an d

maintenance data. Pier 23 Cpl., ¶ 57.

65 . In March 2002, additional information concerning Mirant's fraudulent

practices was revealed . On March 11, 2002, the Attorney General of the State o f

California filed a complaint for restitution , civil penalties , injunction , and other

equitable relief, alleging that Mirant :

[C]onspired to engage in and engaged in, a scheme to violate the rulesof the ISO market and tortiously convert property to which the ISOhas an exclusive possessory right, all to the detriment of the reliabilityof the California electricity market and California's residents andratepayers. In particular, defendants have repeatedly sold electricitygenerating capacity to the ISO for use as a reserve and in the event ofa system emergency, and subsequently and unlawfully, sold the same

capacity into the lucrative "spot" market for wholesale power . As aresult, defendants have unlawfully collected millions of dollars .

See Attorneys for People of the State of California ex rel . Bill Lockyer, Attorney

General ofthe State of California, v. Mirant Corporation et al ., Case No : CGC 02-

4054-29 (Superior Court, County of San Francisco, Mar. 11, 2002) (California A G

Complaint I") .

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66 . Mirant was able to facilitate this fraudulent scheme by failing to repor t

the energy rates it was charging in California to the required authorities, or b y

failing to provide sufficient information to these authorities . On March 20, 2002 ,

California filed a complaint with the FERC (the "FERC Complaint"), alleging that

Mirant and other energy companies' electricity rate schedules filed with the FER C

failed to provide FERC with an adequate opportunity to determine in advance

whether the rates charged were just and reasonable, and failed to provide the publi c

with the rates to be charged . Mirant failed to report transaction specific

information on their sales to the ISO, CPX, and California Depart ment of

Resources . To the extent any of the rates charged are found to exceed "just and

reasonable levels," the complaint sought a refund of the difference between th e

rates charged and a just and reasonable rate, plus interest . See State of California ,

ex. rel Bill Lockyer, v. British Columbia Power Exchange , Coral Power LLC,

Dynegy Power Marketing Inc., Enron Power Marketing Inc ., Mirant Americas

Energy Marketing L.P., et al., Docket Nos. ELOO-95-00 et al. (Mar. 20, 2002).

67 . Included in the FERC Complaint were spreadsheet exhibits listing all

of the companies that sold power to California between January 18, 2001 and

October 31, 2001 . The spreadsheet showed the number of transactions California

entered into with each seller . The spreadsheet included a designation of

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"MAEM"for Mirant, and identified over $2 billion worth of suspect transactions

by Mirant during this period. The transactions engaged in by Mirant include d

sales of $243,756,200 ; $1,217,543,775 ; $266,976,015 ; and $578,672,206 between

January and October 2001 . See Appendix A-C to FERC Complaint .

68 . These suspect transactions also formed the basis of a complaint under

California's unfair competition laws, which sought civil penalties for Mirant' s

illegal activities . See State of California, ex . rel. Bill Lockyer, Attorney General of

the State of California, Case No . C-02-2207-VRW (N .D. Cal .) ("California AG

Complaint II ") . The California AG Complaint II, filed on April 9, 2002, alleged

that Mirant and its wholly-owned subsidiaries engaged in price gouging an d

"unjust, unreasonable, and illegal overcharges," and received "unprecedente d

profits at the expense of consumers, ratepayers, businesses and the State o f

California" that resulted in "hundreds of millions of dollars of overcharges an d

illegal profits . "

69 . According to yet another complaint filed on April 15, 2002, Miran t

was able to manipulate the market prices in California by : (1) failing to file their

rates with the required autho rities as detailed in the FERC complaint ; and (2 )

illegally acquiring and holding power plants in California, which enabled Mirant t o

exploit the California markets . See People of the State of California ex rel. Bill

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Lockyer, v. Mirant Corporation et. al, Case No. C-02-1787 (N .D . Cal . April 15 ,

2002)(Complaint for illegal acquisitions and/or holdings of assets under § 7 of the

Clayton Act)("California AG Complaint III") .

70 . On May 31, 2002, the FERC issued an order, finding that Mirant an d

other sellers committed "serious" violations of Section 205(c) of the Federal Powe r

Act by failing to report transaction-specific information on their market -based sales

of power during California's energy crisis . The FERC also ruled that Miran t

charged "unjust" and unreasonable rates during California ' s energy c risis . State of

California, ex. rel. Bill Lockyer, Attorney General of the State of California v .

British Columbia Power Exchange Corp., et al ., 99 FERC ¶ 61, 247, Order pp . 28-

35 (May 31, 2002) . The FERC ruled that , although it had no authority under

federal law to revoke market-based rate authority or order refunds, it found tha t

Mirant improperly reported aggregated data rather than transaction-specifi c

information in their quarterly transaction reports submitted to the FERC . Order p.

28 .

71 . On November 20, 2002, California Lieutenant Governor Bustamante

filed a class action lawsuit alleging that publisher McGraw-Hill Cos . and severa l

energy companies, including Mirant, worked together to "jack up energy prices i n

the state." The suit, filed in Los Angeles Superior Court on behalf of Californi a

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utility customers :

[A]ccused the companies of feeding false prices and trade volumes totwo energy industry newsletters published by the Platts division ofMcGraw-Hill Gas Daily and Inside FERC Gas Market Reports . Thedefendants . . . engaged in a surreptitious course of conduct intendedto artificially inflate the market price of natural gas within the state,and, in turn, affect the market price of electricity in California," thelawsuit said .

72 . The allegations in the complaint were based in part on the testimony of

a former trade journal employee. According to a November 18, 2002 Reuters

article :

Adding fuel to California's claims the state was gouged during a 2000-2001 power crisis, a former employee of an influential natural gastrade journal testified on Monday that traders exaggerated prices theygave to the paper for daily indices to manipulate the market . MicheleMarkey, who worked for the trade journal Gas Daily, told a stateSenate panel investigating price gouging during the state's energycrisis that companies purposely inflated or stretched prices for theindices. Prices reported in the journal are often used to value energydeals .

"Common practice was to exaggerate your transactions to pricereporters," said Markey, who appeared at the committee hearing afterlawmakers granted her immunity in exchange for her testimony ."You'd stretch your prices in favor of what the company's positionwas or don't report at all . "

She added the process were often unchecked and contained self-reported information from the various gas companies that Californialawmakers charge conspired to drive up prices during the energycrisis .

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3. Mirant Engages in "Enron-style" Fraud and Manipulation

73 . On May 7, 2002, federal energy regulators investigating Enro n

released documents indicating that Enron used trading strategies with names like

"Death Star" and "Fat Boy" to manipulate electricity supplies and boost profits in

California . Commenting on the news and calling for a criminal investigation ,

California's Governor Davis stated : "It gives further credence to my oft-state d

belief that California was taken unholy advantage of by Enron and other energy

traders ." Davis noted in a May 8, 2002 New York Times article that Mirant and

other energy traders extorted "about $30 billion" from California, and that "[t]hos e

who claimed there was no price manipulation here were just plain wrong ." The

news led to a widened FERC inquiry , and Senate Panel hearings .

74 . Recently revealed evidence demonstrates that some of the mechanism s

used by Enron and other power marketers artificially inflated power prices. For

example , in recent testimony before the United States Senate Commerce, Science

and Transportation Committee, evidence came to light that Enron had manipulated

market prices in California and the Pacific Northwest by engaging in a variety o f

sham transactions between its affiliates to artificially inflate power market prices .

75 . An internal Enron memo written at the height of the power crisi s

recently, released by federal regulators, confirms the extent of abuse of marke t

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rules not only by Enron, but also by other power marketers . The memo explains i n

detail the strategies used by Enron such as "inc-ing ," which the memo defines as

"artificially increas[ing] the load on the schedule submitted to the ISO" so that the

ISO would pay Enron an artificially inflated price for the excess of generation over

scheduled load on the real-time market . Another strategy used by Enron's traders

is to relieve system-wide congestion in the real-time market, and this congestion

was created by Enron's traders in the PX's Day Ahead Market . Because the

congestion charges have been as high as $750/MW, it can often be profitable to sel l

power at a loss simply to collect the congestion payment . (See Memorandum dated

Dec. 6, 2000 , to Richard Sanders from Christian Yoder and Stephen Hall detailin g

Traders' Improper strategies in the California market, available on the FERC' s

website at www.ferc .fed.us . )

76 . Enron developed a number of these strategies to "game" California' s

market rules ." The common elements of each strategy, apart from thei r

deviousness , were to game the California market rules to artificially inflate p ri ces

while delivering little or nothing of value to the electric system. The memo

describes the "Death Star" strategy for example, as "cam[ing] money by scheduling

transmission in the opposition direction of congestion . . . and then collecting the

congestion payments . No energy, however, is actually put onto the grid or take n

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off . . . the net effect of these transactions is that Enron gets paid for moving energ y

or relieving any congestion ." Other strategies involved more obvious fraud . The

memo states that, in order for the "Get Shorty" strategy (i .e ., selling ancillary

services into the day-ahead market) to work, "it is necessary to submit fals e

information that purports to identify the source of the ancillary services ." In fact ,

these gaming strategies became so sophisticated that Enron's traders were able t o

anticipate how other market participants would game the market and tak e

advantage of those strategies to further enhance the profits for their own gaming:

The traders were able to anticipate when the dec price will befavorable by comparing the ISO's forecasts with their own . When thetraders believe that the ISO's forecast underestimates the expectedloan, they will inc load into the real time market because they knowthe market will be short, causing a favorable movement in real-time expost prices. Of course, the much-criticized strategy of California'sinvestor-owned utilities ("IOUs") of under-scheduling load in the day-ahead market has contributed to the real-time market being short. Thetraders have learned to build such under-scheduling into their models,as well .

77 . The memo leaves little doubt that the effect of these gaming strategies

was to artificially inflate market prices . In describing the "Load Shift" strategy, fo r

example, the memo states that "by knowingly increasing the congestion costs ,

Enron is effectively increasing the costs to all market participants in the real tim e

market."

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78 . According to a former Gas Control Coordinator employed at Miran t

from March 1999 through January 2002, Mirant and "all energy companies

modeled themselves after Enron," and the internal Enron memo further makes clear

that many other traders were using the same or similar tactics to game th e

California market . The memo reports, for example, that the "inc-ing" strategy "i s

the `oldest trick in the book' and, according to several traders, it is now being use d

by other market participants ." Similarly, with respect to the strategy of selling non-

firm energy as firm, "[t]he traders claim that `everybody does this ."' In fact,

gaming was so widespread, according to the memo, that "Enron's traders have use d

these nicknames with traders from other companies to identify these strategies . "

One experienced energy trader reported that pressures to create profits were s o

intense that "if you didn't manipulate the market and manipulation was accessibl e

to you, that's when you were yelled at ."

79. The memo explains how Enron shipped power out of California t o

escape price caps that were in place in California . Likewise, the "Death Star"

strategy exploited transmission constraints arising from lines connecting th e

Southwest and Northwest to California to collect counter-scheduling payment s

without ever actually either moving energy or relieving transmission constraints .

Notes of meeting of Enron traders and their lawyers reflect the notation "Powere x

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gamed the target price."

80. Recently revealed documents further identify how the trading scams

worked, and clarify Mirant's use of these fraudulent strategies . On June 7, 2002,

Xcel Energy released its response to a FERC data request which asked companie s

to admit or deny taking part in various "Enron -style" trading strategies . As part o f

its filing, Xcel included transcripts of several phone conversations between one o f

its traders and a trader at Mirant . For example, traders at Xcel Energy Inc. and

Mirant Corp . discussed "games " to profit from California' s chaotic electricit y

market in 2000 as they negotiated energy transactions .

81 . The Xcel and Mirant traders discuss schemes to schedule nonexisten t

power use and to take advantage fraudulently of "congestion" payments o n

California's overburdened electric grid . On July 18, 2000, for example, Xcel said

it sold 300 megawatt -hours of electricity to Mirant for $277 a megawatt -hour. In a

conversation recorded that day, a Mirant trader asks an Xcel trader if he wants

"to do an expost type of game or you want to do a congestion type of game plus

ex post. " The Mirant trader suggest limiting the deal to 50 megawatts an hou r

because "I don't want to crush the market too bad," and suggests the companie s

"try to benefit from trying to relieving (sic) some of that Path 26 congestions ."

82 . An "ex-post" strategy involved making power available to California's

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grid operator at the last minute to meet shortages, bypassing the bidding processe s

designed to set fair prices . Congestion strategies involved payments for promisin g

to generate more electricity in some areas and cut use in others to ease gri d

bottlenecks, although no power actually moved in many cases .

83 . On July 19, 2000, when the electricity at issue in the conversatio n

would have been delivered, California's grid operator paid as much as $500 a

megawatt-hour for power, the highest price then allowed, and declared a Stage 2

emergency, forcing power distribution to be cut to some business .

84. The Xcel transcripts also reveal another example of using "ex-post "

trading to artificially inflate prices . According to a conversation between Miran t

Trader Gret Oetting and another trader, Steven Murphy, concerning a sale to Ho t

Spri ngs from the "PSCo Generator" on October 4, 2000, the following exchange

occurred :

Murphy: Hey, umm running 50 over there . I'll hit yeah at Hot Springs with 50,11 through 20 . . . .

Oetting : . . .That works. I mean it cuz this it'll clear it'll clear probably 13 0to 140 to my guess is it may even do better . It depends . I can tell youone of the things that's going to help the market today just a littl eahh.

Oetting : Hey, you should know . That one thing that's going to support theNP market today real-time. And we sold like frickin' almost 900Megawatts pre-schedule yesterday for today .

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Murphy: Outside of the California?

Oetting : In the bilateral markets, so that's energy is not getting scheduled intothe real time .

Murphy : But, I mean did you move it outside of California ?

Oetting : No, no . We sold it at NP. We sold to you know whatever othermarketers and the other marketers do you think they I mea nthat's not that many other marketers that are gonna send it into thereal time market, right? Cuz they bought NP .

Murphy : Hmm, umm . But it's all going to get sunk there so the net effects .

Oetting : Oh yeah but see that but see that was that all got sunk the dayahead market . So, if were if it weren't on the day ahead market .Yeah, you're right . I mean okay maybe there isn't the need thedemand real-time because of that . I don't know.

Murphy : Yeah, that's what we have to look at . But, umm, yeah okay so 11through 20. That's what we're doing with that shit . 11 through 20we're going to over schedule the load . 21 Mountain .

85 . According to a former Mirant Mid-Marketer, the above conversatio n

detailed an "ex-post" trade . Mirant sold most of what the company had at the tim e

(900 MWs) the prior day for October 4, 2000 . Mirant sold the 900 megawatts to

other energy marketers operating in the market, and the marketers were not goin g

to sell to the ISO in "real time." Thus, when Mirant sold the power into the market

the prior day, the other marketers had to sell "pre-scheduled" because there was n o

"storage" for energy in the particular market at issue. As a result, there would b e

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no power remaining for the Real Time market, creating an artificial shortage an d

driving up the price . Murphy's response "11 through 20 we're going to ove r

schedule the load" demonstrates that this is an "ex post clearing price trade" wit h

no specific consumer intended . In such a situation , California pays an "ex post

clearing price," which will be high due to the contrived shortage in the Californi a

Real Time market .

86. In another conversation, on June 20, 2000, a Mirant trader outlines a

plan to tell grid operators it would move electricity from Southern California t o

Northern California, when in fact the energy was flowing the other way . "It's kind

of loop-t-looping (sic), but it 's making money," the trader said, according to th e

transcript . Xcel said it sold 450 megawatt-hours to Mirant that day for $60 a

megawatt-hour.

87 . Although Mirant initially denied engaging in these practices , an Enron

memo to its lawyers revealed that these practices are common . California Stat e

Senator Joseph Dunn , commenting on the Enron memo in a May 7, 2002 CBS

Marketwatch article, noted "In our view, all of the large market participant s

engaged in these games in one way or another."

88 . Indeed, a former Mirant Real Time Trader employed at Mirant' s

Eastern Region Trading Desk (who also spent several months working with

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Western Region Traders) reported that "wash" trades did occur at Mirant . A

"wash" or "round trip trade" refers to buying and selling the same amount of a

commodity at the same price simultaneously, and it is used to artificially boost the

volume of trading revenues for some energy traders . On a regular basis betwee n

December 2000 and April 2002, this former Mirant trader saw trades on another

trader's blotter' that were followed on the next line with a reverse trade from th e

counter-party. As an example, he would see a trade for Mirant to buy 5 0

megawatts at $20 per megawatt from counter-party AEP. The very next line on th e

blotter revealed that the trader had sold 50 megawatts at $20 per megawatt to AEP .

89. A former Mirant Senior Energy Accountant in charge of accountin g

for several powerplants revealed that Mirant had no set procedure on how t o

properly value energy trades , and that Mirant 's front office "can make any kind of

deal." According to this former Senior Accountant, "wash trades" happened "a

lot" because no one in Mirant ' s Front Office'- could ever justify who made the

' According to this former employee, a "blotter" is an 8 .5 x 14 inch piece ofpaper with 20 lines containing the trader ' s hand-written details of a particulartrade, including the trade date, whether the transaction was a buy or a sell, thenumber of megawatts , the counter -party, the term , and a TARA reference number.

2 According to a former Mirant employee who was employed as an analystand a trader, Mirant's energy trading operations were kept track of through threeoffices defined as follows : (1) Front Office - This group works beside the energytraders, taking down most of the information on the energy trades and putting thi s

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trade. "There was always a question mark how they [the energy traders] did it an d

how we should account for it." An intern al email at Mirant confi rmed that Miran t

traders participated in "wash trades" but that "it wasn't a big deal because of th e

amounts involved ." This former employee reported that "people within th e

company" didn't agree with the email's attempt to minimize the wash trades and

that "something was wrong" but "if that was what the company is saying we've go t

to run with it ."

90 . A former Mirant Mid-Marketer revealed that Mirant also engaged i n

other Enron-style manipulations, such as "ricochet" trades . The former employe e

revealed that during the summer of 2000, a team of Western Region mid-marketers

caused a "ricochet deal," ensuring the process of exporting power from Californi a

and subsequently importing the same power back into California at an increased

price. In this transaction, Mirant :

[T]raded 25-50 megawatts of power that Mirant generated withi n

information in a format where the "Middle Office" could use this information tovalue the trades ; (2) Middle Office - Liaison between upper level management,CFO, and traders . This group valued the trades made by the traders and checkedto see if derivatives that were created by these traders were worth the value theysaid they were , and to put trades together in a format that can value the trades on adaily basis ; and (3 ) Back Office - This is where collections and payments wereconducted , as well as "number crunching" .

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California to a utility outside of California that could take the powerinto their load and also show that they produced that amount of power .Seattle City Lights agreed to the transaction, and accordingly, Miranttook the power out of California by trading the 25-50 megawatts ofpower to Seattle City Lights. Seattle City Lights then resold the same25-50 megawatts of power back to Mirant at a slight increase in price .Next, Mirant sold the same 25-50 megawatts of power back toCalifornia .

91 . Mirant was required to respond to the FERC by May 22, 2002 and to

certify that it did not engage in the fraudulent trading strategies described in th e

Enron memorandum. On May 22, 2002, Mirant admitted that it engaged in at leas t

two of the Enron -type manipulations , but asserted that these practices wer e

'4proper ." "Mirant admitted it engaged in the practice of scheduling load and a

corresponding amount of generation in excess of actual demand ." Mirant conceded

that on one day, the Company "exported a small amount of power from Californi a

and repurchased a similar amount of power from the original buyer for resale t o

[California] ." Mirant admitted that this transaction "could open MIR up t o

criticism for circumventing the California price caps ." Defendants were aware o f

these fraudulent practices and nonetheless assured investors throughout the Clas s

Period that Mirant's conduct in California was legal and that the Company wa s

inadequately reserved for its exposure in California .

4. The CPUC Report Evidences Mirant 's Fraud

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92. According to a report by the California Public Utilities Commissio n

released in September 2002 ("CPUC Report"), California's demand for electricit y

never exceeded, nor even approached, the state's capacity to produce power . The

CPUC Report demonstrates that Mirant : ( 1) did not produce all available power on

blackout and service interruption days ; (2) did not bid all available power into th e

markets; and (3) improperly withheld power from the California markets b y

refusing to place plants in service at critical times .

93 . The combined effect of these fraudulent practices - deliberatel y

coordinated amongst Mirant and the other energy companies - was to illegally an d

deliberately restrict output to the California market in order to raise prices . Mirant

affirmatively misrepresented its operations in California and fraudulentl y

recognized revenues from these illegal sales . Throughout the energy "crisis," ther e

were more than enough power plants to generate the electricity California required .

There was no "shortage" of power plants in California, however, Mirant and othe r

energy companies created spot shortages . The CPUC obtained and analyzed data

on power production, power plant outages, bidding behavior of electricity

generators, and electricity transmission during 38 blackout and service interruptio n

days in California from November 2000 through May 2001 . The report concluded

that :

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If the state's five largest independent electricity generators hadoperated all of their available capacity from November 2000 throughMay 2001 (the height of California's energy crisis), California'scitizens could have avoided :

• All 4 days of blackouts in Southern Californ ia ;• 65% of the blackout hours in No rthern Californ ia ;• S 1 % of se rvice interruption hours in the South ; and• 51 % of service interruption hours in the No rth.

94 . The CPUC Report (pg . 3) analyzed the generators' own data an d

found :

When the generators' own data on plant outages is added to the dataon power not generated, as summarized in the graph above, thecombine data shows that between 37% and 46% of the total generatingcapacity of the five generators was either not available, or notsupplied, on the 32 statewide blackout and service interruption days atissue. Specifically :

• 37% of Dynegy' s capacity was either out of service or notmade available ;

• 38% of Duke's capacity was either out of service or not madeavailable;

• 42% of Reliant ' s capacity was either out of service or not madeavailable;

• 42% of Mirant's capacity was either out ofservice or notmade available; and

• 46% of Williams/AES's capacity was either out of service ornot made available .

95 . The Report confirmed that :

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During all of the statewide blackouts and service interruptions, thefive generators also failed to bid all available power into the ISO'smarkets.

Had the generators produced the power they had available, most of thestatewide blackouts and service interruptions could have been avoidedwithout overloading the transmission lines linking Northern an dSouthern California. For firm-service customers, all of the blackoutsin Southern California and 65% of the blackouts in NorthernCalifornia could have been avoided . For interruptible customers, 82%of interruption hours in Southern California and 51 % of interruptionhours in Northern California could have been avoided .

96. Throughout the crisis, the ISO was declaring emergencies on an

almost daily basis and urgently seeking all available power, making it obvious tha t

wholesale electricity generators should have bid in, or otherwise provided, every

last megawatt of power . The Report concluded that there are a number of possible

reasons why a given generator did not generate power on a given blackout o r

service interruption day . For example, the ISO may not have used all availabl e

bids, the generator may not have followed ISO instructions, or, occasionally, loca l

power lines may have been full . However, the CPUC found that none of these

reasons provides a justification for the generators' failure to bid in a ll available

power on a blackout or service interruption day. CPUC Report, p . 5 .

97 . According to the CPUC Report (p . 5), beyond failing to bid al l

available power into real-time markets, generators withheld power using severa l

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other strategies . At various times, generators :

• Failed to follow or delayed their responses to ISO requests toproduce power ;

• Declined the ISO's automated dispatch instructions ;

• Failed to take all actions necessary to make plants available assoon as possible after plant outages ; and

• Failed to provide adequate fuel and staffing for plants .

98. In addition to failing to generate all of their available power, Miran t

and the other companies at issue did not bid all available power into the ISO real-

time market . The CPUC report analyzed data from the "real-time market whic h

closes 45 minutes before each hour." By that time, generators knew thei r

commitments in all other markets , and could have bid in all their remaining powe r

into California's market . See CPUC Report, p. 30 .

99. With respect to Mirant's role in this fraudulent scheme, the CPU C

Report (p . 34) stated :

On March 28, 2001, Mirant had, on average, over 200 megawatts ofavailable power that it did not bid into the ISO's real time marketduring service interruption hours . On that day, a shortage of 135megawatts caused service interruption . Thus, by itself, Mirant did notbid available power into the market in an amount equivalent to thetotal amount of service interruption occurring on that day .

100 . The CPUC Report found that "well over 40% of the capacity o f

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Mirant, Reliant, Williams and AES was either "not available" or not supplied t o

California during the "crisis" period ." CPUC Report at 45 . An average of 42% of

Mirant's capacity was either out of service or not used during blackout an d

service interruption hours. Id. at 47.

101 . Another fraudulent tactic used by Mirant involved taking their plant s

out of service to limit power supply and raise electricity prices. In October of

2000, Mirant and other energy suppliers began shutting down their plants fo r

"maintenance" at "a rate unparalleled in prior years."3 See Hoax, How

Deregulation Let the Power Industry Steal $7 Billion from California," Jan . 17 ,

2002 . (Prepared by the Foundation for Taxpayer and Consumer Right s

("Consumer Rights Report")(available at www.consumerwatchdog .org)).

102 . Data made available by the California ISO show that the wholesal e

energy suppliers began shutting down their plants for "maintenance" in October o f

2000 at a rate unparalleled in prior years . In some critical months, as much as 30%

of the state's power capacity was rendered unproductive by the unregulated plan t

owners . For example, November 2000, saw a 246% increase in plant outages ove r

November 1999 . By April 2001, outages were up 348% over the previous year .

3 See, "Market Analysis Report ," for ISO Board Meeting November 30, 2000,by Eric Hildebrandt, p.7-

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This "coincidental" amount of plant outages is detailed below :

California Plant Outages 1999-200 1

Source: California Energy Commission, compiled from ISO dat a

Month 1999 2000 200 1

January 3,068 2,423 9,940

February 5,096 3,243 10,895

March 5,740 3,389 13,73 7

April 5,739 3,329 14,91 1

May 3,032 4,012 13,43 1

June 1,216 2,683 6,794

July 963 2,233 5,044

August 878 2,434 4,229

September 1,195 3,621 n/a

October 1,761 7,633 n/a

November 2,988 10,343 n/a

December 2,569 8,988 n/a

103 . Mirant and the other power companies tried to explain the suspiciou s

nature of the outages by claiming that the power plants they had purchased fro m

the utility companies in recent years were old and breaking down more frequently .

"The units have been running very hard all summer," was the common

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explanation.' This ignores the fact that the plants did not run "very hard," wit h

Summer 2000 demand off from the 1999 peak . See Consumer Rights Report, p . 23 .

