The new year will ring in with no end in sight to a nearly $100 million lawsuit that claims former Kansas University Chancellor Gene Budig was among those responsible for misleading Westar Energy investors.

Also named in the lawsuit is Frank Becker of Lawrence, a past chairman of the Kansas Board of Regents and current chairman of the Kansas University Endowment Association.

Both men resigned in early May from the Westar board of directors after scandal rocked the company. In November 2002, then-Westar CEO David Wittig and his banker were indicted by a federal grand jury on fraud charges. Wittig resigned from Westar 15 days later.

“Statements were made by certain Westar officials that caused the company’s stock to become artificially inflated, and certain individuals — the plaintiffs in this case — bought shares in the company, assuming those statements to be true,” said Christopher Joseph, a partner in a law firm with offices in Topeka and Wichita that together with a New York law firm, Schoengold & Sporn, is representing the plaintiffs in the case.

“Because of those untrue statements, investors suffered an undue loss,” Joseph said.

Slow movement

The lawsuit was filed in July in U.S. District Court in Topeka, but there has been little activity yet in the case apart from procedural filings by the squads of attorneys involved with it. The plaintiffs are the American Radio Association Pension Fund and Local 812 International Brotherhood of Teamsters Pension Fund. The judge is Julie A. Robinson.

Among the allegations is that Budig, Becker and the other directors intentionally failed to disclose a $267,000 short-term bonus given Wittig in February 2002. That claim was buttressed by a Westar investigation report ordered by Wittig’s successor.

Defendants named in the lawsuit include former Westar executives Wittig, Doug Lake, Paul Geist, Carl Koupal, Richard Terrill; former board members John Dicus, Budig and Becker; and current board member John Nettles.

Deception all around

Lawyers representing Nettles, Dicus, Becker and Budig filed a motion in October, asking the court to dismiss the case.

In the motion, Kansas City, Mo., attorney Daniel Young argued that board members, too, were deceived by Wittig and other executives.

Parties to the case have for the most part declined public comment outside the court filings.

Budig and Becker have previously declined to comment about the problems at Westar. Their attorneys did not return phone calls Tuesday seeking comment.

Wittig’s attorney, David Marcus, has filed a separate motion for dismissal, arguing that Wittig’s behavior was hardly as scandalous as the plaintiffs claimed and fell far short of securities fraud.

KU ties to board

After Wittig’s departure from the company, Westar made public the results of a company investigation of what had gone wrong.

“A common observation heard in our investigation was that in recent years the board has seemed disproportionately represented by directors who share common memberships and interests in organizations associated with the University of Kansas,” the report stated. “We recommend that the future composition of the board reflect greater diversity.”

In the last months of Wittig’s tenure, six of eight Westar board directors had KU ties:

• Wittig graduated from KU in 1977 with a business degree. He also was a trustee of the KU Endowment Association.
• Budig was a former KU chancellor and Endowment Association trustee emeritus.
• Becker was a 1958 KU graduate, chairman of the Endowment Association’s board of trustees and a member of its executive committee.
• Nettels earned a KU law degree in 1985. He roomed with Wittig at a KU fraternity when the men were undergraduates.
• R.A. Edwards earned undergraduate and graduate degrees in business at KU. He also served on the Endowment Association’s executive committee.
• Dicus graduated from KU with a business degree in 1955 and was a member of the Endowment Association’s executive committee.

Thursday, the Kansas Corporation Commission withdrew the deadlines for testimony in its review of Westar’s cash management practices and corporate governance reforms, effectively putting the review on indefinite hold.

Fraud or not?

Earlier this month, federal prosecutors filed a 40-count indictment against Wittig and Lake, accusing them of using their positions to “systematically” loot the company.

In the indictment, prosecutors noted that Wittig spent $6.5 million refurbishing the second-floor executive offices at the company’s headquarters in downtown Topeka. Renovations included construction of a gourmet kitchen and dining area, a 1,000-square-foot office for Wittig that included a large, private bathroom, shower and dressing room, and a built-in entertainment center that cost $29,000.

In his motion, Marcus argued that while Wittig’s buying “a few antique lamps — even if they are stationed in the ‘grand entryway'” of his office, may have rubbed investors the wrong way, it did not constitute securities fraud.

The indictment also accuses Wittig and Lake of misleading and circumventing the company’s board of directors.

Joseph has until Jan. 30 to file responses to the motions to dismiss the civil lawsuit brought by the pension funds.