State Rep. Burnam Demands Leininger Investigation

Last week, the Employee's Retirement System for the state of Texas, lost millions of dollars when stock of Kinetics Concepts, Inc. took a nosedive. The company is owned by James Leininger, the right wing contributor to many Texas fundie campaigns. Why did the ERS invest in such a volatile company? That's what State Representative Lon Burnam [District 90] would like to know, and he is asking Attorney General Abbott to investigate the matter. Following, is most of the letter Burnam sent to Abbott:

The Honorable Greg Abbott
Texas Attorney General
300 W. 15th Street
Austin, Texas 78701

Dear General Abbott:

I am writing to ask that you immediately launch an investigation into the peculiar circumstances surrounding the Texas Employee's Retirement System [ERS'] purchase of 80,000 shares of stock in Kinetic Concepts, Inc., [stock symbol KCI] , a medical device company founded and owned by James Leininger. Last week, a San Antonio jury ruled against Leininger's KCI in a high-profile patent infringement lawsuit. As a result, the stock lost over 40% of its value last friday, August 4.

Texas employees and retirees are faced with a seven-figure loss while Mr. Leininger has lined his pockets with nearly $100 million from selling off KCI stock. Mr. Leininger cashed out at the top while Texas employees and retirees lost millions. This is wrong. You need to immediately determine if Texas employees and retirees were the victims of a massive pump and dump scheme, and what role [if any] ERS board member, Bill Ceverha, played in this multi-million dollar loss.

According to his own ethics filings, Ceverha is a paid lobbyist of Leininger's Texans for Educational Excellence.

After Mr. Leininger took KCI public, and sold millions of dollars worth of shares, ERS initiated a substantial position in KCI. On June 18, 2005, shortly after KCI went public, ERS purchased 15,000 shares of KCI at $58.94 per share. The purchase cleared on June 21, 2005. On July 26, 2005, ERS purchased another 15,000 shares at $59.93 per share. The purchase cleared on July 29, 2005. Due to the pending patent litigation, which was public information at the time of these purchases, the stock tumbled soon thereafter.

Despite the stock dropping precipitiously, ERS doubled down and substantially increased their position in KCI, buying an additional 50,000 shares of KCI at $35.12 on October 28, 2005. The purchase cleared on November 2, 2005. Last week, the market reacted to KCI losing its patent infringement lawsuit by knocking the stock down 40%, to less than $25.00 per share.

...as I mentioned earlier, ERS board member Bill Ceverha is a paid lobbyist for a Leininger funded entity called Texans for Educational Excellence. Mr. Ceverha's lobby registration forms for the past three years show this. This raises numerous questions which I believe you need to investigate. For instance, why did ERS take such a big position in a stock owned and controlled by a man for whom one of ERS' board members lobbies?....

As you know, Mr. Ceverha is no stranger to legal controversy. A state district judge found the lobbyist and treasurer for Tom DeLay's TRMPAC liable for breaking state election law. He was ordered to pay a six-figure judgement for his role in hiding illegal political contributions. More recently, Mr. Ceverha has been in the news after trying to hide a $100,000 gift from Bob Perry. Is Mr. Ceverha hiding anything with regard to ERS' ill-advised purchase of 80,000 shares in a company founded and owned by one of his lobby clients?

Texans deserve to know what role Mr. Ceverha played in this purchase that has resulted in a seven-figure loss for Texas employees and retirees. Did Mr. Ceverha ever suggest to the small cap manager at ERS that KCI would be a good investment? What conversations or communications did Mr. Ceverha have with anyone in the investments department regarding ERS' purchase of 80,000 shares of Mr. Leininger's company? These questions need to be thoroughly investigated so state employees and retirees have a full understanding regarding why they lost so much in these transactions....Why would ERS put millions of dollars into such a risky company that just happened to be founded by a Republican kingmaker?

Given the peculiar circumstances surrounding ERS' risky purchase of 80,000 shares of KCI, I hope that you will immediately launch an investigation. Mr. Leininger built his wealth by cashing out of KCI stock at the top. Unfortunately, given the jury verdict against KCI last week, Texas employees and retirees lost money at a time when pensions - and pensioners - are already suffering.

I call on you to immediately determine if the Texas employees and retirees were the victims of a massive pump and dump scheme, and the degree to which ERS board member Bill Ceverha is responsible for this massive loss.

Sincerely,

Lon Burnam
State Representative
District 90