104. State rules require the plant operators to notify the California ISO of

"scheduled," also known as "planned," shutdowns in advance, and allow the ISO t o

monitor any unexpected, or "unscheduled," shutdowns . According to the

Consumer Rights Report (p. 24) :

Throughout much of the crisis, the majority of shutdowns wereunscheduled, according to ISO data . It is easy to see how the plantoutages dynamically affected electricity prices . Under thederegulation rules concocted by the energy industry, the energy tradershave access to crucial real-time data through unregulated internet sites,allowing the industry to monitor and manipulate the market .' Much ofthe industry's profits were being made by the energy companies'trading divisions, which could orchestrate spot market volatility .According to one energy executive, energy trading companies "don'tmake money off price (differentials) . They make their money offvolatility."'

105 . According to an article entitled "Electricity traders' tech habits ge t

scrutiny," by Jennifer Bjorhus, San Jose Mercury News, June 10, 2001 :

With crucial supply and price date available to the traders, power

4 Id. at 24, citing Dan McSwain, "Deregulation works - for the powercompanies," North County Times, December 24, 2000 .

Id.

° Id. citing, "Dynegy-Enron deal potential `staggering,"' by James Norman,Platts Oilgram News, November 13, 2001 .

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companies knew when to take plants off-line and when to run them inorder to maximize profits . In the words of a former energy trader,"[w]hen you can calculate exactly what a market needs and where itssurplus is going to come from , then you have the ability to essentiallyfix prices ." Further aiding the energy companies , the CommoditiesFutures Trading Commission (CFTC) exempted electricity tradingfrom federal regulation , in the early 1990's , with Enron lobbying forthe ruling. Wendy Gramm , chair of the CFTC at the time, laterbecame an Enron board member .

106. As revealed in the Consumer Rights Report (p . 25), based on ISO data :

As plants were taken off-line, energy companies monitoring the state'ssupply and the electronic markets would increase their prices to reflectthe spot reduction in supply. With supplies tightened as a result of theoutages, traders at Enron and other private energy trading firms wouldbid prices up, sometimes astronomically .

107. On days like January 16, 2001, prices hit $550/Mwh late into the

evening, as nearly 6,000 megawatts were pulled off-line without warning by plan t

owners Duke, AES, Mirant, Reliant and the state's utilities, among others .' The

next day , with another 500MW forced off- line, all allegedly for maintenance ,

rolling blackouts hit California .

108 . The energy companies denied charges by consumer advocates tha t

they were manipulating the generation of electricity in order to reap windfal l

' Price data collected from California Power Exchange at www .cal x .com,prior to the Ca1PX bankruptcy (March 9, 2001) . Data on generation off-linecollected from "California Generation Curtailments" California ISO, January 16,2001 .

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profits :

With billions of dollars in taxpayer money being used to buy the high-priced electricity, lawmakers in Sacramento began to inquire into thecharges. Their investigations bore fruit when workers at a power plantowned by Duke reported that plant managers had ordered the rapidramping up and down of power production and even left units idleduring power shortages for reasons of "economics." "They wererunning the units like a yo-yo," said one whistleblower, in sworntestimony before the state Senate committee investigating powercompany abuses . He also suggested that such spastic productionschedules probably contributed to legitimate plant breakdowns : "It'slike bending a coat hanger back and forth - eventually it will break,"In addition, whistleblowers said, they were directed to discard brandnew replacement parts, resulting in the plant being shut down forunnecessarily long repairs .'

109. While the article detailed in the preceeding paragraph discussed

fraudulent practices at Duke, these practices were planned by the energy companie s

who conspired to restrict power on certain dates for maximum profits, which coul d

not have been accomplished without the active involvement of Mirant and the othe r

participants . Interviews with former employees confirm that Mirant engaged in th e

same practices . According to a former Mirant employee who worked in the

Company's New Markets Division in Atlanta, Mirant artificially increased it s

profitability by shutting down particular power plants to restrict supply and

a Kimberly Kindy, "Three say company purposely cut power," OrangeCounty Register, June 22, 2001 . Lynda Gledhill, "Ex-workers say plant exploitedpower flow," San Francisco Chronicle, June 23, 2001 .

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increase demand. This employee stated that Mirant's Risk Control departmen t

would have someone call the targeted plant and tell them to "shut it down . "

According to this former employee, one week during the California emergenc y

crisis, when there was "trouble" in California, "all the machines on the West Coas t

wall were shut down [because] there was no production on the West Coast . "

110. The CPUC Report confirms the suspicious nature of Mirant's service-

related power outages , finding after analysis that an average of 42% of Mirant' s

capacity was either out of service or not used during blackout and servic e

interruption hours, which was well above historical averages . As the Report stated :

The fact that between 30% and 50% of the plants owned by the fivegenerators collectively were out-of-service on so many days during theenergy crisis seems anomalous .

111 . In addition to intentionally withholding power by feigning plant

outages or maintenance issues , Mirant also manipulated energy prices by

generating extra power in order to benefit from short trades . According to a

former analyst and trader based in Mirant's Atlanta headquarters who wa s

employed from April 1999 until early 2002, in February of 2001 he was asked t o

lie to regulators from "PJM" (the Pennsylvania-Jersey-Maryland area) . Thi s

employee was directed by his supervisor to lie to PJM regulators about th e

availability of certain electric power generating units . He was told to tell PJM

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regulators that the units were not available, when in fact the units were producin g

energy to the PJM market. PJM was led to believe that the Morgan Tower Power

Plant generating unit was not available, but would be available in a few days . (Thi s

power plant has two generating units, each capable of producing 600 megawatts . )

In fact, the generating unit was "just put in line into the ISO without telling PJM."

The benefit to Mirant of this manipulation was that the price of power woul d

decline because the plant was flooding the PJM market with more power that IS O

did not know it had . Mirant had already sold power and it was power that th e

Company did not have, a practice known as "short selling ." Since short selling is

only profitable if the price of electricity goes down, this is exactly what Miran t

engineered. In instances like this, Mirant took "short" positions, telling regulator s

they could not produce power, flooding the market, and then selling power it didn' t

have in the "day ahead" market . When the "real time" came, they bought th e

needed power but bought it back at a lower price .

5. Mirant Employees Are Instructed to Delete Files Concerning theCalifornia Energy Manipulations

112. A former Information Technology Department ("IT") employee wh o

worked at Mirant from August 2001 through February 2002 and provide d

technological support for the Company' s executive depa rtment, revealed that h e

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was instructed to delete certain specified files concerning Mirant's activities i n

California . This former employee disclosed that after the California Attorne y

General Litigation and other investigations began, the executive department an d

the IT group started "pulling all the information together ." This employee stated

that when the lawsuits started over the California energy dealings, all the to p

people, executives, directors, had a meeting . After this meeting, a couple of

people, including himself and another employee, were instructed to begin workin g

on a project "ghosting" certain employees' hard drives . The Legal Department had

generated a list of employees whose hard drives were to be "ghosted," and at th e

outset of the project, the former employee's instructions were to copy all files fro m

each hard drive to a stand-alone server and then delete those same files from th e

hard drive . The former employee understood that these hard drives were being pu t

on the stand-alone server in case it got called into court and someone wanted to see

copies of the hard drives .

113. Shortly after the project began, however, this former employee' s

instructions changed : he was told on the side to delete ce rtain drives before they

were copied onto the stand-alone server . The orders came from Mirant' s

management at corporate headqua rters in Atlanta, the director of the IT

Department, and the director of the Legal Department. This former employee wa s

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instructed to take a computer and bring it to the legal department and let them loo k

through it and they would tell the employee what they wanted deleted, giving him a

list of files or drives to delete before copying . In accordance with these

instructions, the IT employee would then copy certain drives and totally wipe othe r

drives clean, and would wipe e-mails from the computer servers, as well . He

reported that a lot of what was deleted was E-mails, all of it pertaining t o

California, and "briefs" the traders passed back and forth . At other times, the legal

department would first delete files themselves before giving it to him to copy . The

former employee knew they had deleted information because the computers had

less information on the hard drive when he got it back from legal than when h e

originally gave it to them .

114. The legal depa rtment was adamant about the need for the former

employee to go in and clean parts of the hard drive and then copy the hard drive .

This former employee stated that there was a list of all the hard drives, all th e

people who had them, all the computers they had, and that people were called a t

home and told to bring in their laptops . This former employee explained that b y

cleaning up the drives before copying, they were deleting information that Miran t

did not want anyone to have .

115 . The former IT employee explained that there are approximately 50 0

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traders on the trading floor of Mirant in Atlanta , and that 40-50 of those trader s

were California energy traders . When the California lawsuits started, the hard

drives of all California traders and the executives who dealt with them were pulle d

out over a two-month period . When this employee left Mirant in February 2002 ,

his former IT Department co-worker was still erasing hard drives . The employee

stated that all the attention was being placed on the California traders and thei r

systems, and anybody who dealt with California had red flags on all their systems .

116. According to this former employee, among those specifically targeted

to have their computers "cleaned" were Defendant Fuller, all senior executives an d

"a couple other VPs" on the 12th floor, as well as "VPs that sit down on the trade

floor." Some of the "higher ups" had two or three laptops at home and they were

instructed to bring these in for cleaning, which was generally done over th e

weekend . A couple of "higher ups," particularly those with laptops, tried to refuse

the file copying and deleting, but the Legal Department forcefully reminded the m

that the computers were "not their property" and required them to turn over th e

machines .

117 . In addition, the former IT Department employee revealed that when a

Mirant employee was going to be fired, he was instructed to be at that person's des k

to lock out all passwords before the termination was actually communicated so tha t

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the terminated person wouldn 't be able to gain access to the computer . While this

was standard procedure , this former IT employee was instructed to be especiall y

vigilant in following the procedure when anyone who had contact with th e

California energy situation was terminated .

118 . During the two months the former IT employee spent wiping the har d

drives of the California traders, there were also employees in the Networ k

Operation Center who cleaned e-mails on the servers . The former employee woul d

go in and wipe out certain information on the hard drive and then would copy the

drive.

119. Another former employee, an IT Technician employed at th e

Company's headquarters between April 2001 and April 2002, confirmed that ther e

was "a big hush-hush going about hard drives being taken and kept in the Bil l

Group ." After a Mirant executive was terminated in February or March 2002, thi s

employee was told "if [IT] gets a phone call regarding [the terminated executive ]

don't say anything, don't do anything, just get support and send them down to the

computer because they need to get the hard drives, and don't ask any questions ."

120 . If in fact Defendants were sytematically deleting materials that wer e

relevant to the California operations and lawsuits, as the aforementioned indicates ,

it demonstrates that Defendants were likely threatened by that material, adding t o

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the strong inference that Defendants were aware of the illegality of their Californi a

operations .

B. Mirant's Fraudulent Accounting Results in the Issuance of False

Financial Statements

121 . As defendants were forced to reveal on July 30, 2002, Mirant' s

financial statements issued during the Class Period were false . Defendant s

revealed that Mirant had "identified accounting errors in its previously issued

financial statements, primarily related to its risk management and marketin g

operations and has restated its December 31, 2001 balance sheet, reducin g

retained earnings for after tax charges totaling approximately $51 million ." The

full extent of these "errors" has still not been revealed to investors . On November

15, 2002, Mirant filed a notification of late filing, stating that : "[a]s a result of our

focus on addressing the accounting issues discussed in our Form 10-Q for the

period ended June 30, 2002,which was filed with the SEC on November 7, 2002 ,

we are unable to timely complete the filing of our quarterly report on Form 10- Q

for the period ended September 30, 2002 ." KPMG, who replaced Arthur Andersen

as Mirant ' s auditors on April 16, 2002 , are currently reviewing Mirant 's financial

statements , a process which appears likely to result in additional restatements .

122. In addition to the false financial results already disclosed by Mirant ,

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defendants engaged in other accounting manipulations that were facilitated b y

Mirant's admitted lack of internal financial controls . According to a former

contract accountant employed at Mirant's headquarters in Atlanta betwee n

February 2001 and September 2002, defendants included overstated revenues i n

Mirant 's "PowerBooks ." This employee reported to defendant Ward , as well as

Mirant supervisors Phil Williamson, and Pat Russel . PowerBooks were writte n

ledgers containing entries from 1965 to November 2002 . This employee was hired

to participate in Mirant's Power Plant Fixed Assets Project, in which Mirant wa s

inputting accounting entries from the PowerBooks into Mirant's new compute r

system, "Power Plant Oracle." The accounting entries this employee was workin g

on related to recent acquisitions of power plants from General Electric, Pepco, and

others. According to this former accounting employee, "no adjustments [were]

made to the PowerBooks for any overstatement of revenues.". When this former

employee discovered these overstatements, the employee was "instructed to roll it

over to the next month and not to worry about it. " Another former Mirant

accountant confirmed that there were "huge plug numbers" used to get the

Company's "books balanced ."

123 . A former Senior Energy Accountant employed at Mirant' s

headquarters between October 2001 and August 2002 who was in charge o f

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reconciling the books for several powerplants reported that Mirant ' s trading

information was recorded in the PowerBooks, and the "GasBooks ." According to

this Senior Energy Accountant, a lot of things troubled him in the way Mirant did

its accounting . This former employee reported that Mirant recognized revenue s

from energy deals "up front" and failed to account for any fluctuation in prices .

This employee stated that Mirant recognized revenues in this manner to "help

things out" and make "revenues appear higher ." This former employee explained

that if a book entry was worth only $1 million instead of $2 million, Mirant "woul d

never book an adjustment for the $1 million that was overstated, so that in a month

that they actually saw a rise in revenues , they overstated revenues ." According to

the former Senior Accountant, this was just one of the problems that "went o n

within the company . "

124 . This former Senior Energy Accountant revealed that Mirant accounted

for energy options inconsistently. For example, millions of dollars worth of energ y

options at the Sugar Creek plant were found to be incorrectly valued for eigh t

months . Despite discovering the errors, only one month of entries was corrected -

the same month that was reviewed by the auditors - so that Mirant could secure a

financing deal for the Sugar Creek plant .

125 . The former Senior Energy Accountant stated that energy trades wer e

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recorded in a different manner each month . Trades were valued by individual

traders, giving the amount and price . Traders were "in it to make money based o n

commissions and a lot of things went through that weren't supposed to ."9

According to the former Senior Energy Accountant, "there were manipulations

every month that led up to making the quarterly [numbers] look fine."

Everything worked through the trading books which used the "TARA" system ,

where all trades were stocked until a later time when Mirant switched to a syste m

called "ENDUR" . Mirant accounting employees "would get trades out of TARA

and if they were valued too low, something was a problem . The bosses would say

these aren't coming out right, they look funny, they were not correct and shoul d

probably be higher." In response, the former Senior Energy Accountant insisted

"but this is what TARA is spitting out, this is the dollar value, this is what th e

system is saying ." After disagreeing with supervisors in the Eastern Divisions

9 A former Mirant Senior Auditor reported that energy traders receivedbonuses of over $1 million a year above their base salary . A former Mirant analystreported that valuation of trades was done periodically, about once a week, atwhich time Mirant's energy positions were reviewed . These were usually longterm positions of energy taken for several months . The function of the review wasto check to see where the value of the position was at the present, current time andask the trader what that value is . The value provided by the trader was completelysubjective; they could give any number they wanted to . Traders valued tradesthemselves since they dealt with the prices on a daily basis, but this providedopportunity for altering figures to improve their performance .

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Back Office about increasing the figures, supervisors would "go in and do a

manual figure by hand, saying this trade should be at a specific level . "

126 . According to the former Senior Energy Accountant, "all the [energy ]

trades were housed in TARA and gave the basis for the "marks,""' but the marks

were always off from what he saw . For three straight months the marks were off i n

that what they booked for the quarter did not match what was booked in th e

previous months . The amounts were tremendously higher than the actual mark .

The former employee recalled a specific incident in regards to a gas trade where h e

booked $300,000 one month, $400,000 one month, $1 .5 million the next and came

to learn that it should have only been $13,000 in total .

127. In response, Mirant accounting employees changed one month for the

auditors, the month that they looked at . (The auditors just took a month out of th e

year to look at, so the corrections were only made to that month .) If the months

were booked wrong, they were still used for the quarterly numbers, unless an

auditor caught something . For example, when KMPG came to look at the Sugar

Creek gas plant numbers for the 2nd quarter, accounting employees were told t o

10 Mark-to-market accounting means that financial assets, such asmarketable securities, derivatives and financial contracts, are reported on acompany's balance sheet at their current market value at a specific point in time,although the actual realization of cash may not happen for years . The "mark" isthe specific entry made on the Company's books to reflect the trade .

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only correct one month . This former Senior Energy Accountant estimated th e

quarter to be overstated for gas trades in the amount of $500,000 - 750,000 . For

the second quarter 2002, this former employee estimated that the Zeeland powe r

plant numbers were overstated by $10 million (with this plant usually bringing in

$40 - $60 million a month), and for this same period the mid-Atlantic regio n

overstated $15 million worth of gas trades .

128 . Defendants regularly affirmed Mirant's revenue forecasts to investor s

and analysts, despite having haphazard internal financial controls, and n o

reasonable basis for their estimates . According to a former Mirant Senior Audito r

who was preparing a comprehensive budget analysis, he asked Mirant's Vic e

President in charge of Energy Trading how Mirant generated its forecasts fo r

revenues and expenses . The Vice President - who was responsible for finalizin g

trading business revenue forecasts for Mirant and discussing them wit h

management - told him, "see that dart board? "

C. The Gradual Exposure of Illegal Practices Results in Dramatic Losses toMirant Investor s

129. On May 7, 2002, after documents from the Enron investigation wer e

released that implicated Mirant in the California schemes, Mirant common stock

plummeted over 12%, closing at $9 .75, on unusually high trading volumes of over

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7,000,000 shares traded, considerably higher than the Company's average tradin g

volumes of 4 .4 million shares . Mirant common stock has continued to decline, an d

traded at slightly under $2 per share on November 15, 2002 - a far cry from it s

trading price of $47 per share on May 21, 2001 . The full magnitude of investors '

losses in Mirant is yet unknown, as the Company has not yet revealed the extent o f

its involvement in Enron-type fraudulent transactions in California, or the ful l

amount of its restatement of class period financial statements .

130 . Indeed, Mirant and the other energy companies who recognized

fraudulent revenues in connection with their illegal manipulations are liable for

hundreds of millions of dollars . One energy company involved in the illega l

activity has already reached a settlement worth well over $1 billion with the state o f

California.

131 . On November 11, 2002, according to a Company press release issued

on that day, Williams Companies settled one lawsuit with California (which also

names Mirant as a defendant) and agreed to :

• pay cash considerations of $150 million over eight years .

• Contribute six generating turbines .

• Assist the attorney general's office with ongoing investigations into th e

electric power and gas markets .

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As part of the settlement, Williams agreed to restructure a $4 .3 billion power

contract, resulting in over $1 billion worth of savings to California .

132. Mirant, like Williams, will also be forced to compensate California fo r

its fraudulent practices . The U .S . Attorney for the Northern District of California

recently subpoenaed Mirant and Southern Company for their role in the Californi a

fraud. The scope of the illegal activity has also expanded . Consumer complaint s

demanding refunds for Mirant's manipulations have now been filed in Washington ,

and Mirant will likely be named as a defendant in a lawsuit brought by th e

Attorney General of Nevada .

133 . In October 2002, Enron's former chief Western Energy Trader ,

Timothy Belden, pled guilty to federal charges of conspiracy to commit wire fraud.

Belder admitted he manipulated California's power market to drive western price s

up artificially . According to a Department of Justice criminal information filed in

the Enron case , Duke, Reliant, Mirant , Dynegy, AES and Calpine "often failed t o

operate their plants at full capacity and shut down plants at rates well abov e

historical averages." As a result of this contrived shortage of energy supply, th e

ISO purchased "out of market" electricity at prices above the price cap ." This

investigation has now been broadened to include Mirant and Southern Company .

134. According to a November 11, 2002 article in the Houston Chronicle ,

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the Energy Task Force of California Attorney General Lockyer's office has filed a t

least 70 legal actions before the FERC. The largest action asks the FERC to refun d

$8 .9 billion to California rate payers . An October 9, 2002 article in the Orang e

County' s Register chronicled the progress of the cases , and stated :

The state's refund case got a boost last month when a FERCadministrative-law judge found that natural gas provider El Paso Corp.illegally withheld gas from California during the energy crisis to driveup the price. Since natural gas fuels most of the state's power plants,manipulation of the gas market would have exacerbated alreadyskyrocketing electricity prices at the time .

A second finding of wrongdoing came from the PUC, the state's topenergy regulator . It ruled last month that Californians needlesslysuffered rolling blackouts during the crisis because the state's majorpower producers, including Mirant Corp ., Dynegy Inc., withheldenergy. The PUC is investigating whether the power companies werejustified in withholding the juice, as the companies contend .

135 . As now revealed, during the Class Period, while Mirant announce d

quarter after quarter of outstanding growth, and assured investors that problems i n

the California market had been properly accounted for, Mirant in fact failed to : (a)

disclose the fact that the illegally obtained revenue was subject to forfeiture an d

that investigations surrounding the illegally obtained revenue would result in th e

expenditure of material amounts for legal and professional fees ; (b) provide for th e

return of illegally obtained revenue, through a charge to earnings ; and (c) provide

for professional fees associated with the investigations arising from the frau d

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through a charge to earnings . As a result, defendants' Class Period financial

statements were materially overstated, and failed to comply with Generall y

Accepted Accounting Principles ("GAAP"). In addition , defendants repeatedly

reassured investors that Mirant was doing all it could to support increased

competition in California and to promote solutions for the West Coast energy

crisis . In fact, as detailed herein, Mirant conspired with other key energ y

companies such as Duke and Reliant to withhold energy from the market an d

obtain artificially inflated prices .

VII . THE SECURITIES ACT CLAIMS UNDER SECTIONS 1 1AND 15 THEREOF

A. Overview Of Securities Act Claims

136 . Counts I and II are separate and apart from Counts III and IV asse rted

herein . These counts do not assert any scienter and are not subject to heightene d

pleading requirements. The Sections 11 and 15 claims are brought on behalf o f

persons who purchased the securities of defendant Mirant pursuant to or traceabl e

to an offering during the Class Period, such as the IPO. These counts allege onl y

that the Registration Statement and Prospectus ("Prospectus") misrepresented and

omitted material facts .

B. Mirant' s Initial Public Offering

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137 . On April 21, 2000, Mirant (then known as Southern Energy

Incorporated) issued a Prospectus registering up to $100,000,000 worth of Miran t

common stock, or up to 19 .9 percent of the total number of shares outstanding .

Southern Company intended to spin off to holders of Southern Company commo n

stock the remaining ownership of Southern Energy within 12 months of the initia l

public offering . The IPO was approved by Southern Company's Board o f

Directors, and became effective on September 27, 2000 .

138 . According to a September 27, 2000 press release issued by Mirant and

Southern Company, the IPO and later spin off would :

[C]reate two large stand-alone publicly traded energy companies :Southern Company, the leading electric utility in the southeasternUnited States, and Southern Energy, one of the largest independentpower producers and energy marketers in the world .

139 . On October 3, 2000, Southern Company and Mirant announced the

closing of the IPO of Mirant stock . Total gross proceeds to Mirant from the IP O

and a concurrent preferred securities offering were approximately S 1 .81 billion .

Mirant sold at $22 per share 66 .7 million shares of common stock, which included

8 .7 million shares sold after underwriters exercised an over-allotment option . The

gross proceeds to Mirant from the IPO were approximately $1 .467 billion. The

66.7 million shares of common stock represented 19 .7 percent of the 338 .7 million

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shares outstanding . Simultaneously, Mirant sold at $50 per security 6 .9 millio n

shares of convertible trust preferred securities , including 900 , 000 securities sol d

after underwriters exercised an over-allotment option . The convertible trus t

preferred securities were priced to yield 6 .25 percent, with a conversion price o f

$27 .50 per share. The gross proceeds to Mirant from the offering of the convertibl e

trust preferred securities were approximately $345 million .

140. According to the Prospectus, the proceeds would be used to repa y

short-term debt of approximately $839 million . The remaining proceeds from thes e

offerings would be used for general corporate purposes .

C . False Statements in the IPO Prospectus

141 . The September 27, 2000 Prospectus included materially false an d

misleading statements and omissions regarding Mirant's operations and materiall y

overstated financial results .

142. At the time of the IPO, the Company owned a 49% economic interes t

and a 50 .5% voting interest in Western Power Distribution ("WPD") . The

remaining economic and voting interest was held by a subsidiary of PPL

Corporation. As stated in the September 27, 2000 registration statement an d

prospectus : "South Western Electricity plc, trading as Western Power Distributio n

is one of the privatized regional electricity companies in England and Wale s

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licensed to distribute , supply and, to a limited extent , generate electricity . Western

Power Distribution's primary business is distribution of electricity ." Discussing the

operations of WPD, the September 27, 2000 registration statement and prospectus

stated:

Western Power Distribution's distribution business is the ownership,management and operation of the electricity distribution networkwithin Western Power Distribution's authorized area in southwestEngland. The primary activity of the distribution business is thereceipt of electricity from the national grid transmission system and itsdistribution to end users of electricity that are connected to WesternPower Distribution's power lines . These end users are customers oflicensed supply businesses, which in turn are the Western PowerDistribution distribution business customers . There are approximately1 .4 million end users connected to Western Power Distribution'snetwork. Virtually all electricity supplied to end users in WesternPower Distribution's area is transported through its distributionnetwork, thus providing Western Power Distribution with distributionvolume that is stable from year to year . Western Power Distribution isthe only distributor of electricity in its authorized area, and we believethat economic, environmental and regulatory factors are likely toprevent competitors from entering the distribution business in WesternPower Distribution's authorized area .

Western Power Distribution also has ancillary business activities thatsupport its main electricity distribution business . These includeelectricity generation, real estate and telecommunications . WesternPower Distribution owns generating assets with 12 MW of capacityused to back up the distribution network . In addition, Western PowerDistribution owns minority interests in windfarms and a 7 .7% interestin Teesside Power Limited, owner of a 1,875 MW natural gas-fired,combined-cycle plant. Western Power Distribution markets an d

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develops real estate no longer used in the distribution business and i sdeveloping an income streamprimarily attached to Westerndistribution network.

from the rental of fiber optic cablesPower Distribution's overhead

143 . The Prospectus contained the following information regarding

Mirant's net income for 1999 and the first six months of 2000 :

Net income for the first six months of 2000 was $194 million, anincrease of $45 million, or 30 .2%, from the same period in 1999 .

