File photo by Sam Hodgson
The Utility Consumers’ Action Network has announced its intent to dissolve, saying it faced an "imminent threat to its ability to carry on," due in part to legal threats by members of its own staff. It’s made its name scrutinizing SDG&E.
Since its 1983 founding, the Utility Consumers’ Action Network has successfully sued and advocated on behalf of San Diegans who pay water, sewer, phone and electricity bills. It has repeatedly fought San Diego Gas & Electric over its rates and successfully sued the city over its sewer rates.
Now the organization and its leader, Michael Shames, find their own finances under the type of scrutiny they’ve more often given than received.
UCAN took the drastic step of beginning the process to unwind its very existence this week, a move that would leave San Diego without one of its most influential watchdogs. UCAN filed its intent to dissolve in San Diego Superior Court, saying in papers that it faced an “imminent threat to its ability to carry on,” due in part to legal threats by members of its own staff. Still, it insisted the organization would remain viable, despite the major crisis it clearly faces.
The move comes a week after an FBI agent subpoenaed UCAN’s internal records and nearly a year after two employees alleged that UCAN had embezzled money, awarded illegal bonuses, set up suspicious bank accounts and failed to properly audit its books. The organization says it has investigated those complaints and found them unsubstantiated.
The FBI has asked for years of UCAN records, seeking Shames’ salary, bonuses and travel reimbursements, according to a copy of a subpoena reviewed by voiceofsandiego.org. An FBI agent also requested documents detailing any money UCAN received for a documentary about China and all internal audits and financial reviews. UCAN pledged to cooperate fully with the federal investigation.
UCAN’s announcement Wednesday that it had filed to dissolve was hardly even an announcement. The organization simply posted a press release on its site and let people find it. The title: “Press Advisory.” The author: Anonymous.
Even more unusual: The organization described its filing as a ruse designed to get former city attorney Mike Aguirre to publicly allege what he had privately alleged for months on behalf of whistleblowers.
According to a complaint from a whistleblower, staff attorney David Peffer, UCAN received $1 million from an American steel company to fund production of a documentary film under the direction of Peter Navarro, a former UC San Diego economist whose latest book is called “Death By China: Confronting the Dragon.” Peffer’s complaint alleges that the money was laundered through UCAN for tax purposes and to disguise the documentary’s funding source. His complaint says UCAN received little benefit from funding the film, only the promise of a DVD copy and a producer credit.
Peffer and Charles Langley, another UCAN employee, say they took their concerns about the organization’s finances to board members and were promised a full investigation and auditing of the nonprofit’s books. “Rather than addressing them with a legitimate investigation, they covered them up,” Peffer said.
Among their allegations:
• That Shames benefited from an unlawful bonus scheme that paid him 10 percent of any money received from intervening in cases before the California Public Utilities Commission. They say he shouldn’t have been able to benefit directly.
A copy of an internal report by an attorney UCAN hired says that Shames was paid bonuses of between $87,000 and $101,000 a year between 2008 and 2010, constituting roughly half his salary. The report, a copy of which was obtained by voiceofsandiego.org, said such bonuses were legal but recommended conducting a formal compensation study for Shames.
• That UCAN had several bank accounts listed under “Utility Comsumers Action Network.” The report recommended closing the accounts and shifting the money to the organization’s main account. Peffer said he had no evidence of illegal activity but believed the accounts were suspicious and should be fully audited.
• That in 2006 Shames invested $1 million of UCAN’s money in a hedge fund called Red Rock Capital, which subsequently dropped in value by $232,000. Shames said that UCAN’s board had made the decision because it wanted more aggressive returns. “When I didn’t see it was doing well I closed it,” he said.
One issue raised has been substantiated: UCAN didn’t report Shames’ salary in annual reports to the IRS. Shames said that was a mistake made by the organization’s former accountant and has been corrected.
Kendall Squires, the chairman of UCAN’s board, didn’t respond to a request for comment. In a statement posted on its website, UCAN said it had hired attorneys and accountants who’d “determined that there was little merit to any of the criticisms. However, these extensive efforts appear to have heightened, rather than reduced, their fervor for litigation.”
If a judge allows the dissolution process to advance, it would give the court broad jurisdiction over UCAN’s future. According to UCAN’s filing, the court could fill board vacancies and remove directors. Most importantly, it would require anyone with a claim against the organization to file it.
UCAN said it hoped dissolution would allow it to resolve lawsuit threats and emerge with “a new public interest entity to continue UCAN’s tradition of watchdogging local utilities.”
Mike Aguirre, the attorney who represents Peffer and Langley, said he doesn’t currently plan to sue UCAN but will oppose its dissolution. UCAN can again be a strong consumer advocate, he said. Peffer declined to comment on what the grounds for a lawsuit might be.
“We never filed a lawsuit, we never went public,” Aguirre said. “We’ve been trying to work with them behind the scenes to get them to clean up and investigate what the whistleblowers were telling them — instead of covering it up.”
Shames described the case as a “terror campaign” by Aguirre and said the dissolution filing was primarily made to force his accusations into the light. UCAN may or may not follow through with dissolution, Shames said.
“That’s why the dissolution process works so well,” he said. “It forces him to do that. And if he chooses not to file a complaint, then he will be exposed to the public for what he is. And if he files the complaints, we’ll have something tangible we can address.”
Though he has said he plans to step down as UCAN’s executive director after a major case against San Diego Gas & Electric is finished, Shames said Wednesday that he will continue working as a watchdog.
“The process is a long process that does not always result in a dissolution of a company,” he said. “How it plays out is how it plays out. For that time and longer, I will be still be doing what I’m doing.”
Rob Davis is a senior reporter at voiceofsandiego.org. You can contact him directly at email@example.com or 619.325.0529.
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