Ex-Westar exec defends merger plan at trial

? Former Westar Energy Inc. executive Douglas Lake retook the witness stand Wednesday to defend the company’s ill-fated split-and-merger plan.

Lake, a former Westar executive vice president, and former Westar Chief Executive David Wittig are accused in federal court of trying to loot the state’s largest electric utility. Each faces 40 counts and a minimum of 10 years in prison if convicted.

The government alleges Wittig and Lake conspired to merge Westar’s utility operations with Public Service Co. of New Mexico and split off Westar’s nonregulated assets into a new company, Westar Industries.

Prosecutors are trying to prove Wittig and Lake would have saddled the utility with all the debt, taken new positions and substantial ownership in Westar Industries and reaped millions in payments from change-in-control provisions in their employment contracts.

Lake has maintained that the deal would have been good for shareholders. But on cross-examination Wednesday, Assistant U.S. Atty. Richard Hathaway read sections of a document detailing the Kansas Corporation Commission’s rejection of the deal that called into question the plan’s benefit to ratepayers.

“You didn’t think it was appropriate for the KCC to stop and take action on behalf of ratepayers and the state of Kansas that would have deprived you of millions of dollars?” Hathaway asked.

“I didn’t think the deal should have been balked,” Lake replied.

Hathaway also focused on Project X, an effort in 2001 by Westar to uncover leaks to the media and check the backgrounds of reporters, employees and regulators.

Lake said executives at Westar were concerned that negative press would cause morale problems and endanger the pending deal with Public Service New Mexico.

“Did you ever consider that it was you and Mr. Wittig that were causing morale problems?” Hathaway asked.

“I didn’t think it was me,” Lake replied.

Wednesday was Lake’s fourth day on the witness stand. Under direct examination Wednesday morning, Lake testified that it was not wrong that he double-dipped on dividend payments in a 2002 share exchange involving Westar restricted share units (RSUs). RSUs are incentives provided to employees that pay dividends like stock, although they do not become official shares until they are sufficiently vested.

The controversy came from a share exchange in which Lake and Wittig exchanged RSUs in Westar for shares of Guardian International Inc., a subsidiary. Wittig and Lake received dividend payments on both shares for the second quarter of 2002.

The government believes the double-dipping was a plot to increase Wittig and Lake’s income. In a federal indictment, the government alleges Wittig received more than $193,943 and Lake received more than $99,214 from the maneuver.