The purpose of this page and related pages is to provide information to CMS Energy Corporation shareholders and prospective shareholders.  I will add pages of interest as appropriate.  On this page I have included my presentation that was distributed at the 2004 Shareholders' Meeting.  It is my position that the current CEO and all those members of the Board of Directors that served on the Board in May, 2002 and prior should resign.  Furthermore, I believe that those responsible for the "round-trip" trading scandal should be prosecuted to the fullest extent of the law.  

Other CMS Energy pages:

Board of Director votes for the years 2001, 2002, 2003 and 2004

Investment Decisions

Bay Harbor

Bay Harbor Company, L.L.C. Ownership

Bay Harbor history of property ownership

CMS stock prices and selected Press Release highlights-August 1999-July 2004

Following is my handout that was distributed at the 2004 Annual Shareholders' Meeting.

Tom DeWard

25806 Glover Court

Farmington Hills, MI 48335

Email address: mdw-tdw@ic.net

Website:  www.excessivephonerates.com

Presentation at the 2004 CMS Energy Corporation Annual Meeting of Shareholders on May 28, 2004.  

Position:  All Board of Directors members, including Mr. Whipple, who served on the BOD prior to May, 2002 should resign.  

• The BOD knew or should have known of the existence and cover up of $5.2 billion in "round-trip" trades. 
• The BOD approved of the many failed foreign and domestic investments.
• The BOD approved the payment of millions of dollars in termination payments to those directly or indirectly responsible for the "round-trip" trades and failed investments.
• The BOD should have been aware of the serious financial condition the Company was in; however, the BOD continued to approve dividend payments that could not be justified given the level of earnings and cash flow.
• On February 4, 2002, the Company in a Press Release stated in part:  "CMS Energy also today reaffirmed its outlook of $2.00 to $2.05 per share for net operating earnings in 2002, excluding uncertain impacts related to recent developments in Argentina."
• CMS falsely reported in a Press Release that "ongoing" earnings in 2002 were $1.53 per share.  These earnings included those of Panhandle Eastern Pipeline Company ("Panhandle").  A definitive agreement had been reached to sell Panhandle prior to December 31,2002.  The auditors had properly reported the earnings of Panhandle as part of discontinued operations. The pre-tax write-off of goodwill of Panhandle of $601 million was reported as discontinued operations. In 2003, when comparing 2003 "ongoing" earnings to 2002, CMS removed the earnings of Panhandle for comparative purposes.  CMS defines "ongoing" earnings as: "Ongoing (non-Generally Accepted Accounting Principles) earnings provide a key measure of the Company's present operating financial performance, unaffected by discontinued operations, asset sales or other items detailed in the attached summary financial statements."
• Faced with a financial crisis, CMS sold its most profitable domestic subsidiary, Panhandle.  In 2002, Panhandle earned $68 million from continuing operations.  That's after interest charges and income taxes.  While CMS heralds the fact that it reduced debt by $1.1 billion in 2003, that was equal to the Panhandle debt.  All of the interest on that debt was covered by the earnings of Panhandle.
• CMS reported false information, including price and volume information concerning natural gas transactions to reporting firms and was fined $16 million by the Commodities Futures Trading Commission.
• In August 2003, 8,800,000 units of outstanding 7.25 percent Premium Equity Participating Security Units (CMS Energy Trust III) were converted to 16,643,440 newly issued shares of CMS Energy Common Stock.  Although significantly diluting outstanding shares, CMS never issued a Press Release. 
• The BOD approved significant bonuses and awards to current officers as reported in this year's Proxy Statement. 

Background

Prior to the revelation of the "round-trip" trading scandal, CMS Energy Corporation ("CMS' or the "Company") was in serious financial condition.  The debt load was excessive.    In an attempt to become a global power, CMS invested in many foreign ventures that failed.  CMS attempted to become a major player in the energy trading field.  CMS was paying a dividend that was not justified given the financial condition. 

Round-trip trades

Beginning in 2000, CMS Marketing, Services and Trading Company ("MS&T") began to make energy trades that had no economic justification.  These trades have now become known as "round-trip" trades.  CMS issued false Press Releases describing the trades as low margin trades when in fact there were no margins.   The Company admits that $5.2 billion of these trades were made in 2000 and 2001. 