144. The increase in net income was attributable in part, to the Company' s

operations in Europe . The Prospectus stated :

Net income from our European operations totaled $43 million for thefirst six months of 2000, a decrease of $24 million from the sameperiod in 1999. The decrease is primarily the result of lower marginsat Bewag and start-up costs incurred by our European marketing andrisk management activities . Western Power Distribution's net incomefor the first six months of 2000 improved slightly as compared to thesame period in 1999. This was primarily the result of a favorable UKtax settlement . This was offset by the sale of the supply business in1999 .

145 . The Prospectus included a section describing the implementation o f

price reductions in the United Kingdom, stating :

Regulatory Environment

The political and regulatory climate in the United Kingdom haschanged significantly since our acquisition of Western PowerDistribution in 1995 . There are currently a number of issues affectingthe electricity industry, including separation of distribution and supplybusinesses, market dominance and new generation build-up . We have

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proactively taken steps to adjust to these future changes, and we donot expect any of these changes to have a material adverse impact onus.

Virtually all distribution customers in England and Wales areconnected to the distribution system of the regional electricitycompanies and cannot choose their electricity distributor. The Officeof Gas and Electricity Markets controls the revenues earned byWestern Power Distribution in its distribution business and formersupply business by applying a price control formula. Distributionrevenues are regulated by a formula that sets the maximum averageprice per unit of electricity distributed . The elements used in theformula are generally established for a five-year period and are subjectto review by the regulator. In December 1999, the regulatorpublish edfinal price proposals following his review of thedistribution revenue for distribution businesses. For Western PowerDistribution, these proposals represent a 20 % reduction todistribution prices from April 1, 2000, followed by a reduction inreal terms of 3% each year after April 1, 2001 . This price control isscheduled to operate until March 2005 . In response, Western PowerDistribution plans to maximize efficiency and customer service as afocused distribution company. In order to achieve these objectives,Western Power Distribution is implementing a plan to reduce staffinglevels by approximately 10% . The reductions primarily affectadministrative and corporate functions, with minimal impact on fieldstaff, in order to assure that customer service is not affected . WesternPower Distribution is currently evaluating further opportunities toreduce ongoing operating costs .

D. The Financial Statements Included In The Prospectus Were MateriallyOverstated

146. The Prospectus was materially false and misleading, and include d

admittedly false and overstated financial results .

147. At the time of the September 27, 2000 registration statement and

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prospectus , the Company' s investment in WPD was considered , for accounting

purposes, to be a long-lived asset which was reflected in the Company's financia l

statements as such .

148 . GAAP (FASB Statement No. 5, Accounting for Contingencies )

requires that: "An estimated loss from a loss contingency . . . shall be accrued by a

charge to income if. . . information available prior to issuance of the financia l

statements indicates that it is probable that an asset had been impaired . . ." and "the

amount of the loss can be reasonably estimated ." The applicability of this genera l

rule as it applies to the accounting for long- lived assets was reaffirmed with th e

issuance of FASB Statement No. 121 .

149 . GAAP ( FASB Statement No. 121, Accounting for the Impairment of

Long-Lived Assets and for Long=Lived Assets to B e

Disposed Of) states that :

An entity shall review long-lived assets and certain identifiableintangibles to be held and used for impairment whenever events orchanges in circumstances indicate that the carrying amount of an assetmay not be recoverable .

The following are examples of events or changes in circumstances thatindicate that the recoverability of the carrying amount of an assetshould be assessed :

a . A significant decrease in the marketvalue of an asset .

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b . A significant change in the extent ormanner in which an asset is used or asignificant physical change in an asset .

c. A significant adverse change in legalfactors or in the business climate thatcould affect the value of an asset or anadverse action or assessment by aregulator .

d . An accumulation of costs significantly inexcess of the amount originally expectedto acquire or construct an asset .

e. A current period operating or cash flowloss combined with a history of operatingor cash flow losses or a projection orforecast that demonstrates continuinglosses associated with an asset used forthe purpose of producing revenue.

If the examples of events or changes in circumstances set forth [above]are present or if other events or changes in circumstances indicate thatthe carrying amount of an asset that an entity expects to hold and usemay not be recoverable, the entity shall estimate the future cash flowsexpected to result from the use of the asset and its eventua ldisposition. Future cash flows are the future cash inflows expected tobe generated by an asset less the future cash outflows expected to benecessary to obtain those inflows . If the sum of the expected futurecash flows (undiscounted and without interest charges) is less than thecarrying amount of the asset, the entity shall recognize an impairmentloss in accordance with this Statement .

150 . Defendants were aware of this GAAP as evidenced by the fact that the

September 27, 2000 registration statement and prospectus stated :

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The UK electricity regulator is introducing competition in meteringactivities , namely meter fixing (providing, installing, ce rtifying andrepairing meters) and meter reading . Meter fixing must be undertakenby authorized providers , of which Western Power Distribution is one.Based on the anticipated regulation , the original carrying value ofmete ri ng assets was impaired . As a result , Western Power Distributionrecorded an impairment loss of $31 million in the fou rth quarter of1999 to reflect the amount by which the carrying value of mete ringassets exceeded their fair value . The fair value was determined bycomputing the present value of estimated future cash flows attributableto the assets . . .during 1999, Southern Energy recorded a write-downof approximately $14 million, which primarily related to its interestin the write-down of $31 million of WPD metering assets. . .

151 . In the notes to the financial statements which were contained withi n

the September 27, 2000 registration statement and prospectus, the Compan y

described its accounting policy with respect to impairments of long-lived asset s

and intangibles as follows :

The Company evaluates long-lived assets, such as property, plant andequipment, goodwill, and specifically identifiable intangibles, whenevents or changes in circumstances indicate that the carrying value ofsuch assets may not be recoverable . The determination of whether animpairment has occurred is based on an estimate of undiscounted cashflows attributable to the assets, as compared to the carrying value ofthe assets. If an impairment has occurred, the amount of theimpairment recognized is determined by estimating the fair value ofthe assets and recording a provision for loss if the carrying value isgreater than fair value . For assets identified as held for sale, thecarrying value is compared to the estimated fair value less cost to sellto determine if an impairment provision is required . Until the assetsare disposed of, their estimated fair value is reevaluated whencircumstances or events change .

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152 . PPL Corporation, the Company's joint venture partner, recognized th e

fact that (for FAS 121 purposes) the new regulatory action constituted a significan t

adverse change in the business climate which adversely affected the market valu e

of WPD. Immediately after this regulatory action was announced, PP L

Corporation recorded a $36 million impairment loss in connection with its

investment in WPD stating :

In December 1999, the U .K .'s Office of Gas and Electricity Markets,the regulatory authority for electricity and natural gas distribution,announced the final price review for the electric distributioncompanies, including WPD . In this final price review, WPD was givena one-time rate cut of 19%, the lowest rate reduction amongdistribution companies in the U .K. The price cut is effective for fiveyears starting in April 2000. As a result of this action, PPL Globalevaluated the carrying value of its investment in WPD and theinvestment was written down by $36 million.

153 . The Individual Defendants either knew of the $36 million write-dow n

by its joint venture partner and ignored the fact that this write-down evidenced the

fact that the carrying value of WPD was impaired, or recklessly failed to know thi s

fact .

154 . Unlike its joint venture pa rtner, in contravention of GAAP , Mirant' s

financial statements failed to acknowledge the existence of the impairment of th e

Company's interest in WPD and failed to provide for a loss . Indeed, the Septembe r

27, 2000 registration statement and prospectus falsely stated that "we do not expec t

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any of these [regulatory ] changes to have a material adverse impact on us" when

defendants knew and concealed the fact that it had already had a material advers e

impact on the operations of WPD and the value of the Company's investment i n

WPD, or recklessly failed to know of them .

155 . The Company's investment in WPD was materially impaired by n o

less than $35 million as of the beginning of the Class Period . In contravention of

GA-AP and the Company's own stated accounting policies, the recognition of a n

impairment loss was improperly deferred from the beginning of the Class Period t o

the third quarter of 2002 . Accordingly, the financial statements which were

disseminated to the investing public during this time period and the Company pres s

releases which referred to them, were materially false and misleading .

156 . As noted in AICPA Statement Of Position 94-6, Disclosure of Certain

Significant Risks and Uncertainties ("SOP 94-6") :

The SEC also requires registrants, "where appropriate," to include inprospectuses offering securities to the public "a discussion of theprincipal factors that make the offering speculative or one of highrisk." Among the factors cited are "the financial position of theregistrant" and "the nature o fthe business in which the registrant is engaged or proposes to engage"(Regulation S-K, Item 503(c)) .

157 . In contravention of the above noted disclosure requirements and other

SEC mandates regarding the disclosure of "known trends," defendants caused th e

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IPO registration statement and prospectus to conceal the fact that the Company' s

United Kingdom assets were materially impaired, that such impairment would hav e

a materially adverse impact on the Company's operations, and that the Compan y

would ultimately be forced to exit this market.

158. The September 27, 2000 registration statement and prospectus stated

that: "Net income from our European operations totaled $43 million for the first si x

months of 2000 ." Unbeknownst to the investment community, this net income wa s

materially overstated through a failure to recognize impairment loss of no less tha n

$35 million as discussed above .

159. In addition, the financial statements which were contained within the

September 27, 2000 registration statement and prospectus were materially false an d

misleading, as ultimately disclosed on November 7, 2002 when the Company filed

its Form 10-Q for the quarterly period ended June 30, 2002 with the SEC ("th e

June 30, 2002 Form l0-Q") as discussed below. At this time, defendants admitted

that the financial statements contained within the September 27, 2000 registratio n

statement and prospectus reflected a misstatement of reported net income due to a

material overstatement of a natural gas asset and a failure to properly record U .S .

income tax on Asia income .

160. On September 15, 2000, WPD Limited ("WPDL"), a company

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controlled jointly by a subsidiary of Mirant and PPL Corporation acquired control

of Hyder plc and in December 2000 completed its acquisition of all the outstanding

shares of Hyder plc .

161 . Hyder plc was the parent of a group of companies whose principa l

operating activities included the provision of regulated water and wastewate r

services for substantially the whole of Wales and electricity distribution in Sout h

Wales through South Wales Electricity plc . It also owned subsidiaries that

operated in the managed services and infrastructure businesses .

162 . As part of the arrangement between Mirant and PPL Corporation ,

effective December 1, 2000 Mirant increased its economic interest in WPDL t o

49%. In addition, effective December 1, 2000, Mirant and a subsidiary of PPL ,

modified the voting rights of WPD to 50% each so that each party equally share d

operational and management control of WPD .

163 . SEC Regulation SX requires that financial statements filed with th e

SEC conform with GAAP. Financial statementsfiled with the SEC which are no t

prepared in conformity with GAAP are presumed to be misleading or inaccurate .

[17 C.F.R . §210.401 (a)(1)] .

164. In addition to the overstated financial statements, the Prospectus wa s

further false and misleading because of its failure to disclose the true nature of it s

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operations in the California market, as detailed herein .

COUNT 1 .Brought Under Section 11 of the Securities Ac t

165 . This Count is brought on behalf of persons who purchased Miran t

securities pursuant to or traceable to an offering during the Class Period, includin g

the IPO. This claim, which is styled Count I, is brought by the Securities Ac t

Plaintiffs against Mirant, the Individual Defendants, the Director Defendants, an d

the Underwriter Defendants .

166 . The Securities Act Plaintiffs incorporate all the allegations containe d

above, except that for purposes of this count, Plaintiffs expressly exclude an d

disclaim any allegation that could be construed as alleging fraud or intentional or

reckless misconduct, as this count is based solely on claims of strict liability and/or

negligence under the Securities Act .

167. These Defendants issued , caused to be issued and participated in th e

issuance of materially false and misleading statements to the investing public tha t

were contained in the Prospectus . As a direct and proximate result of defendants '

wrongful conduct, the market price for Mirant securities sold pursuant to th e

Prospectus was artificially inflated, and the Securities Act Plaintiffs and th e

Offering Subclass suffered substantial damages in connection with their purchas e

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of Mirant securities in the Offering .

168 . The Company is the registrant for the Offering. The Underwrite r

Defendants were the underwriters of the common stock sold in the Offering a s

defined in § 11(a)(5 ) of the Securities Act . The defendants named herein were

responsible for the contents and dissemination of the Prospectus and caused it s

filing with the SEC .

169 . As issuer of the common stock, Mirant is strictly liable to the Offering

Subclass for the material misstatements and omissions in the Prospectus .

170. As underwriters for the Offering, the Underwriter Defendants wer e

obligated to make a reasonable and diligent investigation of the statement s

contained in the Prospectus at the time it became effective, to ensure that sai d

statements contained in the Prospectus were not misleading and that there was n o

omission to state a material fact required to be stated in order to make th e

statements therein not misleading . As such, the Underwriter Defendants are liable

to the Securities Act Plaintiffs and the Offering Subclass .

171 . The Security Act Plaintiffs and the Offering Subclass have sustained

damages . The value of Mirant common stock has declined substantially

subsequent to, and due to, defendants' violations as set forth above .

172 . At the time the Security Act Plaintiffs and the Offering Subclass

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purchased Mirant stock, they were without knowledge of the facts concerning th e

wrongful conduct alleged above and could not have reasonably discovered thos e

facts prior to the end of the Class Period. Less than two years have elapsed from

the time that the Offering Subclass discovered or reasonably could have discovere d

the facts upon which this complaint is based . Less than five years have elapse d

from the time that the securi ties upon which this claim is brought were bona fide

offered to the public to the time when this claim was brought .

COUNT IIAgainst the Individual Defendants

and Southern Company Under Section 1 5

173 . This Count is brought by the Secu rities Act Plaintiffs pursuant to § 1 5

of the Securities Act, 1 S U.S .C . § 77o, against Defendants Fuller , Hill, Pershing,

Ward and Southern Company (collectively, the "Section 15 Defendants") .

174. The Securities Act Plaintiffs incorporate all the allegations contained

above, except that for purposes of this count, Plaintiffs expressly exclude and

disclaim any allegation that could be construed as alleging fraud or intentional or

reckless misconduct, as this count is based solely on claims of strict liability and/or

negligence under the Securities Act .

175 . The Section 15 Defendants, by reason of their stock ownership ,

and/or management positions, were controlling persons of the Company and had

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the power and influence, and exercised the same, to cause Mirant to engage in th e

violations of Section 11 of the Securities Act alleged in Count I above . These

defendants are liable under § 15 of the Securities Act .

176. Defendant Fuller, for example, was intimately involved in Mirant' s

day to day operations as the Company's CEO . At an April 8, 2002 Rotary Clu b

meeting in Atlanta, Fuller described herself as a hands-on manager who use d

webcasts to reach employees in other offices and countries, and traveled to mee t

with employees in a management style she described as "management by walking

around . "

177 . There can be little question that Defendant Southern Compan y

controlled Mirant . In the S-1 Registration Statement dated April 21, 2000, whic h

became effective in September 2000, Mirant expressly admitted that Souther n

Company had the power to control the general business affairs of the Company an d

that Southern Company had the power to control and influence many specifi c

corporate policies . Mirant stated that

Southern Company, subject to its fiduciary duty of care to ourminority stockholders, will be able to control all mattersaffecting us, including

• the composition of our board of directors and,through it, any determination with respect to ourbusiness direction and policies, including the

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appointment and removal of officers ,

• determination of incentive compensation whichmay affect our ability to retain key employees ,

• the allocation of business opportunities that maybe suitable for Southern Company and us ,

• any determinations with respect to mergers orother business combinations ,

• our acquisition or disposition of assets ,

• our financing decisions and our capital raisingactivities ,

• changes to the agreements providing for ourseparation from Southern Company,

• the payment of dividends on our common stock,and

• determinations with respect to our tax returns .

After the completion of the offering ,

Southern Company has agreed to provide transitional services tous, including but not limited to, services related to :

• engineering and technical consulting ,• human resources, administration and payroll,• accounting and treasury ,• procurement,• auditing ,• legal ,• governmental affairs ,• information technology infrastructure, and

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• insurance

178 . Southern Company and Mirant also entered into a master separatio n

and distribution agreement (the "Separation Agreement"), filed as an exhibit to the

S-1 Registration Statement, to govern the relationship between the parties after th e

IPO. Under the Separation Agreement, Mirant is prohibited from selecting a

different accounting firm than the firm selected by Southern to audit its financia l

statements without Southern Company's prior consent . Mirant is also prohibited

from amending its or its subsidiaries' record retention policies prior to the chang e

of control date (the earlier of the distribution date or the first date on whic h

Southern Company ceases to control at least 33 1/3% of the common stock o f

Mirant then outstanding) without Southern Company's consent . Even after the

change of control date, Mirant is required to give Southern Company 30 day s

written notice before Mirant may amend its own record retention policies . Mirant

is also required to give Southern Company as much prior notice as reasonabl y

practical of any proposed determination of, or any significant changes in, it s

accounting estimates or accounting principles from those in effect on the separatio n

date, September 1, 2000.

179. The separation agreement also contains a provision whereby the partie s

agreed that

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(i) Southern [Company] shall maintain in full force andeffect each guarantee, letter of credit, keepwell or supportagreement or other credit support document, instrumentor other similar arrangement issued for the benefit of anyPerson in the Southern Energy Group by or on behalf ofSouthern . . . which is outstanding as of the SeparationDate, until such time as such Credit Support Arrangementterminates in accordance with its terms or is otherwisereleased at the request of Southern Energy; . . . and (ii)after the IPO Closing Date and until the first date onwhich Southern Energy is no longer a Subsidiary ofSouthern . . . upon the request of Southern Energy,Southern shall issue additional Credit Supportarrangements for the benefit of Southern CompanyEnergy Marketing, L .P. . . . In consideration ofSouthern's provision of the Credit Support Arrangements,[Mirant] shall pay to Southern, . . . a monthly fee in anamount equal to 1 % per annum . . . .

VIII . THE EXCHANGE ACT CLAIMS UNDER SECTIONS10(b) AND 20(a) THEREOF

A. Overview of Exchange Act Claims

180. Unlike the claims alleged in Counts I and II above, for purposes o f

Counts II and IV, Plaintiffs allege that Defendants Mirant, southern Company, and

the Individual Defendnats acted with scienter in failing to disclose material advers e

information concerning Mirant's illegal activities in California and the Company' s

overstated financial results.

B. False Statements During The Class Period

1. The Class Period Begins : Mirant Issues a False and Misleading

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IPO Prospectus

181 . The Class Period for claims brought under the Securities Exchang e

Act commences on September 27, 2000. On that date, Mirant 's Initial Publi c

Offering Prospectus was declared effective by the SEC . The false and misleadin g

statements contained in the Prospectus are detailed above in Section VII . C.

182 . The statements contained in Mirant's Prospectus were materially fals e

and misleading for the reasons detailed above in Section VII . D.

2. Defendants' False Statements in the Third Quarter of 2000

183 . On October 23, 2000, Mirant issued a press release relating to its first

earnings report since its Initial Public Offering , announcing "strong" financial

results for the third quarter of 2000 . The press release stated :

Southern Energy Inc. announced a 59 percent increase in thirdquarter earnings from operations, reflecting strong performancefrom its North American business, President and Chief ExecutiveOfficer Marce Fuller announced today in the company's firstearnings report since its record-setting initial public offering .Southern Energy earned $119 million from operations for thequarter, compared with $75 million for the same period in 1999 .Southern Energy's reported net income for the quarter was $98million, which includes $7 million from SE Finance, a businessthat will be transferred out of Southern Energy, and costs of about$28 million related to Southern Energy's transition to a separate,publicly traded company . Reported net income for the thirdquarter of 1999 was $156 million, which includes a one-time gainof $78 million from sale of the U .K. supply business .

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184. The press release described Mirant's net income, stating :

On a pro forma basis, assuming 338 .7 million shares outstandingafter the completion of the initial public offering, this quarter'sreported net income equates to 29 cents per share . Reported netincome equates to 36 cents per share based on 272 million sharesoutstanding on September 30, 2000, prior to the initial publicoffering .

185 . Commenting on the Company's apparently "strong" financial results ,

defendant Fuller stated :

We are obviously very pleased with our third-quarter performance andwith our highly successful 1PO in September . Southern Energy'sinitial public offering on Sept . 26 of about 20 percent of the company'sshares, combined with convertible preferred securities, is the largestIPO to date in the U .S . power sector, raising $1 .8 billion . SouthernCompany, Southern Energy's parent firm, has announced plans todistribute the remaining shares to its shareholders within the next year .Southern Energy's stock initially was priced at $22 per share and hassince traded substantially higher.

186. In the October 23, 2000 press release , Fuller also noted several o f

Southern Energy's "other important accomplishments" during the quarter :

First, we have made significant progress toward completing ourpending acquisition of power plants totaling about 5,000 megawattsfrom Potomac Electric Power Co . (PEPCO), expected later this year .This transaction will give the company approximately 14,000megawatts of generation under ownership or control in key marketsthroughout the United States, clearly placing us in a more favorableposition with respect to the size, regional diversity and strategiclocation of our assets .Southern Energy also recently completed the $250 million purchase ofVastar Resources Inc .'s 40 percent interest in Southern Company

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Energy Marketing, the company's energy marketing and riskmanagement business, which had been a joint venture of SouthernEnergy and Vastar .

Having 100-percent ownership of Southern Company Energy Marketing willgreatly enhance our ability to integrate marketing and risk management withour generating asset ownership and operations in North America .

187 . Fuller noted the importance of the Southern Energy Marketing deal ,

noting that the deal would facilitate :

Southern Energy's strategy of combining energy marketing activitieswith the operation of its U . S. power plants to make the overallintegrated business more profitable .

188 . With respect to Mirant's American operations, the October 23, 200 0

press release stated :

Southern Energy's Americas business unit, which includes the UnitedStates, Canada, South America and the Caribbean, reported $113million in earnings for the third quarter, up from $34 million from thesame period last year .

189 . Fuller stated : "[w]e had a terrific quarter in North America, du e

primarily to strong performance from our integrated assets and trading in the Wes t

and in New York. We also benefited from the operation of 600 megawatts of ne w

capacity near major load centers in Dallas and Chicago ." " . . .Southern Energy i s

on track to achieve an average annual earnings-per-share growth rate over the nex t

four years in excess of 20 percent."

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190 . According to the press release , Mirant experienced an ea rn ing s

increase in its European division :

Southern Energy's European business unit saw third-quarter earningsincrease from $17 million -- excluding the $78 million gain on the saleof the U .K. electricity supply business in September 1999 -- to $19million. European results reflect slightly higher earnings from thecompany's German operations, offset by a smaller contribution fromthe U .K. operations after the supply business sale .

191 . In the October 23, 2000 press release, defendant Hill emphasized that ,

in the near term, continued strong performance from Southern Energy's Nort h

American operations should allow the company to exceed its earlier expectations

for the full year. He stated :

[w]e are currently targeting a range of 91 cents to 93cents per share for 2000 , assuming the 338 . 7 millionshares outstanding after the initial public offering .Although we can 't expect a repeat of the weather-relatedpricing we experienced this summer , we are con fidentthat our overall business performance next year shouldallow us to achieve annual ea rn ings per share for 2001 inthe range of $1 .07 to $1 .12 . Much of the growth in ourearnings per share will come from the inclusion of thePEPCO assets in our operations .

Hill also noted that the Company would be using the approximately $1 .8 billion i n

proceeds from the Company's recent common and convertible preferred offering s

to reduce short-term borrowings and fund growth .

192 . On November 14, 2000, Mirant filed a quarterly report on Form 10- Q

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for the third quarter of fiscal year 2000, the period ending September 30, 2000 .

The 10-Q was signed by defendant Ward . The quarterly report repeated the

financial results detailed in the October 23, 2000 press release above. The 10-Q

stated, with respect to Mirant's accounting, that :

. . . Management believes that the accompanying unauditedconsolidatedfinancial statements reflect all adjustments, consistingof normal recurring items, necessary for a fair statement of resultsfor the interim periods presented . .

193 . Similar assurances regarding the accuracy of Mirant's financia l

statements were contained in all of the Company's quarterly reports during th e

Class Period .

194. The 10-Q also stated with respect to its United Kingdom operation s

that :

On August 23, 2000, WPDL, a company jointly owned by one of theCompany's subsidiaries and PPL Global, made an offer to acquire allof the outstanding shares of Hyder for a total purchase price for theordinary shares of Hyder of approximately (pound) 565 million(approximately $847 million), or 365 pence (approximately $5 .47) perHyder share plus the assumption of approximately (pound) 2 .1 billion(approximately $3 .2 billion) of gross debt as of March 31, 2000 . OnSeptember 15, 2000, WPDL committed unconditionally to purchaseany shares of Hyder tendered by Hyder shareholders . As of September30, 2000, WPDL had purchased from shareholders approximately 71 %of the Hyder shares . On October 30, 2000, WPDL finalized theacquisition of Hyder by making payment for the additional sharesneeded to bring WPDL's ownership over 90% . The acquisition ofmore than 90% of the outstanding shares allowed WPDL, under U K

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company law, to acquire the remaining shares and on October 31,2000, WPDL sent notification to the outstanding shareholdersexercising this right . With the completion of this acquisition and withthe approval of lenders, the Company and PPL Global, effectiveDecember 2000, will modify the voting rights of WPD Holdings to50% each so that each party will share operational and managementcontrol of WPD Holdings, which indirectly owns 100% of WPD .WPDL has replaced Hyder's board of directors with employees ofWPD, the Company and PPL Global .

The Company also has a 49% economic interest in WPD, whichdistributes electricity to approximately 1 .4 million end-users in South-west England. On September 15, 2000, WPDL, a company jointlyowned by one of the Company's subsidiaries and PPL Global,committed unconditionally to purchase any shares of Hyder, a U.K.company, tendered by Hyder shareholders . On October 30, 2000,WPDL finalized the acquisition of Hyder by making payment for theadditional shares needed to bring WPDL's ownership over 90%. TheCompany's European marketing and risk management business begantrading power in the Nordic energy markets in 1999 and the Companyexpects to begin marketing power in the Dutch, German, Swiss andItalian markets in the fourth quarter of 2000 and in 2001 .

195. The September 30, 2000 Form 10-Q reported a net income of $98

million and $292 million for the three and nine months ended September 30, 2000 ,

respectively .

196. Significantly, September 30, 2000 Form l0-Q also stated :

Net income from the Europe Group totaled $19 million and $62million for the three and nine months ended September 30, 2000,respectively, a decrease of $76 million and $100 million, from thesame periods in 1999 . This decrease in the third quarter was primarilydue to the sale of the SWEB supply business in the third quarter o f

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1999, which resulted in a net gain of $78 million . This was offsetpartially in the same quarter by expenses related to personnelreductions at Bewag . Adjusting for the sale of the SWEB supplybusiness, net income for the three and nine months ended September30, 1999 would have been $17 million and $84 million, respectively .

