UC Says It Lost Millions on Enron Investment
The University of California said Friday that it lost nearly $145 million investing in failed energy trader Enron Corp. The admission came as the university system joined a class-action suit filed in Houston federal court against 29 senior executives of Enron and its auditing firm, Arthur Andersen.
The university is one of at least three large state organizations to have lost millions of dollars in the demise of Enron, based in Houston. CalPERS, the state public employees retirement system, said it has lost $45 million in Enron shares. The California State Teachers Retirement owned 2 million shares of Enron but has not disclosed its loss.
Enron’s shares traded as high as $90.75 in recent years but closed Friday at 53 cents on the New York Stock Exchange, battered by the collapse of its financial structure and by credit problems.
The university claimed in the lawsuit that it was duped by a “massive insider trading” scheme in which the company and the Andersen accounting firm issued false financial statements and made “false and misleading statements about the company’s purportedly record results and strong operating performance.”
Enron officials could not be reached for comment.
The Securities and Exchange Commission and Congress are investigating the actions of Enron’s top executives and its auditing firm. The company faces dozens of shareholder lawsuits and a Justice Department criminal investigation. In November, Enron conceded that the profit it had reported to shareholders and government regulators over the last four years was overstated by 20%, or $586 million.
Nearly two-thirds of the university’s lost investment--$94 million--came out of the system’s pension plan. The rest, about $50 million, came out of endowment accounts, UC spokesman Charles McFadden said.
However, UC sought to reassure employees and retirees that the losses would not be devastating. University officials said the $145-million loss amounts to three-tenths of 1% of the university’s $54-billion total investment pool.
“The alleged financial fraud losses from the retirement plan’s Enron position in no way affect the ability of the retirement plan, which is in a strong over-funded position, to meet its obligations to the beneficiaries,” David H. Russ, treasurer to the UC Board of Regents, said in a statement.
The university also defended its decision to invest in Enron, one of the companies California energy officials charged with gouging the state when energy prices spiked a year ago. UC said in a statement that it relied on Enron statements that later proved to be misleading.
The suit seeks to have the defendants repay $1.1 billion to shareholders.
The suit also asks the court to name the UC system as a lead plaintiff, which would let the university participate in the management and oversight of the litigation.