10 Enron Ex-Directors to Pay $13 Million to Settle Suit by UC and Other Investors
Ten former Enron Corp. directors will pony up $13 million out of their own pockets to help settle a shareholder lawsuit by the University of California and other investor groups, officials said Friday.
Enron’s insurance company will pay $155 million to the groups, including the Washington State Investor Board, the San Francisco City and County Employees’ Retirement System and the Archdiocese of Milwaukee.
The $168-million deal by the former Enron directors was announced two days after 10 former board members of WorldCom Inc. (now MCI Inc.) agreed to personally pay $18 million to settle an investor lawsuit triggered by that company’s collapse.
Together, these settlements point to “a watershed that, hopefully, will raise the level of oversight provided by corporate boards,” said Mercer Bullard, a securities law professor at University of Mississippi.
Enron and WorldCom plunged into bankruptcy amid two of the most notorious corporate scandals in modern U.S. history. Many legal experts think personal payouts by board members will continue to be reserved for such exceptional cases.
Even so, Bullard said the settlements put corporate directors on notice that they had “an affirmative obligation to investigate” when allegations of corporate misdeeds are brought to their attention.
The settlement, which must be approved by a federal judge in Houston, requires personal payments from 10 of 18 former Enron directors. Among them are Wendy Gramm, wife of former U.S. Sen. Phil Gramm of Texas, and Robert Jaedicke, former dean of Stanford University Graduate School of Business, UC’s Office of the President said in a statement. It did not specify the amounts each would pay.
Eight other directors are participating in the settlement but are not personally paying, UC said.
Former Enron executives who have been charged with criminal wrongdoing, including former Chairman Kenneth L. Lay and former Chief Executive Jeffrey K. Skilling, are not included.
The agreement is the fourth in a continuing legal action against parties accused of abetting Enron’s fraud, including Bank of America Corp. and Lehman Bros. Holdings Inc. Those efforts have recovered $500 million to date.
“This is a further significant step toward what we hope will be a substantial recovery for investors who are victims of the Enron fraud,” said UC General Counsel James E. Holst. “It is especially significant that these outside directors were made to disgorge some of their insider trading proceeds.”
The settlement also “sends a signal to corporate directors that they cannot just accept the privilege and benefits of being on a board without also accepting the responsibilities,” said William Lerach, lead counsel for the UC-led class-action suit.
Other former directors who will contribute to the settlement are Robert Belfer, Norman Blake, Ronnie Chan, John Duncan, Joe Foy, Charles LeMaistre, Rebecca Mark-Jusbasche and Ken Harrison, UC said.
