Enron Verdicts to Help Civil Claimants
The conviction of former Enron Corp. executives Jeffrey K. Skilling and Kenneth L. Lay will help former company employees, shareholders and other creditors reach settlements to recoup more of their losses, legal experts said Friday.
But with so many groups seeking funds after the energy giant’s collapse, actual payouts could be years away and probably will amount to pennies on the dollar, they said.
Lawyers representing several groups of creditors already have reached agreement with the company and its officers and financial backers. Negotiations continue in an effort to resolve claims on behalf of other creditors in advance of a scheduled October trial date in Houston.
Now that a Houston jury has found the two former top executives guilty of conspiracy and fraud, the remaining civil claims probably will be more quickly resolved, either through additional settlements or at trial.
“Houston juries won’t have trouble perceiving that Enron was a complete fraud,” said William S. Lerach, lead lawyer for Enron investors in their claims against the company and financial institutions. “The criminal verdicts will have a strong psychological effect.”
“It’s generally a lot easier to win a civil case once you have a finding of fact,” said Bryant Garth, dean of Southwestern Law School. The standard of proof is lower, he said -- namely, a preponderance of evidence as compared with the more stringent criminal standard requiring jurors to find guilt beyond a reasonable doubt.
But “the corpse has been picked pretty clean,” said Lynn Stout, a UCLA law professor, “and it wasn’t much of a corpse to begin with.”
“The real value of the lawsuits and prosecutions,” she said, “is not so much to help the investors who lost, but the hope that it will deter future Enrons.”
Last week, a federal judge gave final approval to a $6.6-billion civil settlement by Canadian Imperial Bank of Commerce, JPMorgan Chase & Co. and Citigroup Inc., accused by Enron shareholders of aiding the company’s financial misdeeds. Earlier agreements with other banks and financial firms, including Lehman Bros. Holdings Inc. and Bank of America Corp., bring the total shareholder settlement pool to $7.2 billion.
Still pending, Lerach said, are shareholder claims against nine other financial institutions.
“They can either settle or face the music,” he said, referring to the trial slated to start Oct. 16 before U.S. District Judge Melinda Harmon in Houston.
Lerach said payouts to claimants would begin after final settlements or at the conclusion of any trial and subsequent appeal, adding, “I’m hoping that money is distributed next year.”
But those payouts could be substantially lower than shareholders’ losses, which Lerach estimated at $40 billion.
Another group pressing claims includes more than 15,000 former employees who saw their retirement savings of close to $2 billion evaporate when the company imploded in 2001.
“A lot of the participants had everything in company stock,” said Ron Kilgard, a Phoenix lawyer whose firm is representing the employees. “Many had close to $1 million in retirement and lost it all,” he said.
Kilgard said settlements totaling $262 million had been reached with all the defendants in this employee class action except Skilling and Lay. Those defendants include the corporation itself, Northern Trust Co. and other fiduciaries of Enron’s retirement plans.
“In view of the verdict,” he said, “we’re pretty optimistic we’ll be putting a deal together with [Skilling and Lay] soon.”
Skilling and Lay also are named in other pending civil claims, but the prospect is bleak that employees or any other creditors will actually collect money from them.
With their once-massive fortunes largely dissipated, Skilling and Lay now owe millions of dollars in fines for their crimes on top of hefty tax bills.
If there’s anything left, UCLA’s Stout said, the law accords lawyers a high priority among creditors. And each man still owes millions of dollars in legal bills.
“They’re always the first at the corpse,” she said of the lawyers.