3. Defendants' Third Quarter 2000 Public Statements Were MateriallyFalse and Misleading

197. The reported financial results were materially false and misleading

because defendants knew and ignored or recklessly disregarded that the Company' s

reported net income failed to reflect a charge to earnings of no less than $3 5

million, as particularized above .

198 . In addition, the financial statements that were contained within the

September 30, 2000 Form 10-Q were false and misleading for the reason s

discussed below.

199 . The foregoing statements regarding the Europe Group were materiall y

false and misleading because the reported results for the Europe Group would have

reflected materially different results had the Company properly accounted for th e

impairment of its United Kingdom assets .

4. Mirant Issues False Statements Regarding the Fourth Quarter andYear End 2000

200. On December 15, 2000, defendants issued a press release entitled

"Southern Energy Revises Earnings Expectations Upward for 2000 and 2001 ."

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The press release stated :

Southern Energy Inc. today revised its 2000 earnings outlook upwardto a range of 98 cents to $1 per share, citing outstanding businessperformance, especially in the North American natural gas market .Previously, the company had anticipated earnings of 91 cents to 93cents per share, based on 338 .7 million outstanding shares . Estimatesreflect a reduction of approximately 10 cents per share resulting fromthe company's transition to a publicly traded entity . Southern Energyalso has raised its 2001 projection to a range of $1 .15 to $1 .20 pershare, up from $1 .07 to $1 .12 per share.

201 . Commenting on the Company's upward financial revisions, Fuller

stated :

Southern Energy's North American business units were well preparedto deal with market volatility this quarter, particularly in gas . Wecontinue to grow our portfolio and integrate our assets with ourmarketing and risk management business. As one of the top 10 gas-marketing firms in the nation, Southern Energy moves more than 7billion cubic feet of natural gas per day . The company also manages,under long-term contracts, 3 billion cubic feet of natural gas per day inthe Canadian, San Juan and Gulf Coast regions, along with significanttransportation and storage . Optimizing our generation assets throughmarketing and risk management has allowed us to move to theforefront of the energy marketing industry . Since most of our U .S.plants are natural gas-fueled, the combination of assets and riskmanagement has produced significant returns on our North Americaninvestments. Southern Energy expects to add 5,154 megawatts to itsportfolio with the acquisition of power plants from the PotomacElectric Power Company (PEPCO), scheduled to close before year-end. After the acquisition, Southern Energy will own or controlapproximately 14,000 megawatts of generation in key marketsthroughout the United States, bringing it nearer to its goal of 30,000megawatts by 2004 .

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202. On January 19, 2001, defendants issued a press release announcing a

36% increase in earnings for 2000 . The press release stated :

Southern Energy Inc. now operating as Mirant Corporation, todayannounced strong financial and operational results, reporting netincome from continuing operations for 2000 of $332 million and $60million for fourth quarter 2000 .

Net income from continuing operations excludes income from SEFinance, a leasing subsidiary anticipated to be transferred to SouthernCompany. Mirant's reported net income for 2000 was $359 millionincluding the $27 million contribution from SE Finance .

Mirant's earnings from operations were $366 million for 2000 and $66million for fourth quarter 2000 . Earnings from operations excludeincome from SE Finance and costs associated with the company'stransition to a publicly traded company . Earnings from operations for2000 represent a 36 percent increase over 1999 earnings fromoperations of $270 million. 1999 earnings from operations excludegains of $78 million from the sale of the company's United Kingdomsupply business and a gain of $14 million associated with an insurancesettlement at the company's State Line facility .

Mirant posted revenues of $13 .3 billion for 2000 and $7 .9 billion forthe fourth quarter 2000 . Year 2000 revenues reflect the consolidationof Southern Company Energy Marketing's results into Mirant' sfinancial statements, following the August 2000 purchase of VastarResources' minority stake . Based on 338 .7 million outstandingcommon shares, the company's 2000 net income from continuingoperations equates to 98 cents per share or $1 .08 per share beforetransition costs . The company's fourth quarter 2000 net income fromcontinuing operations equates to 18 cents per share or 20 cents pershare before transition costs .

203 . Commenting on the dramatic increase in financial results, defendan t

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Fuller stated :

All three of our business groups contributed significantly to ourresults. Since our initial public offering, we have delivered on ourcommitment to provide shareholders with exceptional financialperformance .

204 . With respect to Mirant's results in the Americas Group, the pres s

release stated :

Mirant's Americas group earned 11 cents per share from operations infourth quarter of 2000, compared with 7 cents per share in the fourthquarter of 1999 . Results reflect the improved performance of thecompany's marketing and risk management operations, especially in itnatural gas business. Earnings also reflect credit reserves taken withrespect to the power crisis in California .

As one of the top natural gas and power marketing firms in the nation,Mirant moved more than 6 .9 billion cubic feet of natural gas per dayand sold 186 million megawatt-hours of power in 2000 . The companyalso manages, under long-term contracts, more than 3 billion cubicfeet of natural gas per day in the Canadian, San Juan and Gulf Coastregions, along with significant transportation and storage .

Mirant continues to work toward its goal of owning or controlling30,000 megawatts of power generation by 2004 . In December, thecompany added 5,154 megawatts to it North American portfolio withthe acquisition of power plants from the Potomac Electric PowerCompany (PEPCO) .

In addition to the PEPCO assets and other greenfield projects whichcame on line earlier this year in Wisconsin and Texas, Mirant addedmore than 5,700 megawatts to its North America business unit -- an84% increase from last year .

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In 2001, Mirant expects to bring three plants online in Michigan,Texas and Louisiana. By year-end, the company expects to have morethan 15,000 megawatts under ownership or control, throughout keyregional markets .

205. The January 19, 2001 press release also reported continued growth i n

Europe stating :

Mirant's Europe group earned 6 cents per share for the fourth quarterof 2000, compared to 2 cents in 1999 . Mirant's operations in both theUnited Kingdom and Germany have performed well, complementingthe company's growing marketing and risk management business inAmsterdam .

In the United Kingdom, Mirant's 49 percent-owned affiliate, WesternPower Distribution Ltd. (WPDL) completed the acquisition of Hyder,a company that owns and operates the electricity network in southWales and the water distribution and wastewater treatment businessfor all of Wales . Mirant plans to sell Hyder's water businessimmediately and merge South Wales Electricity, Hyder's electricitydistribution business, with WPDL. This transaction is expected toclose in the first quarter of 2001 .

206. Mirant profited handsomely by its manipulations in the energy market .

According to a February 2, 2001 article published by McGraw Hill, during the

fourth quarter of 2000, Mirant earnings on operations were $66 million, up 25 %

from 1999 due in part to increased earnings from Ilfirant 's California generation

operations. Mirant was not alone in reaping enormous profits from the Californi a

market . Enron reported a 32% increase in net income and a 25% increase i n

profitability, experiencing a 90% increase in its stock price. As reported in a

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January 31, 2001 article published in the Foster Electric Report :

Companies with generation affiliates selling power in California andother Western markets have reported handsome economic gains foryear-end 2000 . However, discerning the percentage of the profitsmade at the expense of California's utilities and ratepayers is notreally possible .

207. On March 2, 2001, defendants issued a press release reemphasizin g

the legality of Mirant's operations in California . The press release, entitled

"Mirant Looking for Full Payment for California Electricity" stated :

Mirant . . . reiterated today that it seeks timely payment for allelectricity it has sold and continues to sell into the California market,and that payment of amounts owed to generators is critical to endingCalifornia's energy crisis . We look to receive payment for all theelectricity we've sold and continue to sell, and we want quick paymentfor the past due amounts . We consider additional delays unacceptable.Any talk of additional delay or of partial payment is counterproductiveto finding a solution, said Randy Harrison, chief executive officer ofMirant's western U.S . operations. Harrison's comments came amidreports that resolution of the credit problems of the California utilitiesmight not happen until August and that generators will be asked toagree to partial payments . Harrison als onoted that the basic solution to California's problem - the constructionof new power plants - will be far less likely to occur in a businessclimate where contractual buying and selling agreements are nothonored .

"We entered the market well after the market rules were in place,and we played by the rules throughout," Harrison said . "We didn't askthat transactions be invalidated or modified when we were losingmoney, and we will do everything in our power to obtain payment onthe profitable transactions we made . "

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208 . On March 16, 2001, ownership of South Wales Electricity plc was

transferred from WPD Limited to WPD Holdings UK ("WPDH"), another compan y

controlled jointly by a subsidiary of Mirant and PPL Corporation . At the same

time, other assets were transferred from WPD Limited to WPDH together with the

effective transfer of debt. Virtually all other operations of Hyder plc were sold .

Accordingly, as of March 16, 2001, WPDH owned WPD and South Wales

Electricity plc . Mirant owned a 49% economic interest and 50% of the votin g

control in WPDH, with the balance of ownership being held by a subsidiary o f

PPL Corporation .

209. On March 21, 2001, defendants filed an Annual Report on Form 10-

K1405 ("the 2000 10-K") signed by defendants Hill and Fuller . The 2000 10- K

reported operating revenues of $13 .315 million in 2000, an astounding 488 %

increase from 1999 . Defendants attributed the increase in operating revenues to th e

following, among other things:

Revenues from generation and energy marketing products were$12,816 million in 2000, an increase of $11,729 million, or 1079%,from 1999 . This increase resulted primarily from Mirant's acquisitionof Vastar's 40% interest in Mirant Americas Energy Marketingeffective on August 10, 2000, which is now consolidated in Mirant'sfinancial statements . The increase in revenue was also attributable toa full year of operations from the Sual plant in the Philippines . Thisincrease was reduced somewhat for provisions taken related torevenues from its California operations under reliability-must-ru n

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("RMR") contracts .

210 . The 2000 10-K also discussed ongoing investigations into Mirant' s

activities by the State of California :

The California Public Utilities Commission ("CPUC") and theCalifornia Atto rney General 's office have each launched investigationsinto the Califo rnia energy markets that have resulted in the issuance ofsubpoenas to several Mirant entities. The CPUC issued one subpoenato Mirant entities in mid-August 2000 and one in September 2000 . Inaddition, the CPUC has had personnel onsite on a periodic basis atMirant's California generating facilities since December 2000 . TheCalifornia Attorney General issued its subpoena to Mirant in February2001 under the following caption : " In the Matter of the Investigationof Possibly Unlawful , Unfair, or Anti -Competitive Behavior AffectingElectri city Pri ces in California ." Each of these subpoenas, as well asthe plant visits, could impose significant compliance costs on Mirantor its subsidia ries . Despite various measures taken to protect theconfidentiality of sensitive information provided to these agencies,there remains a risk of gove rnmental disclosure of the confidential,proprietary , and trade secret information obtained by the CPUC andthe Atto rn ey General through this process .

On March 14, 2001, the California Senate announced the formation ofa committee to investigate alleged manipulation in the state electricityand natural gas markets . To date, Mirant has not received subpoenas inthis investigation . While Mirant will vigorously defend any claims ofpotential civil liability or criminal wrongdoing asserted against it or itssubsidiaries, the results of such investigations cannot now b edetermined .

211 . The 2000 10-K included financial statements for fiscal year 2000 ,

which were prefaced with the statement that "(t]he consolidated financia l

statements of Mirant are presented in U.S. dollars in conformity with accounting

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principles generally accepted in the United States (`U.S. GAAP') ." The 10-K

emphasized, under a section headed "Use of Estimates ," that :

The preparation of financial statements in conformity with U .S . GAAPrequires management to make estimates and assumptions that affect

the reported amounts of assets and liabilities and disclosures ofcontingent assets and liabilities at the date of the financial statementand repo rted amounts of revenues and expenses du ring the repo rting

period. Actual results could differ from those estimates .

212. With respect to Mirant's operations in the United Kingdom, the 200 0

10-K stated :

Mirant owns a 49% economic interest and 50% of the voting contro lin WPDH, with the balance of ownership being held by a subsidiary ofPPL. WPDH owns WPD and South Wales Electricity plc . These aretwo of the privatized regional electricity companies in England andWales licensed to distribute and to a limited extent, generateelectricity . A distribution company owns, manages and operateselectricity power lines . The primary activity is the receipt of electricityfrom the national grid transmission system and its distribution toend-users of electricity that are connected to the distributioncompany's power lines. These end-users are customers of licensedsupply businesses, which in turn are the distribution businesscustomers . Virtually all electricity supplied to end-users in WPD's andSouth Wales Electricity plc's areas is transported through itsdistribution network, thus providing distribution volume that is stablefrom year to year. WPD and South Wales Electricity plc are the onlydistributor of electricity in their authorized areas, and Mirant believesthat economic, environmental and regulatory factors are likely toprevent competitors from entering the distribution business in thei r

authorized areas .

WPD's authorized area extends from Bristol and Bath in the northeastto Lands End and the Isles of Scilly in the southwest . The largest citie s

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and towns in this area are Bath , Bristol, Exeter , Plymouth andTaunton . . . There are approximately 1 .4 million end-users connected toWPD's network. South Wales Electricity plc operates the elect ricitynetwork in South Wales with approximately 18,700 kilometers ofoverhead electricity lines and 14 , 300 kilometers of underground cable .Most of the population in South Wales is concentrated in a coastal beltto the west and east of Cardiff, and in the valleys to the no rth of thisbelt ; the remainder of the area is sparsely populated . . . South WalesElectricity plc's distribution network provides electricity toapproximately 1 million end-users .

WPDH also has ancillary business activities that support its mainelectricity distribution businesses. These include electricity generation,real estate and telecommunications . WPDH owns generating assetswith I I MW of capacity used to back up the distribution network . Inaddition, WPDH owns minority interests in windfarms and a 15 .4%interest in Teesside Power Limited, owner of a 1,925 MW naturalgas-fired, combined-cycle plant . WPDH markets and develops realestate no longer used in the distribution businesses and is developingan income stream from the rental of fiber optic cables primarilyattached to the overhead distribution networks .

The political and regulatory climate in the UK has changedsignificantly since Mirant's acquisition of WPD in 1995 . There arecurrently a number of issues affecting the electricity industry,including separation of distribution and supply businesses, marketdominance and new generation build-up . Mirant has proactively takensteps to adjust to these changes, and it does not expect any of thesechanges to have a material adverse impact on Mirant .

Virtually all electricity end-users in England and Wales are connectedto the distribution system of the regional electricity companies andcannot choose their electricity distributor . The Office of Gas and

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Electricity Markets (the industry regulator) controls the revenuesearned by WPD and South Wales Electricity plc in their distributionbusinesses by applying a price control formula that sets the maximumaverage price per unit of electricity distributed . The elements used inthe formula are generally established for a five-year period and aresubject to review by the regulator . In December 1999, the regulatorpublished final price proposals following its review of the distributionrevenue for distribution businesses . For WPD, these proposalsrepresent a 20% reduction to distribution prices from April 1, 2000,followed by a reduction in real terms of 3% each year after April 1,2001 . For South Wales Electricity plc, these proposals represent a26% reduction to distribution prices from April 1, 2000, followed by areduction in real terms of 3% each year after April 1, 2001 . This pricecontrol is scheduled to operate until March 2005 . In response, WPDhas implemented a plan to maximize efficiency and customer serviceas a focused distribution company. In order to achieve theseobjectives, WPD has reduced staffing levels by approximately 10%.The reductions primarily affected administrative and corporatefunctions, with minimal impact on field staff, in order that customerservice is not affected. WPD is currently evaluating furtheropportunities to reduce ongoing operating costs . The combination ofthe two distribution businesses is expected to deliver significantsavings on overhead costs, particularly in respect of informationtechnology where the incremental cost of a second distributionbusiness is relatively low . Other savings are expected through theapplication of WPD's experience in managing information technologyprojects, in purchasing efficiency savings and in the use of technologyto manage more efficiently the maintenance of the South Walesnetwork.

On September 15, 2000, WPD Limited, a company controlled jointlyby a subsidiary of Mirant and PPL Corporation ("PPL"), acquiredcontrol of Hyder. In December 2000, WPD Limited completed itsacquisition of all the outstanding shares of Hyder plc for a totalpurchase price for the ordinary shares of Hyder of approximatel y

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(pound) 565 million (approximately $844 million), or 365 pence(approximately $5 .45) per Hyder share, plus the assumption ofapproximately (pound) 2 .1 billion (approximately $3 .1 billion) of debtas of March 31, 2000 . At December 31, 2000, Mirant had a 49%economic interest and 50% of the voting control in WPD Limited .

At the time of the acquisition, Hyder was the parent of a group ofcompanies whose principal operating activities included the provisionof regulated water and wastewater services for substantially the wholeof Wales and electricity distribution in South Wales . It also ownedsubsidiaries that operated in the managed services and infrastructurebusinesses, virtually all of which have since been sold .

On January 31, 2001, the water industry regulator gave its clearance toa proposed sale of the water and wastewater treatment business. OnFebruary 5, 2001, a binding agreement was signed with a third party tosell this business . Both the sale agreement and the regulator'sclearance are subject to the satisfaction of certain conditions .

On March 16, 2001, ownership of South Wales Electricity plc wastransferred from WPD Limited to WPDH, another company controlledjointly by a subsidiary of Mirant and PPL. At the same time, otherassets were transferred from WPD Limited to WPDH together with theeffective transfer of debt .

5. Defendants' Fourth Quarter and Year-end 2000 Statements Were Falseand Misleading

213 . The statement that Mirant "does not expect any of these changes [in

the United Kingdom] to have a material adverse impact" was materially false and

misleading because Mirant had already been adversely and materially impacted b y

the changes in the United Kingdom and there was no reasonable basis to state tha t

it would not be further adversely and materially impacted by these changes. The

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defendants knew and concealed these facts or recklessly failed to know them .

214. The 2000 10-K reported net income of $359 million for the year. It

also stated that "[i]nvestments in companies over which Mirant exercises

significant influence but does not control are accounted for using the equity method

of accounting . . . Major affiliates accounted for using the equity method a t

December 31, 2000 include . . . WPDH and WPD Limited in the UK . . . .

215. The general accounting principles govern ing the impairment of asset s

as set forth in FASB Statement No . 5 and FASB Statement No . 121, as discussed

above, are also applicable to investments accounted for through use of the equity

method of accounting . As set forth in GAAP (APB Opinion No . 18, The Equity

Method of Accounting for Investments in Common Stock)

A loss in value of an investment which is other than a temporarydecline should be recognized the same as a loss in value of otherlong-term assets . Evidence of a loss in value might include, but wouldnot necessarily be limited to, absence of an ability to recover thecarrying amount of the investment or inability of the investee tosustain an earnings capacity which would justify the carrying amountof the investment . A current fair value of an investment that is les sthan its carrying amount may indicate a loss in value of theinvestment . . . All are factors to be evaluated .

216. Accordingly, the change in classification of the Company's United

Kingdom assets for accounting purposes had no bearing on the general accountin g

mandate that the impairment of these assets were to be reflected in the Company's

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financial statements through a charge to earn ings .

217. In contravention of GAAP, the financial statements within the 200 0

10-K, as well as the financial statements in the January 19, 2001 press release ,

failed to reflect a material charge to earnings to properly reflect the impairment o f

the Company 's assets as discussed above .

218 . In addition, the financial statements that were contained within the

2000 10-K were materially false and misleading as ultimately disclosed o n

November 7, 2002 in the second quarter 10-Q .

219. The statements detailed in the press releases and the 2000 10-K wer e

materially false and misleading . While Mirant reported a record year and fourth

quarter of 2000, these financial results were artificially inflated through the use of a

myriad of fraudulent techniques, such as "gaming the market" and otherwis e

artificially manipulating the market price of energy in the California markets .

Further, Mirant's financial statements included in the 2000 10-K were materiall y

false and misleading , because GAAP provides that revenue should not be

recognized until an exchange has occurred, the earnings process is complete, and

the collection of the sales price is reasonably assured . These conditions are

ordinarily met when the entity has substantially performed the obligations that

entitle it to the benefits represented by the revenue (SEC Accounting and Auditing

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Enforcement Release, No . 812) . Mirant's Class Period financial statements wer e

materially overstated since they :

(a) Failed to provide for the return of illegally obtained revenue through acharge to earnings. As detailed above, the amount of suspect transactions at issuein which Mirant was involved exceeds $2 billion;

(b) Failed to provide for the professional fees associated with theinvestigations arising from the fraud through a charge to earnings ;

(c) Failed to disclose the fact that the illegally obtained revenue wassubject to forfeiture and that the investigations surrounding the illegally obtainedrevenue would result in the expenditure of material amounts for legal andprofessional fees ; and

(d) Failed to disclose that Mirant's lucrative contracts to provide power toCalifornia would likely be rescinded by the State due to Mirant's illegal activities.

220. These provisions are required by FASB Statement No . 5, Accounting

for Contingencies . This GAAP requires disclosure of material contingencies and

states (Paragraph 8) that : "An estimated loss from a loss contingency . . . [s]hall be

accrued by a charge to income if-information available prior to issuance of th e

financial statements indicates that it is probable that an asset had been impaired or

a liability had been incurred at the date of the financial statements and the amount

of the loss can be reasonably estimated ."

221 . In addition, FASB Statement No . 5 (Paragraph 59) elaborates a s

follows : "Paragraph 8 requires that a loss contingency be accrued if the tw o

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specified conditions are met . The purpose of those conditions is to require accrual

of losses when they are reasonable estimable and relate to the current or a prio r

period ."

222. In addition, while the 2000 10-K discussed Mirant's "provisions "

related to revenues for its California operations under a series of energy contract s

called "reliability-must-run" contracts, the "provisions" Mirant had taken related t o

the likely non-payment of amounts due to Mirant from the State of California, du e

to Mirant's illegal and unjustifiable energy rate charges . These provisions do not

account for Mirant's illegally obtained revenue, including the improper

transactions which are the subject of the FERC complaint .

6. Defendants Issue False Statements During the First Quarter of 2001 andSell Millions of Dollars Worth of Mirant Securities

223 . On March 14, 2001, defendants issued a press release revising

upwards Mirant's financial projections for the first quarter . The press release ,

entitled : " Mirant Expected to Nearly Triple First Quarter Expectations", stated :

Mirant Corp . announced today it is increasing its first quarter earningsper share guidance to a range of 46 to 48 cents per share, up from 16to 18 cents per share as previously projected . Mirant also raised its fullyear guidance to a range of $1 .55 to $1 .60 per share, up from $1 .15 to$1 .20 per share as previously projected .

224. With respect to the dramatic earnings increase , Fuller stated :

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This significant increase in our earnings estimates is due to stronggrowth from our integrated North American business unit, whichcombines power and natural gas assets with risk management andenergy marketing . This growth reflects a significant increase in gasmarketing volumes and profitability and the continued strongperformance of our power business in the western United States .The company's first quarter expectations also reflect anticipatedsignificant, additional reserves taken in relation to market conditionsin the West region . Mirant's earnings projections for the remainder ofthe year range from approximately 30 to 35 cents per share for secondquarter, 40 to 45 cents per share for third quarter and 30 to 35 centsper share for fourth quarter . Mirant's increase in total projectedearnings for 2001 also reflects the company's planned agreement toacquire 80 percent of the government-owned Jamaica Public ServiceCompany, a transaction expected to boost yearly earnings byapproximately three cents per share in 2001 and approximately 10cents per share by 2005 . In addition to beating earlier guidance for2001, Mirant expects to maintain an average annual earnings per sharegrowth rate of 20 percent to 25 percent over the next four to five years .

225 . The press release touted the success of the risk management an d

energy marketing business as well as continued growth in Europe . Fuller stated :

We believe that the success of our North American business,specifically the risk management and energy marketing business,represents not only strong performance for the quarter, but alsoincreased optimism about long-term sustainable trends for this market .Mirant's improved outlook also may be attributed to prospects forgrowth in Europe and Asia, as Mirant strives to expand its worldwideasset portfolio to 50,000 megawatts by 2005 . We remain highlyconfident in our ability to produce continued earnings growth as wedeliver increasing value for our global customer base .

226. Despite the Company's positive press releases, between March 28 ,

2001 and May 1, 2001, Mirant insiders , including defendants Hill, Ward , Fuller

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and Pershing sold millions worth of Mirant securities at artificially inflated prices .

On March 28, 2001, defendant Hill sold $601,885 worth of stock at $34 .90 per

share. Hill also sold an additional $432,724 of Mirant stock on April 30, 2001, at

$40.80 per share . Similarly, on May 1, 2001 , April 27-30 , 2001, and March 28,

2001, defendant Ward sold over $1 .5 million worth of Mirant stock at price s

ranging from $34 .90 to $40.80 per share. Defendant Fuller sold over $1 .7 million

worth of stock on March 28 and April 30, 2001, and defendant Pershing sold nearly

$4 million worth of stock during the same period .

227 . In total, between March 28, 2001 and May 1, 2001, defendants sold

$8,267, 7,746 of Mirant stockfor as much as $40.80 per share .

228. On April 25, 2001, defendants issued a press release announcin g

"record" first quarter 2001 results . The press release stated :

Mirant today announced record first quarter 2001 earnings fromcontinuing operations of $175 million or 51 cents per diluted share,compared with $95 million or 27 cents per diluted share in the firstquarter of 2000 .

229. In the April 25 , 2001 press release, defendant Fuller touted th e

increase in earnings noting that the Company had made "significant provisions" fo r

the Company' s potential exposure in California . The press release stated :

First quarter results reflect a combination of an increasingly successfuland sustained North American energy business, continued stron g

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contribution from our international business groups, and extraordinarycommodity prices and volatility in both natural gas and powermarkets. We are pleased with these results, especially given that theyreflect no net earnings contribution from our California assets,because of the significant provisions made by the company, due tothe uncertainties in the California market.

230. The press release included increased 2001 ea rn ings guidance, stating :

Mirant raised its yearly earnings guidance for 2001 to $1 .90 per share,up from $1 .55 to $1 .60 per share. As a result of continued strength inthe North American energy market, Mirant expects to grow 20 percentto 25 percent through next year from a $1 .90 per share. Beyond 2002,Mirant expects that its North American development plan and futureacquisitions will allow the company to grow its earnings per share by20 percent, through 2005 .

Mirant's Americas group contributed 49 cents per diluted share toearnings in the first quarter of 2001, compared with nearly break-evenresults in the first quarter of 2000 .

The group's overall performance reflects a significant increase in gasmarketing volumes across North America. Strong performance fromits Northeast power business and its recently acquired mid-Atlanticassets have also positively impacted earnings .

