A Larchmont man who alleges he was fired from KeySpan after attempting to expose $200 million in tax and pension fraud has filed a federal lawsuit against National Grid and KeySpan, charging the scheme left ratepayers with the bill for an exorbitant executive pay package.
In a suit filed in federal court June 5, Francis Fanning, 74, alleges that former Long Island Lighting Co., chief executive William Catacosinos "took at least $200 million that was intended to be applied to shortfalls in retiree benefit plans" of LILCO workers.
LIPA in December said it reached a $263.5 million settlement with National Grid for pension and other retirement benefits for former utility workers after years of disavowing the obligations.
Fanning, previously director of accounting research and manager of financial reporting for KeySpan, alleges the $200 million "money grab" by Catacosinos was carried out through a series of concealed transactions and hidden in trusts following the merger of LILCO and Brooklyn Union Gas in 1998.
At the time, revelations of a purported $42 million golden parachute for Catacosinos stirred outrage among politicians and ratepayers. The former LILCO boss was investigated but never charged with wrongdoing.
"I've suffered damages. I was put out, embarrassed, mocked," Fanning said Tuesday. He would not specify the amount he is seeking in damages.
Fanning, who says he was "terminated" from KeySpan in 2002, charges that former KeySpan chief Robert Catell was "blackmailed" into complying with the "tax, accounting and securities fraud over the years to cover the original crime." National Grid spokeswoman Karen Young said, "We are aware of the lawsuit but because this is pending litigation we can't comment further at this time."
Catell and LIPA declined to comment; Catacosinos didn't respond to requests for comment.
Fanning's allegations of financial fraud were first aired in a federal lawsuit by Robert Mahony, a former KeySpan spokesman who was fired in 2003 in retaliation for bringing Fanning's allegations to light, Mahony's suit charged. Mahony reached an undisclosed settlement in his lawsuit against KeySpan, shortly before the company was sold to National Grid in 2007.
The companies have previously denied claims in Fanning's suit. Fanning has previously reported his claims to federal, state and local authorities, but none has investigated or found wrongdoing.
Fanning has provided documents to Newsday showing his attempts to bring his claims to light, including memos to his former bosses.
In one Fanning memo dated Oct 14, 1999, he recommended restating KeySpan financial results because of LIPA's refusal to recognize the payment of pension benefits to former LILCO employees.
"Clearly we have an accounting exposure," he wrote, "if not for the entire $285 million, then at least for the portion that is recoverable beyond the eight-year term of the LIPA contract."
In a May 2001 memo to then-KeySpan president and chief operating officer, Robert Fani, Fanning made reference to the "very tenuous balance sheet receivable from LIPA
"LIPA has no corresponding payable on their audited balance sheet," Fanning wrote.
LIPA in December reached a $263.5 million settlement with National Grid over the pension issue.
In interviews, Fanning said the liability, which will be recovered through rates, should not have been transferred to LIPA.
"It is definitely KeySpan's problem because the liability was always reflected on their books and included in all actuarial valuations," Fanning said last year.
LIPA had previously argued it had no intention of paying the liability.
A memo from then-LIPA controller Kenneth Kane included with court documents in the Mahony case asserted that LIPA believed its obligation to KeySpan for the pension liability was "zero."