Suit alleges Cheniere execs got unapproved stock awards

HOUSTON – Investors are taking Cheniere Energy’s top brass to court over billions of dollars in stock awards the plaintiffs claim shareholders didn’t approve, in a suit that prompted postponement of the Houston company’s annual meeting for months.

The shareholders, led by investor James Jones, said in a lawsuit filed last week that Cheniere’s board compensation committee approved “excessive, improper” stock awards for CEO Charif Souki and a handful of high-ranking officials.

They are trying to wrestle 25 million shares – worth $1.7 billion on Tuesday – from the executives, alleging the company miscounted shareholder votes last year on a vote to nearly triple its 2011 compensation plan, which had landed Souki $57 million in 2012. Souki made $141 million in total pay last year, and five other executives were paid a combined $130 million over 2012 and 2013.

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According to the lawsuit, Cheniere failed to count abstention votes tallied in February 2013 as “no” votes, as the suit alleges is required by law, and “falsely claimed the vote passed with a majority vote.” Last year, there were 77 million shareholder votes in favor of nearly tripling the 2011 compensation plan, 57.9 million votes against it, and 36 million abstentions.

Company officials were not available Wednesday to comment on the lawsuit, which was filed in Delaware where the company is incorporated.

Chris Crawford, chief operating officer for Houston executive compensation adviser Longnecker & Associates, said the shareholders are suing for a lot of stock, but that the executives received large stock awards.

Cheniere is working on groundbreaking liquefied natural gas projects in southwestern Louisiana, Crawford noted,  and private equity firms are likely seeking out Cheniere’s top talent to start new companies. But 25 million shares is still a lot to hand out to executives before the project is finished, he said.

“It seems odd to me that they’re halfway through and they’re paying some really big money out ahead of it,” Crawford said. “If we were advisers on the deal, we’d say give them a little now but keep the handcuffs on until it’s done.”

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In 2011, shareholders had widely approved a plan to pay out 10 million shares to Cheniere’s executives, who had the previous year won approval from the Department of Energy to export liquefied natural gas to countries that have free trade agreements with the United States. Two years later, regulators cleared Cheniere  to ship liquefied gas to non-free trade countries, a much larger market that includes like China and other big LNG buyers .

The company is building a natural gas liquefaction and export terminal at the site of an existing LNG import facility in Cameron Parish, La.

Since the beginning of 2010, Cheniere’s stock price has grown twentyfold and its market value has risen to $15.17 billion. The company has never made a profit — it lost $508 million last year — but it is slated to be the first company to export abundant shale gas from the United States, starting next year.

The bulk of the Cheniere executives’ compensation came from restricted stock awards that, for Souki, amounted to $175.8 million in 2012 and 2013, and for five other executives, a combined $111.9 million over the same two years.

“While these awards were excessive when made, this Complaint does not allege that they were wasteful simply because they were extraordinary and, in large part, unprecedented,” the shareholders say in the lawsuit. “Instead, this Complaint alleges that most of these awards should never have been granted because the majority of Cheniere’s stockholders did not approve the increases to the 2011 Plan share reserve that supposedly support them.”

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More than 17.1 million shares should not have been awarded, the shareholders claimed.

The shareholders said the executives must void the 2013 vote and “disgorge all compensation distributed as a result of this improper share increase.”

Cheniere’s annual shareholder meeting had been scheduled for next week, but will be delayed until Sept. 11, the company said Tuesday in regulatory filings with the U.S. Securities and Exchange Commission.

Crawford of Longnecker said he can’t recall another company delaying its annual meeting because of litigation around executive compensation. Most firms, he said, will usually go ahead with a stockholder meeting even if shareholders complain about inadequate disclosures or other issues.

“If I’m reading between the tea leaves right, they’re buying a little time to figure out the right position,” he said.

Cheniere shares were down $2.14 at 65.81 in midday trading Wednesday on the New York Stock Exchange.


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