As of March 31, 2001, the total amount owed to Mirant by theCalifornia Independent System Operator and the California PowerExchange was $392 million. In the first quarter of 2001, Mirantprovided for $245 million in relation to uncertainties in the Californiapower market . The total amount of provisions made for during 2000and 2001 in relation to these uncertainties is $295 million .

Mirant remains committed to supplying power and entering into long-term contracts with creditworthy entities in California, Fuller said. Weare dedicated to being an active participant in the search for a long-term solution .

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231 . The press release added :

The company has seen exceptional results from the integration of itsgeneration assets with its energy risk management and marketingoperation . Mirant is one of the leading natural gas and powermarketers in the U .S. In the first quarter of 2001, Mirant moved 44percent more natural gas and sold 21 percent more electricity than inthe first quarter of 2000 .

232. With respect to the Company' s operations in Europe , the press release

stated :

Although Mirant continues to see strong contributions from itsEuropean assets, the decrease in overall European earnings reflectsincreased development costs throughout Europe and losses by thecompany's energy risk management and marketing operation inAmsterdam. In Europe we are actively pursuing opportunities toexpand our asset base. As this business unit grows, we hope to seesuccess similar to that of our Americas group through implementationof an integrated business strategy .

233 . An April 25, 2001 article published in Business News entitled "Mirant

Profit Jumps 84% in First Quarter", described Mirant 's amazing financial results ,

stating:

Boosted by strong demand and " extraordinary" energy prices, energywholesaler Mirant Corp. repo rted record first -quarter earningsWednesday of $175 million, up 84 percent .

The profit, equivalent to 50 cents per share, handily beat the 47 cents ashare projected by analysts surveyed by Thomson Financial/First Call .In the same period last year, when the company operated as SouthernEnergy, net income was $95 million, or 27 cents per share.

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In its report, released after the markets closed, Atlanta-based Mirantalso raised its earnings' forecast for the year to $1 .90 per share, upfrom $1 .55 to $1 .60 per share . Mirant also said it expects per-shareearnings to increase 20 percent annually from 2002 to 2005 .

Mirant shares rose 15 cents to close at $34 .40 Wednesday on the NewYork Stock Exchange.

234. On May 10, 2001, defendants filed a quarterly report on Form 10- Q

for the first quarter of 2001, the period ending March 31, 2001 (the "2001 firs t

quarter 10-Q") signed by defendant Ward . The 2000 first quarter 10-Q repeated

Mirant 's false financial results included in the April 25, 2001 press release ,

including net income of $180 million for the quarter.

235 . In a press release dated May 22, 2001, issued by the office of th e

California Attorney General , further information regarding the California

investigation was revealed :

Attorney General Bill Lockyer announced today that Reliant Energy,Mirant Corporation and Dynegy have agreed to turn over thedocuments demanded in the California Department of Justice'sinvestigation of possibly unlawful or anti-competitive behavioraffecting soaring electricity prices in the state .

The agreement by the power companies avoids a hearing Friday in SanFrancisco Superior Court on the Attorney General's motion to compelthe power companies to comply with the subpoenas . The AttorneyGeneral went to court after the power companies failed to meet aMarch 19 deadline for furnishing documents sought in theinvestigation.

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"We simply want the power companies to stop dragging their feet asthought they have something to hide," Lockyer said . "Until now, wesaw these power companies throwing up legal hurdles to impede ourinvestigation."

Under the stipulation filed with the court today, the power companieswill furnish subpoenaed documents, including confidential documents,in their possession, custody or control . The Attorney General hasagreed not to share the confidential information with othergovernmental agencies involved in the investigation, pending a courthearing next month on the issue of whether the Attorney General mayprovide the confidential information to other investigating agencies .

236. On May 22, 2001, an article was published by the Copley New s

Service announcing that California issued one of its biggest checks ever, a check to

Mirant for $533 .2 million, for power purchased by California utility customers

during the month of April alone .

7. Defendants' First Quarter 2001 Statements Were Materially Falseand Misleading

237 .238 . The statements detailed in the 2001 first qua rter 10-Q were mate riall y

false and misleading . These fi nancial results were artificially inflated through the

use of a myriad of fraudulent techniques, such as "gaming the market" an d

otherwise artificially manipulating the market price of energy in the California

markets . Further, Mirant's financial statements included in the 2001 first quarte r

10-Q were materially false and misleading, because GAAP provides that revenu e

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should not be recognized until an exchange has occurred, the earnings process i s

complete, and the collection of the sales price is reasonably assured . These

conditions are ordinarily met when the entity has substantially performed the

obligations that entitle it to the benefits represented by the revenue (SE C

Accounting and Auditing Enforcement Release, No . 812) . Mirant's 2001 firs t

quarter 10-Q financial statements were materially overstated since they :

(a) Failed to provide for the return of illegally obtained revenue through acharge to earnings. As detailed above, the amount of suspect transactions at issuein which Mirant was involved exceeds $2 billion;

(b) Failed to provide for the professional fees associated with theinvestigations arising from the fraud through a charge to earnings ;

(c) Failed to disclose the fact that the illegally obtained revenue wassubject to forfeiture and that the investigations surrounding the illegally obtainedrevenue would result in the expenditure of material amounts for legal andprofessional fees ; and

(d) Failed to disclose that Mirant's lucrative contracts to provide power toCalifornia would likely be rescinded by the State due to Mirant's illegal activities .

In addition, the financial statements that were contained within the 2001 firs t

quarter 10-Q were materially false and misleading as ultimately disclosed on

November 7, 2002 in the second quarter 10-Q .

8. The Second Quarter of 2001: Defendants ' Fraud Escalates

239. On June 26, 2001, Mirant issued a press release entitled : "Miran t

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Reaffirms Earnings Guidance." The press release emphasized that Mirant would

meet earnings' expectations despite the ongoing problems in California . Mirant

announced today that it expected to meet its previously announced earnings

guidance for the second quarter 2001, full-year 2001 and its projected growt h

target for 2002 .

240. Fuller reassured investors that the FERC ruling would not adversel y

impact Mirant, stating : "Despite recent rulings by the Federal Energy Regulatory

Commission concerning energy price mitigation, we remain on target to meet ou r

previously announced earnings guidance. Our company is founded on a

diversified, global portfolio and fundamental business strategies . "

241 . On July 31 , 2001, defendants issued a press release announcing that

Mirant had "more than double[d] second quarter earnings ." The press release

noted as highlights :

• Strong business outlook targets 2002 earnings of $2 .55 to $2 .65• Five-fold increase reported in quarterly earnings from America's

operations• Integrated business model continues to drive growt h

242. For the period ending June 30, 2001, the press release stated :

Earnings from operations totaled $181 million or 52 cents per dilutedshare compared to $86 million or 25 cents per diluted share for thesecond quarter, 2000 .

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Quarterly results excluded an after-tax write-off of $57 million or 16cents per diluted share on Mirant's investment in Edelnor . The write-off reduces Mirant's investment in the company to zero . Factoring inthe write-off, Mirant's net income was $124 million or 36 cents pe rdiluted share for the quarter .

243 . Commenting on the seemingly stellar financial results, defendant

Fuller stated :

Our diluted earnings per share from operations grew 108 percent overthe second quarter of 2000 largely because of our expertise inintegrating generating assets with gas and power marketing in NorthAmerica .

244. The press also touted a strong business outlook for 2002, stating :

Mirant recently reaffirmed earnings guidance of at least $1 .90 perdiluted share for 2001 . Based on a strong business outlook and aseries of new initiatives, the company projects 2002 earnings perdiluted share of $2 .55 to $2.65 after adding approximately 20 cents pe rshare for new accounting rules pertaining to goodwill and intangibles .

245 . The profits reported by Mirant greatly understated the positive impac t

of the California fraud on its balance sheet , because Mirant did not report

California results separately. Defendants once again attempted to minimize th e

impact of the ongoing investigations into Mirant's illegal California activitie s

while emphasizing increased sales, stating :

During the quarter, Mirant established a company record by sellingnearly 70 million megawatt hours of electricity in North America, a 39percent increase over the same quarter last year . Mirant continued tomaximize its assets by marketing gas volumes that significantl y

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exceeded its own gas consumption . The company moved nearly 12bcf/d of natural gas, a 53 percent increase over the same quarter lastyear .

Mirant's generating assets in the PJM region made strongcontributions to overall Americas performance. These assets wereacquired in 2000 and total more than 5,000 megawatts . Excellentresults were also reported from power plants brought on line in Texasand Wisconsin during 2000 .

In the first half of 2001, Mirant completed new assets of over 600megawatts. With these additions, Mirant now owns or controlsapproximately 15,600 megawatts of capacity in North America. Thecompany has a stated goal of owning or controlling 35,000 megawattsin the region by 2005 .

Despite federal intervention in western U .S . wholesale electricitypricing, Mirant continues to record strong margins . In part, thecompany mitigated federal actions by securing long-term contracts forpower and gas. Mirant has hedged more than 75 percent of its NorthAmerican portfolio through 2001, and over 60 percent of this portfoliothrough 2002.

246 . The July 31 , 2001 press release also detailed strong growth in Europe .

Fuller described the European operations as "poised to contribute significant

growth." The press released stated :

Mirant's European operations reported 7 cents per diluted share duringthe second quarter of 2001, compared with 3 cents per diluted shareduring the same quarter last year . The acquisition of an electricitydistribution company in south Wales in the all of 2000 was theprincipal source of increased earnings in Europe .

247. On July 31, 2001, defendants filed a Prospectus in connection with a

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secondary offering of 60 million shares of common stock . The Prospectus was

supplemented on December 26, 2001 and is detailed in Section VIII . B. 10, infra .

below .

248 . On August 1, 2001, the Atlanta Journal and Constitution published an

article entitled "California Energy Crisis Gives Mirant a Profit Boost ." The article

noted that Mirant's net income during the second quarter more than doubled ,

"boosted by record electricity sales in North America that included California' s

deregulated power market ." The article stated :

Despite price controls imposed by the Federal Energy RegulatoryCommission in California's troubled electricity market, Mirant'sAmericas Group reported earnings of $157 million, a 406 percentincrease from $31 million a year ago . Mirant does not reportCalifornia results separately .

249 . In fact, energy companies active in the California wholesale marke t

turned into high flyers and reported unprecedented profits . As Mirant and other

energy companies inflated prices and artificially created blackouts in California ,

these companies reported falsely inflated results far in excess of the stock market a s

a whole, as illustrated in the chart above at Section VIII . B. 1, supra .

250. On August 10, 2001, defendants filed a quarterly report on Form 10- Q

for the second quarter of 2001 (the "2001 second quarter 10-Q"), the period ending

June 30, 2001, signed by defendant Ward . The 2001 second quarter I0-Q wa s

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amended on August 22, 2001 to "correct the effects of an inaccurate journal entry

related to the elimination of inter-company assets and liabilities from [Mirant's ]

consolidated balance sheet ." The quarterly report repeated the false financia l

results detailed in the July 31, 2001 press release.

9. Defendants' Second Quarter 2001 Statements Were False and Misleading

251 . The 2001 second quarter 10-Q, which reported net income of $12 4

million for the quarter, and which represented that "management believes that th e

accompanying unaudited consolidated financial statements reflect all adjustments ,

consisting of normal recurring items, necessary for a fair statement of results fo r

the interim periods presented" was materially false and misleading because it faile d

to reflect a material charge to earnings to reflect an impairment of no less than $3 5

million for the reasons set forth above.

252 . The 2001 second quarter 10-Q was also materially false an d

misleading as later revealed on August 22, 2001 at which time the Company filed

an amended second quarter 10-Q (the "2001 amended second quarter 10-Q")

stating:

This Quarterly Report on Form 10-Q/A is being filed as AmendmentNo. 1 to the Registrant's Quarterly Report on Form 10-Q for thequarter ended June 30, 2001, filed on August 10, 2001, to correct theeffects of an inaccurate journal entry related to the elimination ofintercompany assets and liabilities from our consolidated balanc e

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sheet. This inaccuracy resulted in an overstatement of assets andliabilities from risk management activities, derivative hedginginstrument assets and liabilities and the resulting balance sheet totals .The net fair value of these assets and liabilities, however, wereunaffected by the original journal entry and remain unaffected by thiscorrection . Additionally, the original journal entry and this correctionhad no effect on our statement of income, statement of cash flow orour statement of stockholders' equity . This amendment also correctsthe related table disclosing the fair values of risk management assetsand liabilities by energy commodity instrument in Note F, the selectedbalance sheet information by segment in Note J and the Market Riskdisclosure in Item 3 "Quantitative And Qualitative Disclosures AboutMarket Risk" . This amendment does not reflect any companydevelopments subsequent to the original filing date of August 10,2001 .

253 . In addition, the financial statements which were contained within the

2001 amended second quarter 10-Q were materially false and misleading a s

ultimately disclosed on November 7, 2002 in the 10-Q filed for the period ending

June 30, 2002 (the "2002 second qua rter 10-Q") .

10. The Fraud Continues in the Third Quarter of 2001 and Year-End 200 1

254 . On October 28, 2001 , defendants issued a press release touting "97

percent growth in earnings" for the quarter ended September 30, 2001 . The press

release listed as highlights :

• Integrated business model continues to drive growth• Strong business outlook targets 2002 ea rnings of $2.25 to

$2 .65• Reconfirms confidence in 20 percent growt h

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255 . In a section titled "Third Quarter 2001 Growth Drivers" the press

release stated :

In the Americas, Mirant's Mid-Atlantic assets, which aresubstantially contracted through a long-term transition purchaseagreement with PEPCO, and our operations in the Northeast andWest contributed significantly to an earnings increase of over 96percent from a year ago.

During the quarter, Mirant's North American power and gas volumescontinued to grow . Mirant sold more than 91 million megawatt hoursof electricity in North America, a 45 percent increase over the samequarter last year . The company also marketed 13 .1 billion cubic feet aday of natural gas during the quarter, an increase of 47 percent fromthe same period last year.

256. Defendants also expressed strong confidence for 2002 earning s

growth, stating :

Over 60 percent of Mirant's North American portfolio is hedged in2002 and 2,200 MW of new capacity will be brought on-line duringthe year . In addition, Mirant's growing gas marketing presence shouldposition the company to capitalize on opportunities in gas marketsacross North America.

Mirant's growing North American gas presence was underscored bythe recent acquisition of 18 natural gas fields from Castex Energy Inc .and the announcement of an intent to purchase the gas marketingbusiness of Trans Canada Pipeline Inc. The purchase of Trans CanadaPipeline Inc . will add approximately five billion cubic feet per day tothe company's natural gas physical marketing volumes and has thepotential to make Mirant the second largest gas marketer in NorthAmerica .

In the year ahead, Mirant anticipates that it will continue to receiv e

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approximately one third of its earnings from operations outside NorthAmerica . The company will continue to benefit from long-termcontracts in Asia and stable franchise businesses in the UnitedKingdom, Germany and the Caribbean.

257 . With respect to Mirant's international operations , the press release

stated:

Year-to-date earnings contributions from Mirant's distributionbusiness in the United Kingdom and integrated utility business inGermany continue to reflect the stability of those operations . Positivecontributions from our European, Asian and Caribbean businessesdemonstrate the importance of our balanced, global portfolio," saidFuller . These regions are well positioned to take advantage ofopportunities to grow as new markets continue opening tocompetition .

258 . In order to reassure investors of the Company's financial prospects in

light of Mirant's imminent secondary offering of common stock, Fuller stated i n

the press release:

Our growth outlook for 2002 and beyond continues to become clearer .That outlook stems from our broadly diversified and significantlyhedged global portfolio, our industry-leading risk managementexpertise and a growing gas merchant business in North America .These business drivers give us increasing confidence in our ability toachieve earnings per share of $2 .55 to $2 .65 next year, and to grow offthat base by at least 20 percent on average in subsequent years .

259. Defendant Hill announced the Company's intent to raise additiona l

capital, stating :

We plan to return to the market shortly to raise capital for the

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acquisitions we have made or announced earlier this year." "Our goalis to raise approximately $1 billion or more through a combination ofdebt and some form of equity-linked securities .

260. On November 9, 2001, the Company filed its Form 10-Q for the

quarterly period ended September 30, 2001 ("the 2001 third quarter 10-Q") . This

document, which reported net income of $234 million for the quarter, and which

represented that "management believes that the accompanying unaudite d

consolidated financial statements reflect all adjustments, consisting of normal

recurring items, necessary for a fair statement of results for the interim period s

presented" was materially false and misleading because it failed to reflect a

material charge to earnings to reflect an impairment of no less than $35 million for

the reasons set forth above .

261 . On December 20, 2001, in response to a decline in Mirant 's stock

price, defendants issued a press release announcing "immediate action" to

strengthen its balance sheet and "restore market confidence ." The press release

stated :

Mirant today announced that it is taking the following steps toimprove its balance sheet and liquidity :

• the offering of 40 million shares of common equit y• a 40 percent reduction, totaling $1 .5 billion, in its 2002 capital

budget• asset sales expected to produce cash of $1 .6 billion including

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$900 million from the previously announced Bewag sale . Mirantexpects to have total sources of liquidity of $4 .8 billion through theend of 2002 (excluding expected proceeds from the offering ofcommon equity)

• cash and undrawn credit lines totaling $1 .6 billion• $1 .1 billion in cash generated by existing businesse s• over $700 million of cash generated from sales of non-strategic

assets• approximately $500 million raised through a bank revolver to

finance certain construction project s• revised capital budget totaling $2.6 billion, primarily for

ongoing construction of 5,700 megawatts of generatingcapacity in the U .S . and including $400 million in maintenanceand environmental expenditure s

• any new construction in the U .S., beyond the 5,700 MW, hasbeen deferred or canceled

• assumes no new acquisitions and no closing of Eco Electricain 2001 due to non-satisfaction of closing condition s

Other capital requirements in 2002

$300 million provided to Asia to support loan refinancing$250 million for Transition Power Agreement with PEPCO$600-$700 million additional working capital requirements dueto the downgrade by Moody's Investors Service

The revised spending plan should not necessitate financings in the debor equity capital markets in 2002.

Commitment to investment-grade credit ratin g

Mirant has investment grade ratings with Standard & Poor'sand Fitch Inc .new share offering demonstrates Mirant's commitment tocredit quality and offsets additional working capital needstriggered by the Moody's downgrad ethe company will also pursue reestablishment of its previou s

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investment grade rating with Moody' s

Comment on earnings per share

• for 2001, the company is maintaining guidance for the full yearof at least $1 .95 per share

• this guidance excludes the one-time charge relating to ou rEnron exposure, which could be as high as $111 million (pre-tax)

• as a consequence of the reduction in capital expenditures andnew, planned share offering, guidance for 2002 is reduced to$2.00 to $2.10 per diluted share

• average growth rate over the next five years is expected to be10 to 15 percent per annum

262 . On December 26, 2001, defendants filed a Prospectus Supplement to

Mirant's July 31, 2001 Prospectus, in connection with its secondary offering . The

Prospectus incorporated by reference the false financial results detailed in : (1) the

2000 10-K, (2) and the second and third quarter 2001 quarterly reports an d

amended quarterly reports . The proceeds were to be used to repay a portion o f

Mirant's short-term indebtedness that totaled over $1 billion .

263. On January 29, 2002, Mirant issued a press release affirming it s

liquidity position and normal volumes in its marketing and risk managemen t

operations. Defendant Hill stated :

Mirant has sufficient liquidity to conduct full business operations,despite the recent downgrade by Moody's . We currently have $750million in available cash and credit lines . This amount is availableeven after posting additional collateral required in our ris kmanagement business and absorbing more than originally anticipate d

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in a loan refinanced by our Asian business unit .

264 . Commenting on the new plan, Fuller stated :

With these steps, we are responding to the reality of the current marketand capital environment . We have a plan that works and should notrequire us to access the debt and equity capital markets during 2002 .My management team takes the current situation very seriously . Weare taking significant steps to strengthen our balance sheet and createvalue for our shareholders . We are open and candid about our businessto keep the confidence and trust of our customers, investors andemployees .

265 . Hill assured investors that Mirant had sufficient collateral to continu e

operations stating :

We're seeing normal trading activity, and power and natural gasvolumes, in our marketing and risk management business . Mirant hasposted the collateral required to conduct trading with all its majorcounterparties . Our business was designed to manage asset risk, andits performance demonstrates that Mirant has sufficient liquidity tomanage that risk .

266 . On January 30, 2002, defendants issued a press release announcin g

"record" ea rnings for 2001 . The press release highlighted :

• Fourth quarter earnings from operations meet guidance; 2001earnings from operations grow 87 percen t

• Integrated business model validated by 2001 performance• Business plan continues to focus on strengthening the balance

sheet and improving liquidity to counter current market

uncertainty .

267. The press release fu rther stated :

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Mirant today reported record earnings from operations for 2001 .Fourth quarter earnings from operations totaled $93 million or 27cents per diluted share, representing a 35 percent increase overearnings per diluted share from operations in the fourth quarter, 2000 .Net income for the quarter was $30 million or 9 cents per diluted sharewhich included $66 million in one-time charges related to Mirant'sexposure to the Enron bankruptcy and a $3 million gain from the saleof Mirant's Chilean investment, Edelnor .

For the year ended December 31, 2001, Mirant recorded recordearnings from operations of $683 million or $1 .95 per diluted share .These results reflect 87 percent growth in earnings from operationsover 2000 and exclude charges resulting from the Enron bankruptcy,as well as the Edelnor write-off and the subsequent gain on the sale ofEdelnor recorded in the second and fourth quarters of 2001,respectively. Net income for the year, including the impacts of theseitems, was $568 million, or $1 .63 per diluted share . Annual earningsfrom operations reflect record results for Mirant and 87 percentgrowth over 2000 .

268. In a section entitled "guidance on earnings," the January 30, 200 2

press release stated :

For 2002, Mirant estimates earnings per diluted share of between$1 .60 - $1 .70. This reduction from guidance of $1 .90 to $2 .00provided in December 2001, is a result of forecasted lower marginsand reduced business activity in North America . Mirant forecasts thatgrowth in its 2003 earnings per diluted share will be flat if currentmarket conditions persist . Mirant expects to grow its earnings perdiluted share by 10 - 15 percent annually, on average, over the nextfive years, assuming an improvement from current market conditions .

269. In the Mirant Americas Group, including North American operations ,

the Company stated :

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Mirant's Americas group contribution to consolidated earningsfrom operations was $35 million, or 10 cents per diluted share forthe quarter. For the year, the Americas group contributed $587►nillion, or $1.64 per diluted share. This earnings contribution fromAmericas operations represents a 228 percent increase over the 50cents per pro forma diluted share contributed in 2000.

During the fourth quarter, Mirant's North American power and gasvolumes continued to grow. Mirant sold approximately 116 .6 millionmegawatt hours of electricity in North America, a 94 percent increaseover the same quarter last year. The company also marketed 15 . 6billion cubic feet per day of natural gas during the quarter, an increaseof 41 percent from the same period last year . Full-year power volumestotaled 343 .5 million-megawatt hours and gas volumes averaged 13 .3billion cubic feet per day .

270. The Company also announced a series of measures to improv e

Mirant's balance sheet and improve liquidity in the January 30, 2002 press release ,

stating :

Mirant holds investment grade-credit ratings with Standard & Poor'sand Fitch, Inc., however, the company was downgraded by Moody'sInvestor Services in December 2001 . In response, the company beganimplementing a business plan designed to further strengthen it sbalance sheet and further improve its liquidity . To date, actions fromthis plan include:

• Issuing 60 million shares of common equity inDecember 2001 to raise $759 million

• Significantly reducing the 2002 capital budget• Deferring or canceling numerous construction

projects in the U.S.• Announcing the sale of assets that are expected to

yield $1 .6 billion, including over $900 million fromthe sale of Mirant's share of Bewag (expected t o

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close mid-February, 2002 )

271 . On January 31, 2002, PPL Corporation filed a Form 8-K, which stated :

Through its subsidiary, PPL Global, LLC ("PPL Global"), and throughPPL Global's 51 percent investment in Western Power Distribution("WPD"), an affiliate that delivers electricity in England and Wales,PPL had an investment in the 1,875 MW Teesside Power Station("Teesside"), located in northern England . Enron participated, throughaffiliates, as an owner, operator and power purchaser of the project . Asa result of Enron's bankruptcy and its default on its obligations underthe power purchase agreements, PPL recorded a charge in 2001 of$20.8 million for its share of the impairment loss associated withTeesside . In addition to the write-off associated with the Teessideinvestment, PPL evaluated the carrying value of its WPD investment .PPL has determined to take a $117 million impairment charge in2001 to bring the carrying value of WPD in line with its fairmarket value .

272 . On March 11, 2002, defendants filed Mirant's Annual Report on Form

I 0-K, for the year ending December 31, 2001 (the "2001 10-K") . The 2001 10-K

was signed by Hill, Ward, Dahlberg, and Fuller.

273. With respect to Mirant's results of operations, the 2001 10 -K stated :

Year Ended December 31, 2001 as Compared to Year EndedDecember 31, 2000 Operating revenues . Our operating revenues were$31,502 million in 2001, an increase of $18,187 million, or 137%from 2000 .

274. The 10-K also reported dramatic growth in 2001 earnings stating :

Earnings

• Our consolidated income from continuing operations was $563

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million in 2001, an increase of $231 million or 70% from 2000 .Adjusting for the write -off of our Chilean investment of $54 milliontaken in 2001, provisions taken by the Ame ricas and Europe Groupstotaling $66 million related to our exposure to Enron in 2001 as aresult of their bankruptcy in December 2001 and costs of $34 millionrelated to our transition to a publicly traded company recorded in2000 , our income from operations was $683 million in 2001 . Thisrepresents an increase of $317 million or 87% from 2000. Thisexcludes the net income from our discontinued operations (SEFinance) of $5 million and $27 million in 2001 and 2000 , respectively .The increase in income from continuing operations is attributable toour business segments as follows :

Americas

• Income from continuing operations for the Americas Grouptotaled $493 million in 2001 . This represents an increase of $316million from 2000 and is primarily attributable to the contribution ofthe plants we acquired in Maryland and Virginia in December 2000,the operations from JPSCo after our acquisition of an 80% interest inMarch 2001 and the commencement of operations at our Wisconsinplant in May 2000, our plant in Michigan in June 2001 and the firstand second phases of our Texas plant in June 2000 and 2001,respectively. The increase was also attributable to increased pricevolatility and market demand for natural gas and power in the UnitedStates and natural gas in Canada during the first six months of 2001 .This increase was partially offset by approximately $147 million($245 million pre-tax) which was provided in relation to theuncertainties in the California power market in 2001 . The total amountof provisions made during 2000 and 2001 in relation to theseuncertainties was approximately $177 million ($295 million pre-tax) .As of December 31, 2001, the total amount owed to us by the CAISOand the PX was approximately $361 million. In addition, the increasewas offset by the net write-off of $54 million ($83 million pre-tax)related to our investment in EDELNOR and $40 million ($68 millionpre-tax) which was provided in relation to amounts due from Enron asa result of their bankruptcy in December 2001 . The increase was

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further offset by a loss of $44 million ($74 million pre-tax) in 2001 onan energy requirements contract primarily resulting from new marketregulatory requirements . We believe that we have adequately providedfor estimated future losses under this contract, which terminates at theend of 2003 ; however, we are subject to subsequent regulatory andcommercial risks under this contract and no assurance can be giventhat additional losses will not occur.

