CalPERS Is Urged to Challenge Enron
A state senator has encouraged the managers of California’s public employee retirement fund to challenge, perhaps with a lawsuit, the management of Enron Corp., the high-flying energy company whose stock has plummeted more than 80% in the last year.
The California Public Employee Retirement System, the nation’s biggest public pension fund, owns roughly 3 million shares of Enron common stock. Enron shares, once valued at nearly $85, fell $1.91 Thursday to $11.99 on the New York Stock Exchange.
Sen. Steve Peace (D-El Cajon) urged management of CalPERS to deal aggressively with the Houston-based company, which is being investigated by the Securities and Exchange Commission for a potential conflict of interest by its former chief financial officer.
Investors have begun complaining of a paucity of information released by Enron about its financial transactions, and the stock has fallen dramatically in response. On Thursday, a major credit agency, Standard & Poor’s, lowered its ratings on Enron, dealing the company another financial blow.
“It is clear that the events surrounding Enron have created a serious lack of confidence in the judgment of Enron’s management team,” Peace wrote Tuesday in a letter to CalPERS Chief Executive James E. Burton. “It is, therefore, incumbent on CalPERS, as trustee of public employees’ ownership rights and as founder of the corporate governance movement, to improve Enron’s corporate governance to increase share value.”
In an interview, Peace said CalPERS should consider a shareholder lawsuit or join with other shareholders to force out Enron’s management. CalPERS provides retirement and health benefits to more than 1.2 million state and local public employees and their families.
Enron officials did not respond to a request for comment on Peace’s letter. CalPERS officials said they were considering the letter.
Peace has clashed repeatedly with Enron since the early 1990s, when the company was trying to influence the utility regulators and lawmakers forging a plan to turn California’s regulated electricity industry into a competitive market. Peace chaired the legislative committee that crafted deregulation legislation.
“Enron wants a market where consumers have limited knowledge, and they want to operate their business where stockholders have the most limited information possible,” Peace said in an interview.
Once a natural gas pipeline company, Enron has grown into the world’s largest energy trader.
Besides owning Enron stock, CalPERS has joined with the firm to invest in energy development.
In 1993, CalPERS and Enron each contributed $250 million to an investment fund guided by Enron. When CalPERS ended the partnership in 1997 and sold its position to Enron, it earned $125 million, a 23% return, a CalPERS spokesman said. They teamed up again in 1998, with each putting up $500 million for energy industry investments. Enron tapped $150 million of CalPERS’ money before CalPERS’ commitment to the partnership expired.