A court-appointed expert looking into the bankruptcy of a subsidiary of the power company Dynegy said in a report released Friday that company leaders had made fraudulent transfers of funds before the bankruptcy filing.
"Over the spring and summer of 2011, Dynegy devised and implemented a plan to move assets away from the reach of Dynegy Holdings's unsecured creditors in order to encourage, for lack of a better word, such creditors to accept less than full payment and at the same time permit a recovery for stockholders," the expert said.
The expert pointed out that if some of these transfers respected at least the letter of the law, one of the transactions involving Coal Investments Dynegy Holdings was more questionable.
Creditors had challenged the legality of the transaction, noting that the parent company had recovered assets but not liabilities in the transaction involving the coal company.
The expert agreed with them, saying that "the conveyance of CoalCo to Dynegy Inc. was an actual fraudulent transfer and ... breach of fiduciary duty by the board of directors of Dynegy Holdings."
In a statement, Dynegy's board of directors said Friday it was taking these findings "seriously" and will study their impact on the bankruptcy proceedings.
Dynegy stock dropped 35.6 percent, to 76 cents a share, following the release of the expert report.