275. With respect to Europe, the 2001 10-K stated :

Income from continuing operations from the Europe Grouptotaled $99 million in 2001, an increase of $17 million from 2000 . Theincrease is due to increased earnings from WPD primarily from theWPD South Wales electricity distribution business and a gain on thesale of assets, offset by the write-off of approximately $20 millionrelated to WPD's investment in Teesside as a result of the Enronbankruptcy. This increase was also due to additional income from ourincreased ownership in Bewag . These increases were offset by netlosses from the energy marketing operations including $6 million ($9million pre-tax) which was provided in relation to amounts due fromEnron and its affiliates as a result of Enron's European affiliates'insolvency in December 2001 . On February 11, 2002, we completedthe sale of our interest in Bewag for approximately $1 .63 billion .

11. Defendants' Public Statements Regarding Third Quarter and Year-end2001 Results Were False

276. In view of the fact that PPL Corporation had determined to take a

$117 million impairment charge in 2001 to bring the carrying value of WPD in lin e

with its fair market value, there was clear-cut evidence that the Company's interest s

in its United Kingdom businesses were materially impaired .

277. The defendants either knew of the additional $117 million impairment

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charge recorded by its joint venture partner, bringing the total of its recognize d

impairment charges to $152 million, and ignored the fact that this constituted

persuasive evidence of the impairment of the Company' s investment in WPD, or

recklessly failed to know this fact .

278 . The Company' s investment in WPD was materi ally impaired by no

less than $152 million as of December 31, 2001 and the Company's financia l

statements failed to recognize this fact by recording a charge to earnings a s

required by GAAP .

279 . In the notes to the financial statements that were contained within the

2001 10-K, the Company described its accounting policy with respect to its U K

investments as follows :

We evaluate long-lived assets, such as property, plant and equipment,equity method investments, goodwill, and specifically identifiableintangibles, when events or changes in circumstances indicate that thecarrying value of such assets may not be recoverable. Factors weconsider important, which could trigger an impairment include, amongothers:

• Significant underperformance relative to historical or projected futureoperating results ;

• Significant changes in the manner of our use of the acquired assets orthe strategy for our overall business;

• Significant negative industry or economic trends ; and• Significant declines in stock value for a sustained period .

The determination of whether an impairment has occurred is based o n

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an estimate of undiscounted cash flows attributable to the assets, ascompared to the carrying value of the assets . If an impairment hasoccurred, the amount of the impairment loss recognized would bedetermined by estimating the fair value of the assets and recording aloss if the fair value was less than the book value . For equity methodinvestments and assets identified as held for sale, the book value iscompared to the estimated fair value to determine if an impairmentloss is required . For equity method investments, we would record aloss when the decline in value is other than temporary .

280. In contravention of GAAP and the Company's own stated accountin g

policies, the recognition of an impairment loss of no less than $152 million wa s

improperly deferred from December 31, 2001 to the third quarter of 2002 .

Accordingly, the financial statements that were disseminated to the investing public

during this time period and the Company' s press releases that referred to them ,

were materially false and misleading .

281 . In addition, the financial statements which were contained within th e

2001 10-K were materially false and misleading as ultimately disclosed o n

November 7, 2002 in the 2002 second quarter 10-Q. In the 2002 second quarte r

10-Q, the defendants admitted that : The Company has identified accounting errors

in its previously issued financial statements, primarily related to its ris k

management and marketing operations and has restated its December 31, 200 1

balance sheet, reducing retained earnings for after tax charges totaling

approximately $51 million ."

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282. As described in the 2002 second quarter 10-Q, the $51 million of after

tax charges which related to "2001 and Prior" arose from :

After Tax Charges( In Millions)

Correction of the overstatement of anatural gas asset and the correctio nof accrued revenues (117)

Correction of current deferred incometax benefits related to the over-statement of a natural gas asset andthe correction of accrued revenues 47

Correction of non-current deferredincome tax liabilities due to thecorrection of $42 million of excessincome tax provisions recorded in Asia,offset by $17 million of additiona lincome tax expenses related to WPD 2 5

Other correctionsTotal After Tax Charges (i)

283 . In addition, the 2002 second quarter 10-Q stated that the Company had

restated its previously issued 2001 financial statements to reduce "both energy

marketing and risk management assets and liabilities in the accompanying 200 1

consolidated balance sheets by $820 million to eliminate intracompan y

transactions ."

284 . A compa ri son of the December 31, 2001 balance sheet data contained

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within the 2002 second quarter 10-Q with the December 31, 2001 balance shee t

data contained within the Company's previously issued financial statement s

discloses that the following material corrective revisions were required to be mad e

by the Company :

December 31, 2001Balance Shee tAs Initially PercentReported Restated Increase

($ in millions)

Current Assets :Cash and cash equivalents 836 860 2 .87Net customer receivables 2,136 1,957 (8 .38)Net other receivables 858 774 (9 .79)Notes receivable 24 24 --Energy marketing and riskmanagement assets 1,458 911 (37 .52)Derivative hedginginstruments 348 253 (27 .30)Deferred income taxes 364 405 11 .26Inventories 362 363 .2 7Assets held for sale - 193 100.00Other 381 380 ( .26)

Total current assets 6,767 6,120 (9 .56)

Noncurrent Assets :Net property, plant & equipment 4,167 4,023 (3 .46)Net leasehold interest 1 ,751 1,751 --Construction work in progress 1929 1,921 --Investments (Note H ) 2,244 2,247Net notes & other receivables 287 287Energy marketing and ris kmanagement assets 709 508 (28 .35 )

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Net goodwill 3,245 3,195 (1 .54)Net other intangible assets 869 865 (0 .46 )Derivative hedging instruments 136 95 (30.15)

Deferred income taxes 402 423 5 .22

Other 248 252 1 .6 1

Total assets 22,754 21,687 (4.69)

Current Liabilities :Accounts payable andaccrued liabilities 2,724 2,586 (5 .07 )

Taxes accrued 161 152 (5 .59)Energy marketing and riskmanagement liabilities 1,409 862 (38 .82)

Derivative hedging instruments 327 232 (29 .05 )

Liabilities related toassets held for sale (Note J) - 25 100 .00

Other 3,445 3,445Total current liabilities 8,066 7 302 (9 .47)

Noncurrent Liabilities:Notes payable 3,751 3,75 1

Other long -term debt 2,073 2,068 (0 .24)Energy marketing and ri skmanagement liabilities 624 633 1 .44

Deferred income taxes 109 76 (30 .28)

Obligations under energ ydelivery and purchasecommitments 1,376 1,37 6

Derivative hedging instruments 88 47 (46.59)

Other 542 354 (34.69)Total noncurrent liabilities 8,563 8,305 (3 .01 )

Other :Minority Interest i nSubsidiary Companies 282 281 (0 .35 )

Company Obligated Mandatorily

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Redeemable Securities of aSubsidiary Holding SolelyParent Company Debentures 345 345

Total Other 627 626 (0.16 )

Stockholders' Equity :Common stock, treasury stockand additional paid-in capital 4,888 4,88 8

Retained ea rnings 729 678 (7.00)

Accumulated othercomprehensive loss (1119) ) (5 .88)

Total stockholders ' equity 5,498 5 .454 (0 .80)

Total liabilities andstockholders ' equity 22,754 2 1 .687 (4.69 )

285. On March 14, 2002, the Company 's auditors , Arthur Andersen LLP,

were indicted on criminal charges relating to its auditing of Enron's financia l

statements ,

286. On March 12, 2002, Mirant sustained a severe blow when a portion o f

the Company's illegal practices in California were revealed . On that date, the State

of California sued Mirant . According to a March 12, 2002 Los Angeles Times

article :

California Attorney General Bill Lockyer filed civil suits against fourenergy companies yesterday over alleged breach of contract violationsfor selling reserve power between 1998 and 2000 .

The state says it paid energy companies Dynegy, Reliant, Mirant Corp .

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and Williams Energy Marketing and Trading Co . to have electricityreserves available, but that the companies instead sold that energyelsewhere and then sold electricity back to California at higher rates ."What they did basically was sell the same electrons twice ." Lockyersaid . "They had contracts with the state to hold this power in reservebut instead sold it on the spot market ." California is seeking $150million in penalties from the four companies .

287 . On April 9, 2002, Mirant sustained a second blow when Californi a

sued Mirant and three other energy companies for over $1 billion in fines, allegin g

Mirant overcharged the State during its power crisis . Commenting on the lawsuits ,

California Attorney General Lockyer stated, "JwJe've got hard evidence that they

were ripping us off. "

288 . On April 15, 2002, the State of California filed an additional lawsuit

against Mirant, seeking divestiture of a portion of Mirant's California assets . A

press release issued by Lockyer stated :

Attorney General Bill Lockyer today filed antitrust lawsuits againstMirant and Reliant, asking the federal court to order the two majorenergy companies to divest power plants to end their illegal control ofelectricity supplies used to drive up prices in California's recent energycrisis .

"Our investigation discovered that these major power companies wereable to raise prices by illegally taking advantage of their control ofCalifornia's electricity markets," Lockyer said . "The antitrust lawsuitsfiled today are aimed at restoring real competition by requiring theseenergy companies to sell off some of their power plants . "

Filed in the federal court in San Francisco, the complaints charg e

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Reliant and Mirant with acquiring an excessive number of Californiapower plants in violation of federal antitrust laws . The complaintsstate that Reliant and Mirant, two of the largest energy companies inthe world, controlled too much of California's available electricitysupply, which allowed them to illegally exercise market power, limitcompetition and raise prices .

Mirant's California plants generate 3,056 megawatts of electricity andcontrol 44% of the northern California electricity market . Reliant'sCalifornia plants generate 3,776 megawatts of electricity and control28% of the southern California electricity market .

Attorney General Lockyer noted that other antitrust lawsuits may befiled as the state's investigation into California's energy crisiscontinues . The complaints against Mirant and Reliant, filed underSection 7 of the federal Clayton Act governing mergers and Section17200 of the California Business and Professions Code, seekdivestiture and monetary relief, including damages, restitution, civilpenalties and disgorgement of illegal profits .

12. Defendants Issue False Financial Results During 2002 as Mirant 's Fraudis Slowly Revealed

289. On April 25, 2002, defendants issued a press release announcing tha t

Mirant surpassed first quarter 2002 earnings forecasts . The press release

highlighted the fact that Mirant :

• Exceeded earnings guidance by 10 percent• Achieved record power and gas volumes• Paid down $1 .2 billion of deb t• Reduced costs and sold assets ahead of schedule• Affirmed earnings guidance for 2002

290. The April 25, 2002 press release added :

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Mirant today reported income from operations of $134 million or 33cents per diluted share. This exceeds by ten percent the guidance of 30cents per diluted share that Mirant originally provided.

Mirant also reported two non-recurring items this quarter: a $167million gain from the sale of Bewag and an after-tax restructuringcharge of $344 million. Including the effects of these non-recurringitems, Mirant reported a net loss for the quarter of $42 million, or 9cents per diluted share. The restructuring charge reflects the plannedcancellation of turbines, the elimination of positions and otherpreviously announced actions . The company anticipates approximately$70 million in additional after-tax restructuring charges over theremaining quarters of the year . The total restructuring charge is withinthe amount Mirant projected in January .

291 . Commenting on the financial results, defendant Fuller stated :

Mirant's integrated business model and diversified global portfoliocontinue to perform well despite tough market conditions . With theencouraging signs of an economic recovery and the steps we havetaken to strengthen the business, Mirant is well positioned to capturemarket upside .

292. With respect to North American operations for the first quarter o f

2002, the press release stated :

For the quarter, Mirant's North American business contributed $77million to consolidated income from operations, or 18 cents perdiluted share for the quarter, compared to $174 million, or 49 cents pershare for the same period last year. The income reduction is primarilydue to lower power and gas margins across Mirant's integrated U .S .and Canadian operations .

Despite lower margins, Mirant's North American power and gasvolumes continued to grow, demonstrating the strength of its NorthAmerican business and establishing a first-quarter record for th e

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company . Mirant sold approximately 98 .6 million megawatt hours ofelectricity in North America, a 50 percent increase over the samequarter last year. The company also marketed 21 .4 billion cubic feetper day of natural gas -- an increase of 67 percent from the same periodlast year. This increase in volumes was achieved while collateralrequirements decreased by more than $200 million from a peak ofmore than $800 million .

293 . Defendant Fuller also stated :

Mirant continues to rank among the top three owners of competitivegeneration and the top 15 electricity producers in the U.S." "Duringthe quarter, we strengthened that position by bringing an additional474 megawatts on-line in Florida and continued with the constructionand development of an additional 2,500 megawatts . Of this amount,1,500 megawatts are scheduled to come on-line by August . By the endof 2002, Mirant expects to own or control more than 18,000megawatts in the U .S .

294. The Company also reaffirmed its ea rnings guidance for 2002 , stating :

Based on results to date, Mirant is maintaining its current guidance forincome from operations of $1 .60 to $1 .70 per diluted share for the yearwith a forecast of 30 cents per diluted share for the second quarte r2002.

295 . On May 7, 2002, documents in the Enron investigation revealed that

Mirant may have engaged in fraudulent practices similar to Enron in the California

market . According to a May 7, 2002 New York Times article :

Documents showing that Enron manipulated California's powermarket were described today by politicians, lawyers and consumergroups as the smoking gun they needed to help recover billions ofdollars they say the state was overcharged by Enron and othercompanies for electricity in 2000 and 2001 .

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The documents -- Enron memorandums released by federal regulatorson Monday -- were hailed as a windfall by state officials who haveused regulatory and legal means to try to force half a dozen power-generating and marketing companies to refund at least part of theprofits they made during a year long energy shortage.

Federal regulators also said today that they would investigate whetherother energy-trading companies used the manipulative tradingstrategies described in the documents by lawyers for Enron, which isnow in bankruptcy. Duke Energy, Dynegy, the Williams Companies,Mirant and Calpine were among the companies the regulators "put onnotice that they must preserve all material that discusses such tradingstrategies, or similar trading strategies ."

Enron is no longer in the trading business, but the documents andinterviews with California officials indicate that when Enron wasflying high, its trading strategies exploited weaknesses in the state'senergy markets to the hilt .

The disclosure that Enron and perhaps some other trading companiesused techniques that Enron code-named Death Star, Fat Boy and GetShorty to inflate prices artificially in California's deregulated energymarket appeared to vindicate a long campaign by Gov . Gray Davis.Mr. Davis, a Democrat, battled the Bush administration and federalauthorities for months last year before regulators agreed to put caps onskyrocketing electricity prices .

"About $30 billion was extorted from this state, " Mr. Davis said inan interview today. "Those who claim that there was no pricemanipulation here were just plain wrong. " IT]he Enron memos,written by an outside lawyer for the company's energy tradinggroup, called the company's price manipulation "the oldest trick inthe book " and said that "other market participants " had followedEnron's lead to inflate prices. And an official of the agency thatoperates California's power grid said that strategies described inEnron's memos matched suspicious behavior by many participants inthe market that the agency has documented and submitted to federa l

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regulators .

296 . As a result of the May 7 , 2002 news , Mirant common stock plunged

by over 12%, on unusually large trading volume of over 7 million shares to close a t

$9.75 per share - an enormous decline from the stock's Class Period high of nearl y

$50 per share .

297. On May 10, 2002, Mirant issued a press release affirming the integrit y

of its trading practice . The press release stated:

Mirant today affirmed that it has not engaged in any transactions forthe purpose of artificially enhancing its trading volumes or revenues ."Because of the rumor and discussion about our industry, I fee lcompelled to make it clear that Mirant has not performed anysimultaneous buy and sell trades with counterparties for the purpose ofinflating its trading volumes or revenues," said Marce Fuller, presidentand chief executive officer, Mirant . "This type of activity is nottolerated, nor will it ever be tolerated , at Mirant . Our trades areconducted to serve our customers , to balance our portfolio , to managerisk and achieve business purposes . "

298 . On May 13, 2002, defendants filed a quarterly report on Form 10-Q

for the period ending March 31, 2002 (the "2002 first quarter 10-Q") that wa s

signed by defendant Ward . This document, which reported net income of $4 2

million for the quarter, and which represented that "management believes that th e

accompanying unaudited consolidated financial statements reflect all adjustments ,

consisting of normal recurring items, necessary for a fair statement of results fo r

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the interim periods presented" was materially false and misleading because it faile d

to reflect a material charge to earnings to reflect an impairment of no less tha n

$152 million for the reasons set forth above.

299 . In addition, the financial statements that were contained within th e

2002 first quarter 10-Q were materially false and misleading as ultimately disclosed

on November 7, 2002 in the 2002 second quarter 10-Q, which documents the fac t

that the following material corrective revisions were required to be made by the

Company :

Three Months EndedMarch 31, 2002

PercentInitially IncreaseReported Restated Decrease

($ in millions )

Operating revenues 7,037 6,908 (1 .83 )Operating expenses 6.465 6,298 (2.58 )Gross margin 572 610 6 .64Other ((614 ) ) (0.33 )Net loss ) 6) (85 .71 )

300. The Company dismissed Arthur Andersen LLP on May 15, 2002, an d

engaged KPMG LLP to conduct the audit of its financial statements for the yea r

ending December 31, 2002 .

301 . On May 22, 2002, Mirant issued a press release once agai n

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emphasizing that the Company "operated appropriately, and complied in full, wit h

the rules of the weste rn power market ." The May 22, 2002 press release stated :

FERC's request called for detailed answers to questions on 10 specificpractices related to buying and selling power . Mirant noted in itsresponse that aspects of some of the practices described in the FERCrequest are common to well-functioning power markets in all regionsof the United States .

In its filing, Mirant denied engaging in eight of the 10 practices . Thecompany stated that it engaged in one of the specific practicesdescribed in the FERC request, but that it conducted the practice undercircumstances different from those detailed in the request . Mirant doesnot believe it engaged in a second practice, but it lacks the informationto respond with certainty because of the nature of portfolio buying andselling. Mirant also states that it engaged in a possible variation of athird practice .

With respect to the practice it did engage in, Mirant said that with theknowledge and support of the California Independent System Operator(California ISO), it scheduled load and a corresponding amount ofgeneration even though both Mirant and the California ISO knew theactual load would be zero . As an owner of 3,000 megawatts ofCalifornia generating capacity, Mirant took this action because localutilities routinely under-forecasted demand . In addition, thisscheduling practice allowed Mirant to improve the availability andefficiency of its power plants, and ensure the reliability of the regionalsystem. In its filing to FERC, Mirant noted that the California ISO wasaware of, and approved, this action .

Regarding a second practice, Mirant explained in its filing that itregularly imported power to, and exported power from, California .Throughout the two-year period under review, Mirant found that ononly 19 days it exported power at the same time it was purchasingpower from the California Power Exchange. In none of those caseswas there any evidence, nor was it the intent, that Mirant purchase d

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power from the California Power Exchange specifically for saleoutside of California .

In regard to the variation of a third practice referred to in the request,Mirant said that it had identified a single day, among the 510transaction days covered by the FERC review period, in which it solda small amount of power out of California. Mirant then purchasedfrom the buyer a similar amount of power for resale to the CaliforniaDepartment of Water Resources.

302 . In the May 22, 2002 press release, defendant Fuller assured investors

that Mirant was committed to fostering competition in the energy markets, stating :

"Competition is improving the reliability of the nation's power supply,reducing costs, unleashing innovation, driving efficiency, reducingemissions and will encourage the investment necessary to secureAmerica's energy needs," said Fuller. "Competitive energy companieshave built approximately 90 percent of America's new generationcapacity in recent years ."

Fuller complimented FERC for its efforts to improve power marketsthrough establishment of clear and consistent market rules, and astandard market design . She further stated that Mirant is committed toworking with FERC, industry peers and governments at all levels tocreate a national energy structure that is fair for all marketparticipants, and which delivers maximum value for consumers .

303 . On May 31, 2002, defendants issued a press release stating :

Following an extensive review of its trading activities, Mirant todayresponded to the Federal Energy Regulatory Commission (FERC) bydenying that it conducted the "wash" trades referenced in FERC's May21 and May 22, 2002 inquiries .

304 . On July 30, 2002, Mirant issued a press release announcing stron g

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performance in the second quarter of 2002 . The press release stated :

Mirant today reported a net loss of $151 million for the second quarteror a loss of 38 cents per diluted share . The company's second quarteradjusted earnings were $145 million or 36 cents per diluted share .

Adjusted earnings exclude three non-recurring items : an after-taxwrite-down of $284 million reflecting the fair market value ofMirant's 49 percent interest in WPD, a U .K. asset it intends to sell thisyear; a $6 million net gain from asset sales ; and an after-taxrestructuring charge of $18 million . Mirant has remaining apreviously-announced $55 million after-tax restructuring charge that itexpects to be completed by the end of the year.

For the first six months of 2002, Mirant recorded a net loss of $193million or a loss of 48 cents per diluted share . Year-to-date, adjustedearnings per diluted share were 609 cents compared to guidance of 60cents . Total adjusted earnings were $279 million through June 2002.

Mirant reported approximately $66 million in operating cash flowduring the second quarter. Operating cash flow for the first six monthsof the year was approximately $341 million .

305 . The press release detailed the following results :

Review of Operation s

For the quarter, Mirant's North American business contributed $121million to adjusted earnings, or 29 cents per diluted share, compared to$160 million, or 45 cents per share for the same period last year . Theincome reduction is primarily due to lower power production in theWest, and lower power and gas margins across Mirant's integratedU.S . and Canadian operations .

Mirant sold approximately 91 .8 million megawatt hours of electricityin North America, a 32 percent increase over the same qua rter lastyear. The company also marketed 22 .3 billion cubic feed per day of

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natural gas -- an increase of 89 percent from the same period last year .

Mirant continues to reposition its asset base while maintaining its rankamong the top 15 electricity producers in the U.S . More than 80percent of its profitability for the quarter was attributable to its assetsin North America . Since the beginning of the year, Mirant addedapproximately 600 megawatts of generation in North America . Thecompany remains on track to add another 900 megawatts in the U .S .during 2002, and will own approximately 14,000 megawatts andcontrol more than 3,000 megawatts in the U .S . by the end of the year .

"We're an asset-based company . We produce and deliver real powerand natural gas to real customers with real demands," said Fuller ."The vast majority of our generating capacity, 92 percent, is located inmajor metropolitan areas where the demand for electricity is thegreatest .

306. The July 30, 2000 press release announced a loss of $ 151 million fo r

the second quarter of 2002, a $284 million write-down "reflecting the fair market

value of Mirant's 49 percent interest in WPD" and a review of "several accounting

issues" pertaining to the Company's 2001 financial statements , including an $85

million overstatement of a gas inventory asset and a potential $68 millio n

overstatement of an accounts receivable asset .

307 . The July 30, 2002 press release was materially false and misleading

because, as subsequently revealed, the Company' s financial statements prior to

2001 were materially misstated and were required to be restated as later disclose d

in the 2002 second quarter 10-Q, which documents the fact that the following

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material corrective revisions were required to be made by the Company :

Three Months EndedJune 30, 2002

PercentInitially IncreaseReported Restated Decrease

($ in millions)

Operating revenues 6,370 6,134 (3 .70)Operating expenses 5 .707 5,554 (2 .68 )Gross margin 663 580 (12 .52)Other X15) _Qffl) (1 .84)Net (loss ) 152) j 20) 44 .74

Six Months EndedJune 30, 2002

PercentInitially IncreaseReported Restated (Decrease)

($ in millions)

Operating revenues 13,407 13,042 (2 .72 )Operating expenses 12,172 11,852 (2 .63)Gross margin 1 ,235 1,190 (3 .64)Other a-.,429) (1,416) (0 .91 )Net (loss ) (194) (226) 16 .49

308. In addition, the July 30, 2002 press release was materially false an d

misleading because, as revealed five weeks later, on September 6, 2002, the $284

million write-down did not serve to reflect "the fair market value of Mirant's 4 9

percent interest in WPD" as represented by defendants; a $326 million write-down

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was required to reflect "the fair market value of Mirant's 49 percent interest i n

WPD ."

309. Defendants revealed in the July 30, 2002 press release that Mirant had

overstated its financial results for 2001, due to what Fuller characterized as "hones t

mistakes ." The press release stated :

Mirant also reported today that it is reviewing several accountingissues pertaining to its 2001 financial statements . The principal issuesare an $85 million overstatement of a gas inventory asset, a $100million overstatement of an accounts payable liability and a potential$68 million overstatement of an accounts receivable asset .

310 . On August 5, 2002, defendants revealed that the SEC had commence d

an investigation into Mirant's accounting . In response, Mirant's stock price fell by

16%, prompted by the Company' s disclosure of three accounting issues that i t

discovered during an internal review of its 2001 financial statements .

311 . On August 14, 2002, the Company fi led a Form 8-K, which stated that

the Company was "not in a position to file its Form 10-Q for the quarter ended June

30, 2002" because its new auditors , KPMG LLP, were not able to complete it s

limited review procedures prior to the release of the Company's interim financial

statements for the quarter ended June 30, 2002 . The 8-K also stated that the

Company was working "to resolve the previously disclosed issues related to th e

$85 million overstatement of a gas inventory asset ." The 8-K also noted that :

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This latter issue potentially relates to accruals made in 1999, 2000 and2001 and arises from its energy risk management and marketingoperations. At this time, the Company has not determined the extent, ifany, to which this issue will affect its statements of income or theperiods potentially affected . However, the Company believes that thisunresolved issue does not represent a material error in previousfinancial statements .

The Company has also identified balance sheet reclassifications thatare expected to reduce both energy risk management and marketingassets and liabilities in the Company's 2000 and 2001 financia lstatements by an amount less than 5% of total assets . Thesereclassifications relate primarily to intra-company eliminations . Thesereclassifications are not expected to have any material effect on theCompany's results of operations, revenues, expenses, net income,liquidity or cash flow.

