UC gets settlement from Energy Company over stock fall

The University of California will get a half-billion dollar settlement from Dynegy over the company's precipitous stock drop:

The University of California, acting on behalf of scores of investors, announced a $468 million settlement Friday with Texas energy merchant Dynegy Inc. over the company's stock plunge.

The settlement represents the latest agreement between UC and various corporations, executives, accountants and investment bankers that the university has sued since the era of corporate scandals began in late 2001. UC has been designated as lead plaintiff in several high-profile cases, including a suit against Enron Corp., giving it broad authority to negotiate settlements. UC has obtained nearly a half-billion dollars in settlements with Enron defendants.

UC lost $112 million investing in Dynegy, a once-mighty energy firm whose stock went south after the revelation in spring 2002 of a questionable scheme to inflate the company's cash flow via a natural gas deal called Project Alpha. Since then Dynegy's shares have fallen from around $30 to less than $4. Dynegy stock closed Friday at $3.56, down 14 cents for the day.

Trey Davis, a spokesman for UC, said it isn't yet known how much of the $468 million will go to UC and how much will go to other investors.

What doesn't make sense, however, is that investing in stock represents taking a risk. While UC will see its losses covered, current investors will pay the price to reimburse them. Small investors seem particularly vulnerable to scenarios where institutional investors sue in cases like this.