I encourage everyone to review the website links below to review the findings and actions taken by the SEC in regards to the "round-trip" trading scandal. 

http://www.sec.gov/litigation/litreleases/lr18628.htm

"U.S. Securities and Exchange Commission

Litigation Release No. 18628 / March 18, 2004

SEC Issues a Cease-and-Desist Order and Files Securities Fraud Case for Round-Trip Energy Trades Involving CMS Energy Corporation

Securities and Exchange Commission v. Preston Hopper and Tamela Pallas"

http://www.sec.gov/litigation/admin/33-8403.htm

"UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION

SECURITIES ACT OF 1933
Release No. 8403 / March 17, 2004

SECURITIES EXCHANGE ACT OF 1934
Release No. 49432 / March 17, 2004

ACCOUNTING AND AUDITING ENFORCEMENT
Release No. 1978 / March 17, 2004

Administrative Proceeding
File No. 3-11436

The Securities and Exchange Commission ("Commission") deems it appropriate that cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 8A of the Securities Act of 1933 (the "Securities Act") and Section 21C of the Securities Exchange Act of 1934 (the "Exchange Act") against CMS Energy Corp. ("CMS") and Terry Woolley ("Woolley") (collectively, "Respondents")."

The existence nor magnitude of the "round-trip" trades was not revealed to the public on a timely basis.  

The Board of Directors either implicitly or explicitly sanctioned these trades.  I find no mention of these trades in the 2001 CMS Energy Annual Report.  These trades was known to management and presumably the BOD well before the Wall Street Journal article appeared in May, 2002 and yet the "disclosure" was questionable at best.  

In the SEC Form 10-k for the year ended December 31, 2001, the following obscure reference was made in the footnotes to the financial statements: 

"2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS

RECLASSIFICATIONS: During 2001, CMS Energy entered into several energy

trading contracts with counterparties. The impact of these transactions increased operating revenue with a corresponding increase in operating expenses. During the fourth quarter of 2001, it was determined that under SFAS No. 133 and related interpretations, these transactions should have been recorded on a net basis. First, second and third quarter operating revenue and operating expenses have been restated from the amounts previously reported to reflect these transactions on a net basis. There was no impact on previously reported consolidated net income." 

In another section of the financial statements entitled QUARTERLY FINANCIAL AND COMMON STOCK INFORMATION, CMS included the following reference: 

(a)  First, second and third quarters of 2001 have been restated to reflect certain transactions on a net basis. See Note 2, Summary of Significant Accounting Policies and Other Matters, "Reclassifications." 

Note there was no mention or attempt to restate the 2000 financial statement information that included $ 1 billion of "round-trip" trades.  

Apparently, the BOD, or at least the Audit Committee of the BOD, concurred with what I will call a cover up.  Here's some quotes from the Audit Committee Report that was part of the Proxy issued in 2002: 

"CMS' and Consumers' audit activities are directed by committees composed entirely of independent outside directors. The Committees are responsible for overseeing the preparation of external financial reports, the adequacy of internal audit controls, the audit process, the independence and performance of the independent auditors, and compliance with legal and regulatory requirements. 

We have reviewed and discussed with management CMS' and Consumers' audited financial statements as of and for the year ended December 31, 2001. 

Based on the reviews and discussions referred to above, we recommended to the Board of Directors that the financial statements referred to above be included in the Company's Annual Report on Form 10-K for the year ended December 31, 2001. 

Submitted as of February 22, 2002 by the Audit Committee: William U. Parfet (Chair), John M. Deutch, James J. Duderstadt, Percy A. Pierre, and John B. Yasinsky." 

The Audit Committee findings and recommendations were questionable at best. 

Here's part of a June 11, 2002 Press Release: 

"DEARBORN, Mich., Jun 11, 2002 /PRNewswire-FirstCall via COMTEX/ -- CMS Energy Corporation (NYSE: CMS) today announced that it has received formal notification from Arthur Andersen LLP (Andersen) that Andersen has ended its relationship with CMS Energy and its affiliates. CMS Energy had previously announced that it would no longer use Andersen for its independent audit work, and would engage Ernst & Young LLP as independent auditors for the year ending December 31, 2002.

Following CMS Energy's announcement that it would restate its financial statements for 2000 and 2001 to eliminate the effects of round trip energy trades and form a special committee of its board of directors to investigate these trades, Andersen notified CMS that due to the investigation, Andersen's historical opinions on CMS' financials for the periods being restated cannot be relied upon. Andersen has also notified CMS Energy that due to Andersen's current situation and the uncertain timing of the work of the special committee, Andersen will be unable to give an opinion on CMS' restated financial statements when they are completed."