As a result of the identification of these issues, the Company hasretained the law firm of King & Spalding to conduct an independentreview of these issues, with the support of a nationally recognizedaccounting firm, to review the processes and controls in place in itsrisk management and marketing accounting operations and to provideadvice to the Company's Audit Committee . The Company cannotcurrently determine the outcome of the independent review. TheCompany anticipates that it will take steps to strengthen its accountingcontrols and organization . Other circumstances, such as therequirements of the capital markets, the adoption of new accountingpolicies or any matters that subsequently arise out of the independentreview, could lead the Company to request KPMG to reaudit theCompany's 2000 and 2001 financial statements . If a reaudit isrequested, the effects of such reaudit on the Company's 2000, 2001 or2002 financial statements cannot be determined.

312. On August 14, 2002, Mirant issued a press release revealing that :

Even as it continues a review of its accounting issues, its chiefexecutive officer and chief financial officer are ce rtifying with the

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Securities and Exchange Commission (SEC) the reports listed in theSEC's July 27, 2002 order 4-460 . These include Mirant 's 2001 Form10-K/A, first quarter 2002 Form 10-Q, subsequent filings and 200 1proxy .

Regarding its previously disclosed accounting issues, Mirant hasdetermined that there is no $100 million overstatement of an accountpayable, and has reconciled the potential $68 million overstatement ofan accounts receivable asset . The company continues to work toresolve issues related to the previously disclosed $85 millionoverstatement of a gas inventory asset . This latter issue potentiallyrelates to accruals made in 1999, 2000 and 2001 and arises from itsenergy risk management and marketing operations . At this time,Mirant has not determined the extent to which this issue will affect itsstatements of income or the periods potentially affected . However,Mirant does not believe this unresolved issue represents a materialerror to previous financial statements .

The company has also identified balance sheet reclassifications thatare expected to reduce both assets and liabilities by less than fivepercent. At year-end 2001, Mirant's balance sheet was $22 .8 billion .These items, which are unrelated to the previously identified issues,are not expected to have any material effect on results of operations,revenues, expenses , net income, liquidity or cash flow .

To assist in the resolution of the issues, Mirant has engaged a thirdparty to review the processes and controls in place in its energy riskmanagement and marketing accounting operations .

313 . The August 14, 2002 press release also revealed that Mirant would no t

be able to file its 2002 second quarter 10-Q on time . The press release stated :

Second Quarter Form 10-Q Delayed ; Detailed Financials PostedMirant also reported that it is currently unable to file the Form l0-Qfor its second quarter 2002 financials . Filing Form 10-Q requires that acompany's auditor perform its limited review procedures. KPMG

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replaced Mirant's previous auditor in May and has informed Mirantthat it has not completed its limited review of the company's secondquarter financial statements . Auditing firms typically rely o ninvolvement in previous audits to develop a base of knowledge ofinternal accounting controls, policies and procedures . Mirant believesthe limited review may require thirty to sixty days, but says it couldtake longer. Once it is completed, Mirant will be in a position to bothcertify and file its Form 10-Q .

314. On August 19, 2002, an article published on CBS MarketWatch

revealed that the SEC decided not to sign off on Mirant's sworn certification

statements. Mirant was added to a list of 13 companies whose certifications did no t

comply .

C . The Belated and Gradual Revelation of the Truth

315 . On September 6, 2002, defendants issued a press release stating :

Mirant announced the sale of its 49 percent economic interest in, andshared management control of, Western Power Distribution HoldingsLimited and WPD Investment Holdings (both identified jointly asWPD) to PPL Corporation (PPL) for $235 million . The sale will resultin approximately $228 million in net proceeds to Mirant afterrepayment of taxes and other transaction related fees .

The WPD assets, in which PPL had a 51 percent economic interest,include the electricity distribution networks for Southwest Englandand South Wales .

"This sale is part of Mirant's ongoing review and sale of non-strategicassets designed to strengthen our balance sheet to improve liquidity,"said Marce Fuller, president and chief executive officer, Mirant ."Earlier this year we announced two phases of asset values that wouldtotal between $2.3 billion and $2.6 billion. With this sale, we have

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raised over S 1 .7 billion towards our goal . "

In Mirant's 2002 second quarter earnings call, the companyannounced a $284 million write-down of WPD reflecting theestimated fair market value of the asset at that time . The sale wil lresult in an additional loss of $42 million from the previouslyannounced figure, resulting in a total loss of $326 million on the sale .

Mirant's already-beleaguered stock fell even further on this news, closing that da y

at $3 .25, a loss of more than 5% .

316. SEC Rules and Regulations require that offe ring documents and

periodic reports filed with the SEC contain such information as is necessary to

make statements, in light of the circumstances under which they are made, no t

misleading . In addition, the SEC stated, in Staff Accounting Bulletin No. 100, that :

The staff has noted that the economic or other events that . . .impair thecarrying amount of assets, generally occur over time . Accordingly, thestaff believes that as those events and the resulting trends anduncertainties evolve , they often will meet the requirement fordisclosure pursuant to the Commission's MD&A rules p ri or to theperiod in which the exit costs and liabilities are recorded pursuant toGAAP.

317. As discussed above and as noted in the financial statements of PPL,

the mate rial impairment of the Company's United Kingdom assets commenced i n

December 1999 with regulatory actions and increased substantially with th e

passage of time.

318 . In contravention of the SEC mandates noted above, defendants failed

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to make the required disclosures in the MD&A sections of its filings with the SE C

during the Class Period. To the extent that these disclosures were omitted from th e

Company's interim financial statements, these financial statements failed to compl y

with GAAP Accounting P rinciples Board Opinion No . 28, (Paragraph 32) whic h

states :

There is a presumption that users of summarized interim financial datawill have read the latest published annual report, including thefinancial disclosures required by generally accepted accountingprinciples and management's commentary concerning the annualfinancial results, and that the summarized interim data will be viewedin that context. In this connection, the management is encouraged toprovide commentary relating to the effects of significant events uponthe interim financial results .

319. On November 7, 2002, defendants filed an amended quarterly repor t

on Form 10-Q-A (the "2002 amended first quarter 10-Q"), restating Mirant's

financial results for 2001 and 2002 . The 2002 amended first quarter 10-Q stated :

This Quarterly Report on Form 10-Q/A is being filed as AmendmentNo. I to the Registrant's Quarterly Report on Form 10-Q for thequarter ended March 31, 2002, filed on May 13, 2002, to correctaccounting errors primarily related to its risk management andmarketing operations . The Company has restated its December 31,2001 balance sheet, reducing retained earnings for after tax chargestotaling approximately $51 million, and reducing both energy riskmanagement and marketing assets and liabilities by $820 million toeliminate intracompany transactions . The Company has also restatedits previously reported financial statements as of and for the threemonths ended March 31, 2002 by:

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• reducing its originally reported assets and liabilities by $225 million ;

• changing its previously reported results of operations for the threemonths ended March 31, 2002 from an originally reported net loss of$42 million to a net loss of $6 million ; and

• increasing reported cash provided from operations by $46 million,and increasing cash provided by investing activities by $11 million .

Additional changes have also been made to reflect the correspondingchanges that result from the above restatement adjustments and toupdate the document to the time of filing .

Adjustments to Previously Issued Financial Statements . The Companyhas identified accounting errors in its previously issued financialstatements, primarily related to its risk management and marketingoperations and has restated its December 31, 2001 balance sheet,reducing retained earnings for after tax charges totaling approximately$51 million . The Company has also reduced both energy marketingand risk management assets and liabilities in the accompanying 2001consolidated balance sheets by $820 million to eliminate intracompanytransactions. These adjustments do not have any effect on theCompany's consolidated results of operations or cash flows .

320. Defendants also revealed that the amended quarterly report did not

reflect the full extent and magnitude of defendants' accounting fraud, and tha t

further restatements and analysis will be necessa ry. The 2002 amended first

quarter 10-Q stated :

The Company has engaged its independent auditors to reaudit theCompany's 2000 and 2001 financial statements to address these andother accounting errors that have been identified, which are expectedto result in a restatement of its statement of income for either or bothof 2000 and 2001 and potentially for interim periods in 2001 an d

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2002 . The specific interim periods within previous years to which $70million of the charges . . . relate have not been determined at this time ;accordingly, their effect has not been reflected in the accompanying2001 interim condensed consolidated statement of income . Theinterim periods to which the $70 million relates will be determined inconnection with the reaudit . Rather than correct the 2001 results ofoperations and cash flows to reflect a portion of these accountingerrors, the Company has presented the comparative 2001 amounts aspreviously reported until the review of accounting issues is resolvedand the reaudit is completed . The Company expects to correct thefinancial statements, as needed, for each reporting period in 2000 or2001 . Until the reaudit is completed, the Company does not believe itis appropriate to revise the historical results for the interim periods .There may be significant changes in previously reported amounts ofoperating revenues, operating income, equity in income of affiliates,provision for income taxes, net income and operating cash flows .

321 . The report also disclosed that KPMG had uncovered material interna l

control issues within Mirant. The 2002 amended first quarter 10-Q stated:

Controls and Procedures

Effective April 1, 2002, the Company implemented a new IT system("ENDUR") for its gas trading and marketing activities in NorthAmerica. Because of ENDUR's improved capabilities over the legacysystems, management views the implementation of ENDUR as asignificant change in internal controls . In addition, the Companyrecently modified its power trading and marketing IT system toimprove reporting of realized and unrealized income associated withpower transactions . The Company's independent auditors assessed theCompany's internal controls of its North American energy marketingand risk management operations as part of the interim review for thesecond quarter . The Company has received detailed processimprovement recommendations during October 2002 from itsindependent auditors which address internal control deficiencies inexistence at June 30, 2002, the most significant of which relate to the

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Company's systems and processes and include :

(i) Inadequate actualization analysis, documentation and internalcommunication ;

(ii) Inadequate reconciliation of the risk repo rt and general ledger;

(iii) Inadequate systems integration and data reconciliation ; and

(iv) Untimely balance sheet discrepancy resolution .

The Company's independent auditors have advised the AuditCommittee that these internal control deficiencies constitute reportableconditions and, collectively, a material weakness as defined inStatement on Auditing Standards No . 60 ("SAS No. 60") . TheCompany has assigned the highest priority to the short-term andlong-term correction of these internal control deficiencies .Management has discussed its proposed actions with the AuditCommittee and its independent auditors . The Company hasimplemented corrective actions to mitigate the risk that thesedeficiencies could lead to material misstatements in the Company'scurrent financial statements . In addition, the Company has performedadditional procedures to enable the completion of the independentauditors' review of the Company's interim financial statements, despitethe presence of control weaknesses as noted above .

The following short-term corrective actions are being implemented :

(i) Additional training and replacement of certain individuals ;

(ii) Additional management oversight and detailed reviews ;

(iii) Reports submitted monthly to the CFO and CEO certifying thatthe balance sheet reconciliations have been completed, the accountsappropriately adjusted and any discrepancies listed;

(iv) Involvement of the Company's internal audit personnel to monito r

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certain critical monthly and quarterly closing processes ; an d

(v) Use of outside resources to supplement Company employees inevaluating and implementing the internal control recommendations .

Longer-term corrective actions, some of which the Company hasalready begun to implement, will include :

(i) Implementation of the ENDUR system for power transactions inthe second qua rter of 2003 ;

(ii) Evaluation of the feasibility of automated interfaces between theCompany's various systems, including risk management, schedulingand general ledger ;

(iii) Process mapping and evaluation to assure timely review andreconciliation between risk management systems and the Company'saccounting systems ;

(iv) Evaluation of accounting organization structure to align roles andresponsibilities with process and control changes ;

(v) Re-evaluation of the role and resources devoted to internalauditing to assure compliance with accounting requirements ;

(vi) Re-evaluation of the Chief Risk Officer's duties to assureadequate controls; and

(vii) Re-evaluation of the Company's Risk Oversight Committee's roleand focus to include monthly reporting and tracking of progress on thecompletion of all controls enhancements and to ensure controls areappropriate for the ongoing size and level of activities in the business .

322. In response to the news revealing Mirant's overstatement of retaine d

earn ings, Mirant's stock price declined even further, closing at only $2 .25 on

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November 8, 2002 . A November 8, 2002 analyst report entitled "Mirant' s

Dizzying Accounting Merry-Go-Round", issued by The Williams Capital Grou p

L.P. rated Mirant stock "hold" and stated, in relevant part :

• Yesterday Mirant released its amended 10-Q for Q 102following a review of the company's accounting .

• Mirant disclosed various accounting errors that led to a net $51million overstatement of retained earnings in periods from Q 1999-Q401 and a $3 6 million understatement of Q2 income .

323 . The report noted that "the apparent lack of effective controls makes i t

hard to rely on Mirant's financial statements" and "the revolving door on Mirant' s

financial statements makes them difficult to rely on for analysis ."

324 . The statements detailed in the press releases and quarterly reports were

materially false and misleading . These financial results were artificially inflate d

through the use of a myriad of fraudulent techniques, such as "gaming the market"

and "double-dipping" or selling reserves already owed to California to othe r

purchasers, and otherwise artificially manipulating the market price of energy i n

the California markets . Further, Mirant's financial statements included in the 200 0

and 2001 10-Ks were materially false and misleading , because GAAP provides tha t

revenue should not be recognized until an exchange has occurred, the earning s

process is complete, and the collection of the sales price is reasonably assured .

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These conditions are ordinarily met when the entity has substantially performed the

obligations that entitle it to the benefits represented by the revenue (SE C

Accounting and Auditing Enforcement Release, No. 812) . Mirant's Class Perio d

financial statements were materially overstated since they :

(a) Failed to provide for the return of illegally obtained revenue through acharge to earnings. As detailed above, the amount of suspect transactions at issuewhich Mirant was involved in exceeds $2 billion ;

(b) Failed to provide for the professional fees associated with theinvestigations arising from the fraud through a charge to earnings ;

(c) Failed to disclose the fact that the illegally obtained revenue wassubject to forfeiture and that the investigations surrounding the illegally obtainedrevenue would result in the expenditure of material amounts for legal andprofessional fees ; and

(d) Failed to disclose that Mirant's lucrative contracts to provide power toCalifornia would likely be rescinded by the State due to Mirant's illegal activities .

325 . As now known, at all times during the Class Period, defendants issued

false and misleading financial statements and press releases concerning Mirant' s

revenues, expenses, receivables, inventory, energy marketing and risk management

assets, net income and earnings per share . The representations that were made

during the Class Period with regard to the Company's results of operations and

financial position, all of which implicitly and/or expressly were represented to have

been prepared in conformity with GAAP, were materially false and misleadin g

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because the Company materially understated expenses and materially overstate d

the Company's revenues , income, receivables, inventory, energy marketing and risk

management assets, and earnings, in contravention of GAAP.

326. By recognizing revenue and a related receivable through improper

accruals of income, the Company's financial statements that were disseminated t o

the investing public during the Class Period materially overstated revenue ,

receivables, earnings and net wo rth, and violated the following GAAP provisions ,

which rendered these financial statements materially misleading :

a. Profit is deemed to be realized when a sale in the ordinarycourse of business is effected, unless the circumstances are suchthat the collection of the sale price is not reasonably assured(Chapter 1 A of Accounting Research Bulletin No . 43,Paragraph 1) .

b . Revenue should ordinarily be accounted for at the time atransaction is completed, with appropriate provision foruncollectible accounts (Accounting Principles Board Opinio nNo . 10, Paragraph 12) .

c . Revenues and gains generally are not recognized until realizedor realizable, and revenues are considered to have been earnedwhen the entity has substantially accomplished what it must doto be entitled to the benefits represented by the revenues(Statement of Financial Accounting Concepts No . 5, Paragraph83) .

d. The quality of reliability and, in particular, of representationalfaithfulness leaves no room for accounting representations thatsubordinate substance to form (Statement of Financia l

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Accounting Concepts No . 2, Paragraph 160) .

e. Contingencies that might result in gains usually are not reflectedin the accounts since to do so might recognize revenue prior toits realization (Statement of Financial Accounting StandardsNo. 5, Paragraph 17) .

f. Generally Accepted Accounting P ri nciples ("GAAP") providethat revenue should not be recognized until an exchange hasoccurred , the ea rn ings process is complete, and the collection ofthe sales price is reasonably assured . These conditionsordinarily are met when products are exchanged for cash orclaims to cash , and when the entity has substantially performedthe obligations which entitle it to the benefits represented by therevenue ( SEC Accounting And Auditing Enforcement ReleaseNo. 812) .

g. Contingencies and other uncertainties that could be expected toaffect the fairness of presentation of financial data at an interimdate should be disclosed in interim reports in the same mannerrequired for annual reports (Accounting Principles BoardOpinion No . 28, Paragraph 22) .

h . The amounts of certain costs and expenses are frequentlysubjected to year-end adjustments even though they can bereasonably approximated at interim dates . To the extentpossible such adjustments should be estimated and the estimatedcosts and expenses assigned to interim periods so that theinterim periods bear a reasonable portion of the anticipatedannual amount . Examples of such items include allowance foruncollectible accounts (Accounting Principles Board OpinionNo . 28, Paragraph 28) .

An estimated loss from a loss contingency shall be accrued by acharge to income if information available prior to issuance ofthe financial statements indicates that it is probable that an assethad been impaired or a liability had been incurred at the date o f

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the financial statements and the amount of the loss can bereasonably estimated (FASB Statement No . 5, Paragraph 8) .

j . The objective of providing for reserves against receivables is toassure that: "Accounts receivable net of allowances foruncollectible accounts. . .are effectively stated at the amount ofcash estimated as realizable." (Accounting Research Bulletin43 Chapter 3, Section A, Paragraph 9) .

k. It is generally accepted that accumulated allowances and assetvaluation allowances for losses such as those on receivable sshould be deducted from the assets to which they relate, withappropriate disclosure (Accounting Principles Board OpinionNo . 12, Paragraphs 2 and 3) .

1 . Losses from uncollectible receivables shall be accrued eve nthough the particular receivables that are uncollectible may notbe identifiable (FASB Statement No . 5, Paragraph 22) .

327 . By failing to properly state inventory at cost , the Company's financial

statements that were disseminated to the investing public during the Class Perio d

materially overstated assets , earnings and net worth, and violated the following

GAAP provisions, which rendered these financial statements materially

misleading :

a. The primary basis of accounting for inventories is cost, whichhas been defined generally as the price paid or considerationgiven to acquire an asset . As applied to inventories, cost meansin principle the sum of the applicable expenditures and chargesdirectly or indirectly incurred in bringing an article to itsexisting condition and location (ARB No . 43, Chapter 4,Paragraph 5) .

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b. An expense or loss is recognized if it becomes evident thatpreviously recognized future economic benefits of an asset havebeen reduced or eliminated, or that a liability has been incurredor increased, without associated economic benefits (Statementof Financial Accounting Concepts No . 5, Paragraph 87) .

328 . The defendants were required to cause the Company to disclose, in its

financial statements, the existence of the material facts described herein and to

appropriately recognize and report revenues and expenses in conformity wit h

GAAP. The defendants failed to cause the Company to make such disclosures and

to account for and to report revenues and expenses in conformity with GAAP .

329 . Due to the pervasive mosaic of non-disclosures, deceptive disclosures ,

and non-GAAP accounting, the Company's IPO registration statement an d

prospectus, earnings releases, and 10-Ks and 10-Qs that the defendants caused th e

Company to disseminate to the investing public during the Class Period were

materially false and misleading, contained untrue statements of material fact ,

omitted other facts necessary to make the statements made not misleading, an d

failed to disclose adequately material facts as described above.

330. The defendants knew and ignored, or were reckless in not knowing ,

the facts indicating that all of the above particularized financial statements, pres s

releases, public statements , and filings with the SEC, which were disseminated to

the investing public during the Class Period, were materially false and misleadin g

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for the reasons set above .

331 . GAAP are those pri nciples recognized by the accounting profession a s

the conventions, rules and procedures necessary to define accepted accountin g

practice at a particular time. Moreover, SEC Regulation S-X requires that financia l

statements filed with the SEC conform with GAAP, and those financial statements

that are not prepared in conformity with GAAP are presumed to be misleading or

inaccurate .

332 . Mirant's financial statements , as they appeared in the Company's IP O

registration statement and prospectus, earnings releases, 10-Ks and 10-Qs that th e

defendants disseminated to the investing public during the Class Period violated

the following concepts of GAAP among others noted above :

a. The concept that financial reporting should provide informationthat is useful to present and potential investors and creditors andother users in making rational investment, credit and similardecisions (FASB Statement of Financial Accounting ConceptsNo . 1) .

b. The concept that financial reporting should provide informationabout an enterprise's financial performance during a period(FASB Statement of Financial Accounting Concepts No . 1) .

c. The concept that financial reporting should be reliable in that itrepresents what it purports to represent (FASB Statement ofFinancial Accounting Concepts No . 2) .

d . The concept of completeness, which means that nothin g

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material is left out of the information that may be necessary toensure that it validly represents underlying events andconditions (FASB Statement of Financial Accounting ConceptsNo . 2) .

e. The concept that conservatism be used as a prudent reaction touncertainty to try to ensure that uncertainties and risks inherentin business situations are adequately considered (FAS BStatement of Financial Accounting Concepts No . 2) .

D. Undisclosed Adverse Information

333 . The market for Mirant securities was open, well-developed and

efficient at all relevant times . As a result of these materially false and misleadin g

statements and failures to disclose, Mirant securities traded at artificially inflate d

prices during the Class Period . The artificial inflation continued until the time

Mirant admitted that it was experiencing declining sales and these admissions were

communicated to, and/or digested by, the securities markets . Plaintiffs and other

members of the Class purchased or otherwise acquired Mirant securities relyin g

upon the integrity of the market price of Mirant securities and market informatio n

relating to Mirant, and have been damaged thereby .

334 . During the Class Period, defendants materially misled the investing

public, thereby inflating the price of Mirant securities, by publicly issuing false and

misleading statements and omitting to disclose material facts necessary to make

defendants' statements, as set forth herein, not false and misleading . These

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statements and omissions were materially false and misleading in that they failed to

disclose material adverse information and misrepresented the truth about th e

Company and its business and operations .

335 . At all relevant times, the material misrepresentations and omission s

particula rized in this Complaint directly or proximately caused or were a

substantial contributing cause of the damages sustained by Plaintiffs and othe r

members of the Class. As described herein , duri ng the Class Period , defendants

made or caused to be made a series of materially false or misleading statement s

about Mirant's business, prospects and operations . These material misstatements

and omissions had the cause and effect of creating in the market an unrealisticall y

positive assessment of Mirant and its business, prospects and operations, thu s

causing the Company's securities to be overvalued and artificially inflated at al l

relevant times . Defendants' materially false and misleading statements during th e

Class Period resulted in Plaintiffs and other members of the Class purchasing the

Company's securities at artificially inflated prices, thus causing the damage s

complained of herein .

E . Additional Scienter Allegations

336 . As alleged herein, defendants acted with scienter in that defendants

knew that the public documents and statements issued or disseminated by or in the

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name of the Company were materially false and misleading ; knew or recklessly

disregarded that such statements or documents would be issued or disseminated to

the investing public ; and knowingly and substantially participated or acquiesced in

the issuance or dissemination of such statements or documents as primary violators

of the federal securities laws. As set forth herein in detail, defendants, by virtue o f

their receipt of information reflecting the true facts regarding Mirant and it s

business practices, their control over and/or receipt of Mirant's allegedly materially

misleading misstatements and/or their associations with the Company, which made

them privy to confidential proprietary information concerning Mirant, were activ e

and culpable participants in the fraudulent scheme alleged herein . Defendant s

knew and/or recklessly disregarded the falsity and misleading nature of the

information that they caused to be disseminated to the investing public . Th e

ongoing fraudulent scheme described in this Complaint could not have been

perpetrated over a substantial period of time, as has occurred, without th e

knowledge and complicity of the personnel at the highest level of the Company ,

including the Individual Defendants .

337 . The Individual Defendants engaged in such a scheme to inflate th e

price of Mirant securities in order to : (i) protect and enhance their executive

positions and the substantial compensation and prestige they obtained thereby ; (ii)

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enhance the value of their personal holdings of Mirant common stock ; (iii) enable

the Company to complete the acquisitions of numerous power plants during the

Class Period ; (iv) facilitate further public offerings ; (v) maintain compliance wit h

various debt obligations ; and (vi) allow Company insiders to sell millions of dollar s

worth of Mirant securities before the truth was revealed . As noted in Sections VIII .

B ., supra, in insider transactions that were suspicious both in timing and amount ,

the Individual Defendants took advantage of their insider knowledge and th e

artificial increase in Mirant's stock price by selling more than $8 .2 million of their

own stock during the Class Period.

1. Enhancement of Executive Compensation

338. According to the 2001 and 2002 proxy statements, the compensation

philosophy at Mirant consists of, among other things, creating "a direct link

between the compensation payable to each executive officer and the financia l

performance . . . of Mirant" and creating "a common interest between executiv e

officers and Mirant's stockholders through the use of stock options and other stoc k

awards that link a portion of each executive officer 's compensation oppo rtunity

directly to the value of Mirant's common stock ." Mirant carried out this

philosophy by creating short-term incentives, consisting of annual bonuses, base d

primarily on corporate performance . In fact, Mirant's 2002 proxy statement stated

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that "Mirant's earnings per share, net income and return on equity were the primar y

determinants of such executive's total bonus opportunity" and "[i]ndividua l

performance was the secondary factor . . . ." Likewise, the goals set forth i n

Fuller's employment agreement are to meet and exceed net income and return on

equity targets for 2000-2002 as determined by Mirant's board of directors .

339. Mirant' s long-term incentives, as stated in the 2002 proxy statement,

took the form of equity grants consisting of Mirant stock options and Mirant

performance restricted stock units . The value of these restricted stock units were

payable in cash upon "vesting ." A portion of the units "vested" each time Mirant' s

stock price increased 20% over the trading price on the day the restricted stoc k

units were granted . This compensation scheme afforded Defendants all the benefits

of insider trading with none of the risks ; Defendants were able to sell their equit y

awards back to the Company at a locked-in high price, without having to venture

into the market and without having to report the sale . Every time the price of

Mirant stock increased by 20%, the Individual Defendants received a cash payou t

that reflected this increased stock price, clearly demonstrating that the Individua l

Defendants had the motive to take any possible measure to artificially inflate the

price of Mirant stock.

