FBI searches official’s home in Southwest Gas merger probe

David Strow

Wednesday, Nov. 24, 1999 | 11:12 a.m.

The FBI on Tuesday searched the home of a key figure in the regulatory scandal that is stalling the proposed merger of Las Vegas-based Southwest Gas Corp. and Oklahoma natural gas company ONEOK Inc.

The FBI and the U.S. attorney's office today said a search warrant was executed on the Phoenix home of Jack Rose, former executive secretary of the Arizona Corporation Commission.

Neither office could confirm the purpose of the search.

But the search appears to be tied to a federal criminal investigation of claims that Rose used his former position as an Arizona regulator to promote the Southwest-ONEOK merger for his personal financial gain and to the detriment of another company vying to buy Southwest Gas.

"The FBI did conduct a search on his residence," said FBI spokesman Kenneth Hancock, who said the FBI is continuing its investigation into Rose's involvement in the Southwest Gas-ONEOK merger.

The search warrant, issued by federal Magistrate Lawrence Anderson in Arizona, authorizes FBI agents to seize "any and all documents and evidence" about Rose's dealings with the merger between Southwest Gas and ONEOK. The FBI was authorized to seize documents going back as far as September 1998, while Rose was still working for the ACC.

Following the rejection of its $1.88 billion counterbid for Southwest Gas, Texas-based Southern Union Co. sued Southwest Gas, ONEOK, Rose and Arizona Commissioner Jim Irvin in Arizona federal court, alleging the defendants had schemed to use the regulatory process to thwart Southern Union's rival offer. This lawsuit apparently triggered the investigations by the FBI, the U.S. Attorney's Office in Phoenix and the Maricopa County District Attorney in Phoenix.

ONEOK's bid was $1.8 billion, or about $3.50 per share less than the offer by Southern Union. But Southwest Gas' board argued that regulatory uncertainties associated with Southern Union, combined with ONEOK's stronger financial backing, made the ONEOK offer superior.

ONEOK and Southwest Gas have denied the allegations of wrongdoing leveled by Southern Union.

Rose, who resigned his position at the ACC in December 1998, was accused by Southern Union of working with Irvin in attempts to turn Nevada and California regulators against Southern Union's offer and toward ONEOK.

Documents released during the discovery process, and previously reported on by the Las Vegas Sun, show that Rose began working for Prudential Securities in March 1999 and that he had been attempting to win a financial underwriting contract from ONEOK linked to the Southwest acquisition. But several regulators -- backing up Southern Union claims of wrongdoing and deceit -- have testified Rose was introduced to them as a representative of the ACC while he was working for Prudential.

In its Tuesday search, the FBI seized all documents relating to Rose's travel between Phoenix and nine cities. The cities include San Francisco, home of the California Public Utilities Commission; Las Vegas, home of Southwest Gas; Carson City, home of the Nevada Public Utilities Commission; Tulsa, home of ONEOK; and New York, home of Prudential.

The FBI also seized all contracts and agreements involving Jack Rose and Irvin, Prudential, ONEOK or Southwest Gas. The FBI was searching specifically for contracts between Rose and Southwest Gas CEO Michael Maffie, Southwest Gas General Counsel Thomas Hartley, Southwest Vice President Ed Zub, ONEOK Chairman Larry Brummett, Kansas Gas Service President Eugene Dubay, and ONEOK CFO Jim Kneale.

Kansas Gas is a ONEOK subsidiary. Dubay has been designated as the new chief of Southwest Gas once the planned merger is completed.

The FBI was also authorized to seize all financial documents relating to business dealings between Rose, Irvin, Prudential, ONEOK and Southwest Gas. Further, the FBI seized all telephone records relating to conversations Rose may have had with Irvin, Prudential, ONEOK or Southwest Gas.

Hancock also said that FBI served a warrant on the office of current ACC Executive Secretary Brian McNeill, but wouldn't say what was seized. A report in the Arizona Daily Star identified the seized property as McNeill's computer, and said the FBI was looking for documents Rose may have stored on it while still an employee of the ACC.