Arthur Andersen LLP had issued opinions on both the 2000 and 2001 statements.  The Audit Committee had met with and discussed the financial statements with the auditors.  Then "…Andersen notified CMS that due to the investigation, Andersen's historical opinions on CMS' financials for the periods being restated cannot be relied upon."  According to the Proxy dated April 22, 2003:  "Additionally, the aggregate fees billed by Ernst and Young, LLP for services rendered for the audit of the restated CMS financial statements for the years 2000 and 2001 were $10,852,320." 

Why wasn't any action taken against Arthur Andersen? Was the Board of Directors duped or were they part of the cover up?  

In a March 13, 2002 Press Release, CMS stated its annual sales were $13 billion.  A previous PR stated sales were $14 billion.  Without explanation on April 11, 2002, CMS stated annual sales were $10 billion.  

On May 9, 2002, CMS issued a Press Release: 

"CMS Energy Issues Clarification Statement on Energy Trades With Dynegy

Contrast the "disclosure" in the financial statements with the CMS Press Release on May 15, 2002:  

"CMS Energy decided after the third quarter of 2001 that not recording these trades in either revenue or expense was a more appropriate representation of the nature of these transactions. Therefore, no revenue or expense was recorded in its financial statements in the fourth quarter of 2001 from such trades. Revenue and expense were re-stated for the first three quarters of 2001 to eliminate $3.4 billion of previously reported revenue and expense. The Company's Annual Report on Form 10-K for 2001, issued in March, reflects only $5 million revenue and expense from such trades, which was inadvertently included. For 2000, these trades represented $1.0 billion of revenue and expense. The trades had no effect on the Company's earnings, cash flow or balance sheet for 2001 or 2000." 

Of course, that statement and full disclosure should have been made when the "round-trip" trades were first discovered.  

Here's what the SEC said in part in its announcement on March 17, 2004: 

"The SEC finds in its Order that the massive round-trip trades conducted by CMS's trading subsidiary in 2000 and 2001, artificially increased CMS revenues and trading volumes. Between the third quarter of 2000 and the third quarter of 2001, CMS cited its artificially inflated revenue and trading volume in its filings with the SEC, press releases, earnings conference calls and investor presentations. By reflecting the results of the trades, CMS overstated its revenue by a total of $5.2 billion over five quarters: $1.0 billion, or 20%, for the last two quarters of 2000; and $4.2 billion, or 36%, for the first three quarters of 2001. CMS also overstated its trading subsidiary's reported energy-trading volume by 78% over the last two quarters of 2000 and 72% over the first three quarters of 2001." 

In the 2002 CMS Energy Annual Report, Mr. Whipple stated in part:

         "Next, I'll cover the sad chapter on so-called round-trip trading."

"Last May, I formed a special committee of outside Directors to make sure we had all the facts on the table.  No significant new information was discovered, and there was no indication of motives other than to pump up the marketing credentials of the Marketing, Services and Trading business by showing higher sales volumes.  We have shared the results with the Securities and Exchange Commission and other agencies and have taken the appropriate personnel disciplinary actions." 

  One has to question what is meant by appropriate disciplinary actions. 

  One employee was not terminated until the SEC actions in March, 2004.

 Lucrative termination contracts were given to Mr. McCormick, Mr. Wright and Ms. Pallas.  Mr. Wright agreed: "to release any and all claims which the Employee may have against the Company".   One has to wonder if that is just typical legal language or if Mr. Wright did have valid claims against the Company.  Perhaps, the Company was concerned that Mr. Wright would implicate others, including members of the Board of Directors, in the cover up. 

  Ms. Pallas was paid $2,028,000.

Mr. Wright was paid $1,650,000.

Mr. McCormick was paid as follows: The Executive shall continue to be employed with the Company in a consultant capacity until June 1, 2004, at the Executive's existing salary of $1,110,000.00 per year, less state, federal, FICA and other applicable withholding and authorized deductions. Executive's remaining salary from June 1 to December 31 for the year 2002 shall be paid in full, along with his standard bonus of 80% of salary or $888,000.00, upon the effective date of this Agreement. Executive's salary for the full year 2003 shall be paid in full on January 2, 2003 along with an additional bonus of $888,000.00. Executive's salary from January 1, 2004 to June 1, 2004 shall be paid in full on January 2, 2004. Until June 1, 2004, Executive shall receive all benefits set forth on Schedule 1, hereto, to the extent they are offered to any employees of the Company. 