340 . According to the 2001 and 2002 proxy statements and the

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corresponding Forms 10-K, which incorporated them, for the years 2000 and 2001 ,

Fuller annually received approximately $1 .2 million in salary, $1 .5 million i n

bonuses, and $4 million in restricted stock awards . Additionally, under the

Omnibus Incentive Compensation Plan for the year ending December 31, 2001 ,

Fuller received short-term incentives of $800,000 . For the years 2000 and 2001 ,

Hill and Pershing each annually received over $700,000 in salary, $800,000 in

bonuses , and $2 million in rest ricted stock awards . Additionally, under the

Omnibus Incentive Compensation Plan, Hill and Pershing each received

approximately $300,000 in short term incentives .

341 . In insider transactions that were suspicious both in timing and amount ,

the Individual Defendants took advantage of their insider knowledge and th e

artificial increase in Mirant's stock price by selling more than $8 .2 million of their

own stock during the Class Period, as set forth in the following chart :

Fuller, S . Marce

Date # of Shares $ per Share Total $4/30/01 15,152 .00 $40.80 $618,201 .6 03/28/01 17,361 .00 $34.90 $605,898 .903/28/01 15,152 .00 $34.90 $528,804 .8 0TOTAL 47,665.00 $1,752,905 .3 0

Hill, Ra

Date I # of Shares I $ per Share I Total $ 1

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4/30/01 10,606.00 $40.8 $432,724 .803/28/01 17,246 .0 $34 .9 $601,885 .40

TOTAL 27,852 .00 $1,034,610.20

Pershing, Richard

Date # of Shares $ per Share Total $4/30/01 10,606 .0 $40 .80 $432 ,724 .804/27/01 39,356 . 0 $38 .81 $1 , 527,406 .3 6

4/27/01 34,174 . 0 $38 .82 $1 ,326,634 .683/28/01 10,606 .0 $34 .90 $370 , 149.403/28/01 6 ,640 .00 $34 .9 $231,736 .00OTAL 101 ,382.00 $3,888 ,651 .24

Ward, James A .

Date # of Shares $ per Share Total $511101 1,136 .00 $40 .8 $46,348 .80

4/30/01 3,409.0 $40.8 $139,087 .2 0

4/27/01 31,698.0 $39 .0 $1,236,222 .00

4/27/01 2,050 .00 $39 .02 $79,991 .00

3/28/01 3,409.0 $34.90 $118,974 .1 0

3/28/01 2,609.0 $34 .9 $91,054 .1 0

TOTAL 44,311 .00 $1,711,677.2 0

In addition defendant Pershing had planned additional sales during the Class

Period valued at $1 .9 million and defendant Hill had planned additional sale s

during the Class Period valued at $3 .9 million .

342. The magnitude of the Individual Defendants ' compensation packages

combined with the timing coincidence of Mirant's acquisitions, the offering s

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during the Class Period, the recording of illegal income that the Individua l

Defendants knew would later be reversed, the failure to write down assets in

accordance with FAS 121, and other improper accounting provides the unusual ,

heightened showing of motive to commit fraud . The fact that the Individual

Defendants engaged in these activities allowed them to qualify for incentive-base d

compensation, such as the restricted stock awards, valued at more than double th e

amount of their salaries, clearly demonstrates that the Individual Defendant s

possessed a considerable motive to deceive the investing public.

2. Incentive to Inflate Mirant's Stock Price to Facilitate Acquisition s

343. During the Class Period, Mirant engaged in a number of acquisition s

that were c ritical to the continued viability of the Company . According to the 200 1

10-K, net cash used in investing activities for 2001 totaled $2 .859 billion an d

included, among other things, capital expenditures in North America, the

acquisition of controlling authority over Jamaica Public Service Company Limited ,

the acquisition of controlling authority over 18 natural gas and oil producing field s

as well as 206,000 acres of mineral rights in southern Louisiana, and the

acquisition of the majority of the gas marketing business of TransCanada and th e

related natural gas transportation and storage contracts . In order to finance these

acquisitions, Mirant used its revolving credit facilities .

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344 . In one such instance, on December 19, 2000, Mirant, through its

subsidiaries , closed the asset purchase of PEPCO's generation assets in Marylan d

and Virginia . The net purchase price for this acquisition was approximately $2 .75

billion. Mirant entered into a $650 million loan agreement with Credit Suisse Firs t

Boston in September 2000 to partially finance its acquisition . In addition, Mirant

used off balance sheet financing for the operating lease relating to the PEPC O

generating assets . Mirant's press release on December 19, 2000, where Fulle r

stated that "[t]his acquisition, the largest single purchase of assets ever by [Mirant] ,

is a big step toward meeting our goal of owning or controlling 30,000 megawatts o f

capacity in the United States by 2004," clearly shows that this acquisition was

critical to the continuing viability of the Company .

345 . In order for Mirant to use the revolving credit facilities to finance th e

acquisitions critical to its business, it needed to maintain certain credit ratings that

are directly linked to Mirant's financial performance . This clearly shows that

Mirant and the Individual Defendants had the motive to take all steps to ensure tha t

the Company maintained its credit ratings , including illegally recording income

that they knew or recklessly disregarded would be reversed at a later date, failing to

write down assets in accordance with FAS 121 and engaging in other imprope r

accounting.

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3. Incentive to Inflate Mirant Stock Price to Facilitate Public OfferingsDuring the Class Period

346 . According to the 2001 10 -K, issuances of equity, convertible debt,

long term debt and net short-term debt were $4 .567 billion in 2001, a 20% increas e

over $3 .804 billion in 2000 .

347 . According to the 2001 10-K, in October 2000, Mirant completed an

initial public offering of 66 .7 million shares of common stock for a price of $22 per

share, for a total of $1 .467 billion dollars . The net proceeds of the offering, afte r

deducting underwriting discounts and commissions was approximately $1 .3 8

billion. The underwriters for this offering were Goldman, Sachs & Co .

($13,050,000), Morgan Stanley & Co ., Inc. ($13,050,000), Banc of America

Securities LLC ($5,220,000), Credit Suisse First Boston Corp . ($5,220,000), J .P.

Morgan Securities Inc . ($5,220,000), Lehman Brothers Inc . ($5,220,000), Salomon

Smith Barney ($5,220,000), AMN AMRO Inc . ($1,160,000), Blaylock & Part ners,

L.P . ($1,160,000), Chase Securities Inc . ($1,160,000), Commerzbank

Aktiengesellschaft ($ 1,160,000 ), and the Williams Capital Group, L.P.

($1,160,000) .

348. According to the 2001 10-K, in October 2000, Mirant Trust I close d

the sale of 6 .9 million convertible trust preferred securities for an initial price of

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$50 per preferred security . The net proceeds from the offering, after deductin g

underwriting discounts and commissions , was $334 million .

349. According to the 2001 10-K, in May 2001, Mirant completed th e

issuance of $750 million of convertible senior debentures bearing an annual

interest rate of 2.5% .

350 . According to the 2001 10-K, on December 26, 2001, Miran t

completed the issuance and sale of 60 million shares of common stock, par valu e

$0 .01 per share . The net proceeds, after underwriting discounts and commissions,

were approximately $759 millio n

351 . According to the Amended 10-Q for the first qua rter of 2002, in July

2002, Mirant completed the issuance of $370 million of convertible senior notes ,

with an annual interest rate of 5 .75% . The net proceeds from the offering, afte r

deducting underwriting discounts and commissions payable by Mirant, were $36 1

million .

352. The July 2002 debt offering was conducted after Mirant had bee n

downgraded by analysts . As a result, the Company was forced to offer ntoes a t

5 .75%, making the July 2002 offering more than twice as expensive to Mirant as

the May 2001 debt offering . This clearly provided Defendants with the motive t o

illegally record income, postpone the writing down of assets, and engage in other

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improper accounting to bolster their analyst ratings and make it less expensive fo r

Mirant to engage in further debt offerings .

4. Incentive to Inflate Mirant Stock Price so as to Maintain Compliance WithDebt Obligations

353 . According to the 2000 10-K, as of December 31, 2000, sources of

liquidity included the April 1999 $800 million Citibank credit facility, the June

2000 $1 .0 billion Bank of America credit facility and the August 2000 $10 0

million Wachovia letter of credit facility . Additionally, Mirant entered into a $65 0

million loan agreement with CSFB in September 2000 intended to partially financ e

its acquisition of the PEPCO assets. In total, Mirant had bank credit arrangement s

with various lending institutions totaling approximately $6.647 billion.

354. According to the 2001 10-K, Mirant and its wholly-owned subsidiary

Mirant Asia-Pacific, borrowed $192 million under a new credit facility to repay, i n

part, its prior $792 million credit facility . This credit facility contained various

business and financial covenants including, among other things, (i) limitations o n

dividends and distributions, including a prohibition on dividends if Mirant cease s

to be rated investment grade by at least two of Fitch, S&P and Moody' s, (ii)

mandatory prepayments upon the occurrence of certain events, including certai n

asset sales and certain breaches of energy conversion agreements, (iii) limitation s

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on the ability to make investments and to sell assets, (iv) limitations on transactions

with affiliates of Mirant and (v) maintenance of minimum debt service coverage

ratios .

355. According to the 2001 10-K, to the extent that Mirant Corp . does no t

maintain its current investment grade ratings, it could be required to provid e

alternative collateral to certain risk management and energy marketin g

counterparties based on the value of our portfolio at such time, in order to continu e

our current relationship with them . Mirant could also be required to provide

alternative collateral related to committed pipeline capacity charges . Such

collateral could be in the form of cash and/or letters of credit . There is an

additional risk that in the event of a further reduction of Mirant's credit rating ,

certain counterparties may, without contractual justification, request additiona l

collateral or terminate their obligations to Mirant .

356 . On December 19, 2001, Moody's lowered its rating on the Company' s

senior unsecured debt from investment grade to non-investment grade, and lowere d

its ratings on many of the Company' s subsidiaries . As a result of Moody' s

lowering its rating on Mirant's senior unsecured debt, the Company had to pos t

hundreds of millions of dollars in additional collateral in the form of cash and

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letters of credit, transfer borrowing base assets to a special purpose vehicle, pa y

increased interest costs and comply with stricter financial tests under the credi t

facilities. See, e .g., Abstract of December 20, 2001 Mirant Corporation Analys t

Conference Call .

357 . According to the 2001 10-K, each of Mirant's credit facilities contain

various covenants, including, among other things, (i) limitations on dividends ,

redemptions and repurchases of capital stock, ( ii) limitations on the incurrence of

indebtedness and liens, (iii) limitations on capital expenditures and (iv) limitation s

on the sale of assets.

358 . According to the Amended 10-Q for the first quarter of 2002 and th e

10-Q for the second quarter of 2002, each of Mirant's credit facilities contai n

various covenants including, among other things, (i) limitations on (a) dividends ,

redemptions and purchases of capital stock, (b) the incurrence of indebtedness an d

liens and (c) the sale of assets, and (ii ) affirmative covenants to (a) provide annual

audited and quarterly unaudited financial statements prepared in accordance wit h

US GAAP and (b) comply with legal requirements in the conduct of its business .

In addition to other covenants and terms, each of Mirant's credit facilities include s

minimum debt service coverage and a maximum leverage covenant .

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359 . According to the amended 10-Q for the first quarter of 2002, as a

result of Moody's, Fitch and S&P lowering their ratings in October 2002 on th e

Company' s senior unsecured debt, as of October 30, 2002, it had to pos t

approximately $150 million of new collateral in the form of cash and letters o f

credit and agreed to post approximately $90 million of additional collateral .

360. According to the 10-Q for the second quarter of 2002 , in July 2002 ,

Mirant Corporation and Mirant Americas Generation drew down most of thei r

available revolving credit commitments .

361 . According to the 10-Q for the second quarter of 2002, the Company

has used cash and letters of credit to meet the collateral requirements for its tradin g

and marketing activities . Over the next several years , it will be required to repay

bank credit facilities and capital market obligations which are significant .

5. Falsifying Financial Results to Meet Analysts' Estimate s

362. As set forth hereinabove, defendants falsified Mirant' s earnings during

the Class Period, among other reasons, to create the illusion that Mirant wa s

meeting analysts' expectations . The Individual Defendants engaged in the

fraudulent practice of "earnings management" by cooking Mirant's books in par t

because they knew its failure to meet analysts' estimates would have resulted in a

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drastic decline in the securities price, with adverse consequences for their planne d

acquisitions and secondary offerings, and their debt situation .

363 . Defendants were aware that Mirant was incurring massive debt an d

was in dire need of additional liquidity during the Class Period . It was crucial for

defendants to keep the truth regarding Mirant's false financial statements, and

Mirant' s illegal activities in California concealed from investors . Any decline in

Mirant's reported financial results would have caused a significant securities pric e

drop, and led to Mirant missing analysts' estimates .

364. As Fuller noted during an April 8, 2002 speech at the Rotary Club i n

Atlanta :

"[T]here is tremendous pressure on companies to get short-termresults. It's sad, in today's market environment, when you seecompanies miss their earnings projections by a penny or a nickel, andtheir share price plummets by several dollars . It's tough to achieveshort-term results without in any way compromising your principles . "

Fuller's comments make clear that Defendants understood that even smal l

adjustments to a company's earnings can make a large difference and that they fel t

significant pressure to make such adjustments .

365 . During a February 13, 2002 speech at CERAWeek in Houston , Texas ,

Fuller described Mirant's ethical code, referred to as the "Mirant Mindset" a set o f

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behaviors which every Mirant is held accountable to, which ensure that Miran t

employees behave "with integrity", tell the truth, and are "open and honest ." She

again emphasized the fact that "[e]very business today is under tremendou s

pressure to deliver short-term results . I'm not talking about short-terms meaning

over the next year or the next two years. I mean this quarter and next quarter and

the following quarter ."

366. In keeping with the "short-term" pressures and Mirant's stron g

motives for maintaining an inflated stock price during the Class Period, Miran t

reported overstated financial results during the Class Period in order to meet o r

exceed analyst's forecasts until the negative news regarding Mirant came to light .

For example, on October 31, 2001, Friedman, Billings and Ramsey reiterated a

"buy" rating for Mirant stock, noting that Mirant reported operating third quarter

earnings of $0 .67 per diluted share versus Friedman's estimates of $0 .51 .

Similarly, an April 26, 2002 Legg Mason report issued a "strong buy" rating for

Mirant stock based on Mirant's financial results of $0 .33, $0 .03 per share above

analysts' estimates . If Mirant had accurately reported its financial results, th e

Company would have missed estimates in virtually every quarter during the Clas s

Period .

F. Statutory Safe Harbor

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367 . The federal statutory safe harbor provided for forward-lookin g

statements under certain circumstances does not apply to any of the allegedly fals e

statements pleaded in this Complaint . Further, none of the statements pleade d

herein that were forward-looking statements were identified as "forward-lookin g

statements" when made . Nor was it stated that actual results "could differ

materially from those projected ." Nor were the forward-looking statements pleade d

accompanied by meaningful cautionary statements identifying important factors

that could cause actual results to differ materially from the statements made therein .

Defendants are liable for the forward-looking statements pleaded because, at th e

time each of those forward-looking statements was made, the speaker knew th e

forward- looking statements were false and the forward-looking statements were

authorized and/or approved by an executive officer of the Company who knew tha t

those statements were false when made.

COUNT III

For Violations Of Section 10(b) Of TheExchange Act And Rule 10b-5 Promulgated

Thereunder Against Mirant and the Individual Defendant s

368. Plaintiffs repeat and reallege the allegations set forth above as though

fully set forth herein. This claim is asserted by all Plaintiffs on behalf of the Class

against Mirant and the Individual Defendants .

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369. During the Class Period, Mirant and the Individual Defendants, and

each of them, carried out a plan, scheme and course of conduct that was intended t o

and, throughout the Class Period, did : (i) deceive the investing public, includin g

Plaintiffs and other Class members, as alleged herein ; (ii) artificially inflate and

maintain the market price of Mirant securities ; and (iii) cause Plaintiffs and other

members of the Class to purchase Mirant securities at artificially inflated prices . In

furtherance of this unlawful scheme, plan and course of conduct, Mirant and th e

Individual Defendants, and each of them, took the actions set forth herein .

370 . These defendants : (a) employed devices, schemes, and artifices t o

defraud ; (b) made untrue statements of material fact and/or omitted to state materia l

facts necessary to make the statements not misleading ; and (c) engaged in acts ,

practices and a course of business which operated as a fraud and deceit upon th e

purchasers of the Company's secu rities in an effort to maintain artificially high

market prices for Mirant securities, in violation of Section 10(b) of the Exchang e

Act and Rule I Ob-5 . These defendants are sued as primary participants in th e

wrongful and illegal conduct charged herein . The Individual Defendants are also

sued herein as controlling persons of Mirant, as alleged below .

371 . In addition to the duties of full disclosure imposed on defendants as a

result of their making of affirmative statements and reports, or participation in the

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making of affirmative statements and reports to the investing public, they each ha d

a duty promptly to disseminate truthful information that would be material t o

investors in compliance with the integrated disclosure provisions of the SEC a s

embodied in SEC Regulation S-X (17 C .F.R. § 210.01 et seq.) and S-K (17 C.F.R.

§ 229 .10 et seq.) and other SEC regulations , including accurate and truthful

information with respect to the Company's operations, financial condition an d

performance so that the market prices of the Company's publicly traded secu rities

would be based on truthful, complete and accurate information .

372. Mirant and the Individual Defendants, individually and in concert,

directly and indirectly, by the use of means or instrumentalities of interstat e

commerce and/or of the mails, engaged and participated in a continuous course o f

conduct to conceal adverse material information about the business , busines s

practices, performance, operations and future prospects of Mirant as specifie d

herein. These defendants employed devices, schemes and artifices to defraud ,

while in possession of material adverse non -public information and engaged i n

acts, practices, and a course of conduct as alleged herein in an effort to assur e

investors of Mirant's value and performance and substantial growth . This included

the making of, or the participation in the making of, untrue statements of materia l

facts and omitting to state material facts necessary in order to make the statement s

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made about Mirant and its business, operations and future prospects in the light o f

the circumstances under which they were made, not misleading , as set forth more

particularly herein, and engaging in transactions, practices and a course of busines s

that operated as a fraud and deceit upon the purchasers of Mirant securities durin g

the Class Period.

373 . Each of the Individual Defendants ' primary liability, and controlling

person liability, arises from the following facts : (i) each of the Individual

Defendants was a high-level executive at the Company during the Class Period ; (ii )

each of the Individual Defendants , by virtue of their responsibilities and activitie s

as a senior executive officer of the Company, was privy to and part icipated in the

creation, development and reporting of the Company's internal budgets, plans ,

projections and/or reports ; (iii) the Individual Defendants enjoyed significan t

personal contact and familiarity with each other and were advised of and ha d

access to other members of the Company's management team, internal reports, an d

other data and information about the Company's financial condition an d

performance at all relevant times ; and (iv) the Individual Defendants were aware o f

the Company's dissemination of information to the investing public, which the y

knew or recklessly disregarded was materially false and misleading .

374 . Mirant and the Individual Defendants had actual knowledge of th e

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misrepresentations and omissions of material facts set forth herein, or acted wit h

reckless disregard for the truth in that they failed to ascertain and to disclose such

facts, even though such facts were readily available to them . Such defendants'

material misrepresentations and/or omissions were done knowingly or recklessl y

and for the purpose and effect of concealing Mirant's operating condition, busines s

practices and future business prospects from the investing public and supportin g

the artificially inflated price of Mirant's securities . As demonstrated by thei r

overstatements and misstatements of the Company's financial condition an d

performance throughout the Class Pe riod , these Defendants , if they did not have

actual knowledge of the misrepresentations and omissions alleged , were reckless i n

failing to obtain such knowledge by deliberately refraining from taking those step s

necessary to discover whether those statements were false or misleading .

375 . As a result of the dissemination of the mate ri ally false and misleading

information and failure to disclose material facts, as set forth above, the market

price of Mirant's securities was artificially inflated during the Class Period . In

unaware of the fact that the market price of Mirant 's shares was artificially inflated ,

and relying directly or indirectly on the false and misleading statements made b y

defendants, and/or upon the integrity of the market in which the securities trade ,

and/or on the absence of material adverse information that was known to o r

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recklessly disregarded by defendants but not disclosed in public statements b y

defendants during the Class Period, Plaintiffs and the other members of the Clas s

acquired Mirant securities during the Class Period at artificially inflated prices an d

were damaged thereby .

376. At the time of said misrepresentations and omissions , Plaintiffs and

other members of the Class were unaware of their falsity, and believed them to b e

true. Had Plaintiffs and the other members of the Class and the marketplace know n

of the true performance, business practices, future prospects and intrinsic value o f

Mirant, which were not disclosed by defendants, Plaintiffs and other members o f

the Class would not have purchased or otherwise acquired their Mirant securitie s

during the Class Period, or, if they had acquired such securities during the Clas s

Period, they would not have done so at the artificially inflated prices that they paid .

377 . By virtue of the foregoing , Mirant and the Individual Defendants eac h

violated Section 10(b) of the Exchange Act and Rule I Ob-5 promulgated

thereunder .

378. Asa direct and proximate result of defendants' wrongful conduct ,

Plaintiffs and the other members of the Class suffered damages in connection wit h

their purchases of the Company's securities during the Class Period .

COUNT IV

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For Violations Of Section 20(a) Of Th eExchange Act Against the Individual Defendants and Southern Compan y

379. Plaintiffs repeat and reallege the allegations set forth above as if se t

forth fully herein . This claim is asserted by all Plaintiffs on behalf of the Clas s

against the Individual Defendants and Southern Company .

380. The Individual Defendants and Southern Company were and acted as

controlling persons of Mirant within the meaning of Section 20(a) of the Exchang e

Act as alleged herein. By virtue of their high-level positions with the Company ,

participation in and/or awareness of the Company's operations and/or intimate

knowledge of the Company's actual performance, the Individual Defendants an d

Southern Company had the power to influence and control and did influence an d

control, directly or indirectly, the decision-making of the Company, including the

content and dissemination of the various statements that Plaintiffs contend are fals e

and misleading . Each of the Individual Defendants and Southern Company were

provided with or had unlimited access to copies of the Company's reports, press

releases, public filings and other statements alleged by Plaintiffs to be misleading

prior to and/or shortly after these statements were issued and had the ability t o

prevent the issuance of the statements or cause the statements to be corrected .

381 . In addition, each of the Individual Defendants and Southern Compan y

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had direct involvement in the day-to-day operations of the Company and, therefore ,

is presumed to have had the power to control or influence the particula r

transactions giving rise to the securities violations as alleged herein, and exercise d

the same.

382 . As set forth above, Mirant and the Individual Defendants each

violated Section 10(b) and Rule I Ob-5 by their acts and omissions as alleged in thi s

Complaint . By virtue of their controlling positions, the Individual Defendants and

Southern Company are liable pursuant to Section 20(a) of the Exchange Act . As a

direct and proximate result of Defendants' wrongful conduct, Plaintiffs and othe r

members of the Class suffered damages in connection with their purchases of th e

Company's securities during the Class Period .

IX. PRAYER FOR RELIE F

WHEREFORE, Plaintiffs, on their own behalf and on behalf of the Class ,

pray for judgment as follows :

(i) Declaring this action to be a class action pursuant to Rule 23(a) and

(b)(3) of the Federal Rules of Civil Procedure on behalf of the Class define d

herein ;

(ii) Awarding Plaintiffs and the other members of the Class damages in an

amount which may be proven at trial , together with interest thereon ;

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(iii) Awarding Plaintiffs and the members of the Class pre judgment an d

post judgment interest, as well as their reasonable attorneys' and experts' witnes s

fees and other costs; and

(iv) Such other relief as this Court deems appropriate .

X. JURY DEMAN D

Plaintiffs demand a trial by jury .

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Respectfully submitted this 25r" day of November, 2002 .

CHITWOOD & HARLEY

By 7/ ~/Edward H. Nichols , J .Georgia Bar No. 5 3 0David A. BainGeorgia Bar No. 032449William Thomas Lacy, Jr .Georgia Bar No. 431032Meryl W . Edelstei nGeorgia Bar No . 2389191230 Peachtree Street, N .E.2300 Promenade ItAtlanta , GA 3030 9Tel : (404) 873-3900Fax: (404) 876-4476

MILBERG WEISS BERSHADHYNES & LERACH LLPKenneth J . VianaleMaya Saxena5355 Town Center Road, Suite 900Boca Raton , FL 33486Tel: (561) 361-5000Fax : (561 ) 367-8400

Steven G . SchulmanSamuel H . RudmanOne Pennsylvania PlazaNew York, NY 10119Tel : (212) 594-5300Fax: (212) 868-1229

and

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Helen J . HodgesJames I. JaconetteAlexandra S . Bernay401 B Street, Suite 1700San Diego, CA 92101-4297Tel: (619) 231-1058Fax : (619) 231-742 3

Co-Lead Counsel for Plaintiffs

WECHSLER HARWOOD LLPRobert I . HarwoodMatthew Houston488 Madison Avenue, 8th FloorNew York, NY 10022Tel : (212) 935-7400Fax : (212) 753-363 0

LAW OFFICES OF LAWRENCEG. SOICHERLawrence G . Soicher305 Madison Avenue, 46th FloorNew York, NY 10165Tel : (212) 883-8000Fax: (212) 697-087 7

LAW OFFICES OF CHARLES J .PIVEN, P.A.Charles J . Piven401 E. Pratt Street, Suite 2525Baltimore , MD 21203Tel: (410) 332-0030Fax : (410) 685-1300

SCHATZ & NOBEL, P .C .Andrew M. Schatz

Jeffrey S . NobelNancy Julesa330 Main StreetHartford, CT 06106-1851Tel : (860) 493-629 2Fax : (860) 493-6292

LOCKRIDGE GRINDALNAUEN P.L.L.P.Richard A. LockridgeKaren M. Hanson100 Washington Avenue SouthSuite 2200Minneapolis, MN 55401Tel : (612) 339-6900Fax : (612) 339-098 1

BERNSTEIN LIEBHARD& LIFSHITZ, LLPGregory M. Egleston10 East 40th stree tNew York , New York 10016Tel : (212) 779-141 4Fax: (212 ) 779-321 8

Attorneys for Plaintiffs

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CERTIFICATE OF SERVICE

This is to certify that I have served a true and correct copy of the within an d

foregoing "Consolidated Amended Class Action Complaint" via hand delivery at th e

following address :

Counsel for Defendants Mirant. Fuller,Hill, Pershing, and Ward :

Todd R. DavidJessica P. CorleyAlston & Bird LLPOne Atlantic Center1201 West Peachtree StreetAtlanta, GA 30309

This 25" day of November, 2002 .

David A. BainGeorgia Bar No. 032449

CHITWOOD & HARLEY2300 Promenade I I1230 Peachtree Street, NEAtlanta , GA 30309Telephone : (404) 873-3900Facsimile : (404) 876-4476


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