U.S. Sues Enron, Former Officers
The Labor Department sued Enron Corp. and former executives and directors Thursday, alleging they violated pension laws and hurt Enron employees by mismanaging retirement plans full of overpriced company stock.
In the civil lawsuit, the government is seeking to recover hundreds of millions of dollars in retirement money that employees lost when the energy-trading company careened toward bankruptcy protection in late 2001 and the stock collapsed. The employees were not told about the company’s deteriorating finances and were blocked for a time from selling the declining Enron stock in their retirement accounts.
It was the government’s first legal action against Enron former Chairman Kenneth L. Lay and former Chief Executive Jeffrey K. Skilling. The highest-ranking Enron executive charged to date is former Chief Financial Officer Andrew S. Fastow, who faces nearly 100 criminal charges including fraud, money laundering, conspiracy and obstruction of justice. Fastow has pleaded not guilty and is free on $5-million bond as he awaits trial.
“Enron employees had a right to expect that their retirement savings would be managed with prudence and without destructive conflicts of interest,” Labor Secretary Elaine Chao said. “Today we seek to vindicate that right.”
More than 20,700 participants in Enron’s 401(k) plan had nearly two-thirds of their assets invested in company stock. Private suits filed on behalf of the employees allege that they lost more than $1 billion.
The suit, filed in federal court in Houston, seeks to have the defendants barred from any future positions of responsibility as trustees of pension funds and, in some instances, seeks financial damages from them.
It also names Enron’s former directors, who include Wendy Gramm, former head of the Commodity Futures Trading Commission and wife of former Texas Republican Sen. Phil Gramm.
The specific allegation against the company’s outside directors is that they failed to appoint a trustee to manage the Enron stock held by the employee stock ownership plan, which was separate from the company’s 401(k) plans.
The allegation was disputed by Neil Eggleston, a Washington attorney representing the outside directors. The board did appoint Northern Trust Co. as trustee in August 1999, and it was later replaced by another bank, he said.
An Enron spokeswoman declined to comment on the suit. “We are continuing to cooperate fully with all investigations,” she said. Calls to spokesmen for Lay and Skilling were not returned.
Chao said that Lay “went so far as to tout the stock as a good investment for his own employees -- even after he had been warned that a wave of accounting scandals was about to engulf the corporation.”
Separately, Merrill Lynch & Co. and former WorldCom Inc. Chief Executive Bernard J. Ebbers are being sued by employees of the long-distance company whose retirement savings were devastated when WorldCom’s stock collapsed last year.