CMS initiated an internal investigation of the "round-trip" trades.  Not surprising, the Special Committee of the BOD " found no apparent effort to manipulate the price of CMS Energy stock or affect energy prices." 

Here's part of the Press Release announcing the findings: 

"CMS Energy Board Announces Completion of Special Committee's Round-Trip Trading Investigation; Company Announces Price Index Reporting Review

DEARBORN, Mich., Nov 4, 2002 /PRNewswire-FirstCall via COMTEX/ -- CMS Energy (NYSE: CMS) announced today the completion of the work of a Board of Directors special committee established to investigate round-trip trading at CMS Marketing, Services and Trading. The special committee reported its findings and recommendations to the Board of Directors on Thursday and the board approved the recommendations of the committee and its independent outside counsel.

The facts previously reported by the Company about round-trip trading at the Houston-based subsidiary are essentially consistent with the findings of the special committee. The special committee also concluded, based on an extensive investigation, that the round-trip trades were undertaken to raise CMS Marketing, Services and Trading's profile as an energy marketer with the goal of enhancing its ability to market its services. The committee found no apparent effort to manipulate the price of CMS Energy stock or affect energy prices.

CMS Energy noted that the Securities and Exchange Commission, U.S. Department of Justice, the Commodity Futures Trading Commission, and the Federal Energy Regulatory Commission are investigating round-trip trading. CMS Energy said it would continue to cooperate with these investigations.

Ken Whipple, chairman and chief executive officer of CMS Energy, said: "Round-trip trading by CMS Marketing, Services and Trading was an ill- considered, inappropriate marketing practice that is unacceptable. We have already taken a number of steps recommended by the special committee to prevent any reoccurrence of this practice, including the termination of speculative trading and revisions to CMS Energy's risk management policy. CMS Energy will rapidly implement the remaining recommendations of the special committee."" 

Given the questionable conclusions reached by the Special Investigative Committee, and the subsequent findings of the SEC, I believe the full report should be released.  I'm sure those who purchased stock in 2000, 2001 and through May, 2002 would be interested on how the Committee concluded that overstating sales by $5.2 billion was not an apparent effort to "manipulate the price of CMS Energy stock or affect energy prices."

  Conclusion  

Perhaps you will reach a different conclusion than I have after analyzing the above information.  My conclusion is the Board of Directors implicitly or explicitly sanctioned the actions that negatively impacted the value of CMS stock.  It's time for a change. 

Following are some quotes regarding termination contracts, SEC findings and Press Releases: 

  Termination Contracts: 

Pallas:

Re:  Acknowledgement of Resignation

CMS shall pay to you, in 24 equal installments on the 15th and the last day of each calendar month commencing May 31, 2002, a severance payment equal to $2,028,000, less state, federal, FICA and other applicable withholding and authorized deductions."

Wright

RESIGNATION AND GENERAL RELEASE AGREEMENT

This RESIGNATION AND GENERAL RELEASE AGREEMENT ("Agreement"), made as of the 7th day of August 2002, pursuant to Michigan law, by and between Alan M. Wright (the "Employee"), an individual, and CMS Energy Corporation (the "Company"), a Michigan corporation, is a resignation agreement, which includes a general release of claims.

WHEREAS, the Employee has offered to resign from employment with the Company, to release any and all claims which the Employee may have against the Company, and to comply with other covenants set forth in this Agreement, in return for a separation allowance and other consideration.

After August 1, 2002, the Company shall pay to Employee a separation allowance (which includes his current annual salary of $500,000.00 per year as an employee from August 1, 2002 through July 31, 2003) in the total amount of $1,650,000.00, less state, federal, FICA and other applicable withholding taxes and authorized deductions.

  McCormick  

EMPLOYMENT, SEPARATION AND GENERAL RELEASE AGREEMENT

This EMPLOYMENT, SEPARATION AND GENERAL RELEASE AGREEMENT ("Agreement"), made effective as of June 10, 2002, pursuant to Michigan law, by and between WILLIAM T. MCCORMICK, JR., (the "Executive"), an individual, and CMS ENERGY CORPORATION (the "Company"), a Michigan corporation, is a resignation agreement which includes a general release of claims. 

WHEREAS, the Executive has offered to resign from employment with the Company and from the Company's Board of Directors, to provide consultative services to the Company, to cooperate with the Company in investigations and lawsuits, to not compete with the Company and to release any and all claims which the Executive may have against the Company in return for the benefits and other consideration contained in this Agreement.

The Executive shall continue to be employed with the Company in a consultant capacity until June 1, 2004, at the Executive's existing salary of $1,110,000.00 per year, less state, federal, FICA and other applicable withholding and authorized deductions. Executive's remaining salary from June 1 to December 31 for the year 2002 shall be paid in full, along with his standard bonus of 80% of salary or $888,000.00, upon the effective date of this Agreement. Executive's salary for the full year 2003 shall be paid in full on January 2, 2003 along with an additional bonus of $888,000.00. Executive's salary from January 1, 2004 to June 1, 2004 shall be paid in full on January 2, 2004. Until June 1, 2004, Executive shall receive all benefits set forth on Schedule 1, hereto, to the extent they are offered to any employees of the Company.

  SEC findings:  

CMS and One Former Executive agree to Cease-and-Desist Orders; other two Executives Charged in Civil Lawsuit

FOR IMMEDIATE RELEASE
2004-38

Washington, D.C., March 17, 2004

The SEC also filed a civil suit today against Preston D. Hopper, CMS's former chief accounting officer, and Tamela C. Pallas, former chief executive of CMS Houston-based trading subsidiary, for fraud and other securities law violations. The complaint alleges that Pallas orchestrated the sham transactions to simulate robust operations within CMS's marketing and trading subsidiary, and Hopper failed to ensure disclosure of the true nature of the trades. The complaint further charges that Hopper sponsored improper accounting for the sham transactions and that, when CMS's outside auditors forced CMS to reverse the reporting of the round-trip trade revenue, Hopper fraudulently failed to disclose the reasons for the reversal. The Commission is seeking in its civil suit against Hopper and Pallas, among other things, civil money penalties and court orders barring them from serving as officers or directors of public companies.

The SEC finds in its Order that the massive round-trip trades conducted by CMS's trading subsidiary in 2000 and 2001, artificially increased CMS revenues and trading volumes. Between the third quarter of 2000 and the third quarter of 2001, CMS cited its artificially inflated revenue and trading volume in its filings with the SEC, press releases, earnings conference calls and investor presentations. By reflecting the results of the trades, CMS overstated its revenue by a total of $5.2 billion over five quarters: $1.0 billion, or 20%, for the last two quarters of 2000; and $4.2 billion, or 36%, for the first three quarters of 2001. CMS also overstated its trading subsidiary's reported energy-trading volume by 78% over the last two quarters of 2000 and 72% over the first three quarters of 2001. 

Press Release re sale of Panhandle:  

CMS Energy Reaches Major Financial Goal With Sale Of CMS Panhandle Companies to Southern Union

  Press Release on 2001 earnings and outlook for 2002:  

DEARBORN, Mich., Feb 4, 2002 /PRNewswire-FirstCall via COMTEX/ -- CMS Energy Corporation (NYSE: CMS) today announced 2001 net operating earnings of $1.41 per share or $185 million, compared to 2000 net operating earnings of $2.21 per share or $246 million. Consolidated reported net income for 2001 was a loss of $545 million, or $4.17 loss per share, compared to reported net income of $36 million, or $0.32 per share, in 2000. Reconciling items excluded from net operating earnings reduced earnings by $730 million, $613 million of which were previously recorded in the third quarter of 2001. These items included the effects of loss contracts ($212 million), reduced asset valuations ($249 million), asset sales ($37 million), discontinued operations ($185 million), early debt retirement ($18 million), Argentina-related charge ($18 million) and the cumulative effect of a change in accounting for purchased power options ($11 million). Items that were excluded from 2000 net operating earnings reduced earnings by $210 million.  

CMS Energy also today reaffirmed its outlook of $2.00 to $2.05 per share for net operating earnings in 2002, excluding uncertain impacts related to recent developments in Argentina. "The year 2001 entailed significant financial and strategic restructuring of the Company resulting in disappointing earnings, but it also greatly improved the focus of the Company and positioned it for future growth," said CMS Energy Chairman and Chief Executive Officer William T. McCormick, Jr. "Most notably, with the sale in January of CMS Energy's assets in Equatorial Guinea for approximately $1 billion, we have reduced the Company's debt to capitalization from approximately 71 percent debt at year-end to approximately 66 percent currently, consistent with our plan to achieve less than 60 percent debt by year-end," said Mr. McCormick.   

Disclosure:  I have made every attempt to accurately quote public documents.  Hopefully, I have included quotation marks as appropriate.  In some cases, I have used only sections from documents.  If anyone would be interested in viewing the complete document, please feel free to contact me. 

Tom DeWard

May 26, 2004