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Enron workers win $86 million settlement in pension suits

By Jef Feeley
Bloomberg News

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Under the accord, disclosed in court papers yesterday, a dozen ex-Enron board members and a former executive have agreed to turn over $85 million in insurance coverage and pay a total of more than $1.5 million individually in a partial settlement of suits alleging fund stock losses in 2001, when Enron filed for bankruptcy.

The losses came after Enron disclosed it had hidden billions of dollars in debt in off-the-books partnerships.

"We settled this part of the case to get some money for victims of this massive fraud now rather than forcing them to wait for the outcome of the bankruptcy case," said Lynn Sarko, a Seattle lawyer representing former and current workers of Enron, which is reorganizing under court supervision.

The accord is conditioned on the willingness of insurers to hand over the $85 million, said Sarko, who is with Keller Rohrback.

The insurers issued policies covering directors' liability for certain conduct. Not all directors who were sued are covered by the settlement, Sarko said.

"If they refuse, the deal is off," he said.

In their suits, Enron workers accused the company's leaders of encouraging them to buy company stock for their 401(k) accounts while executives sold off millions of dollars of shares. The funds held 25 million Enron shares.

The accord also resolves a Labor Department lawsuit over Enron directors' failure to protect workers from pension-fund losses, but it doesn't resolve claims against Enron or its former top two executives, Kenneth Lay or Jeffrey Skilling, Sarko said.

The agreement also doesn't settle claims against Northern Trust, a trustee for the pension plans, or Arthur Andersen, Enron's former auditor, Sarko added.

As part of the settlement, former Enron directors Robert Belfer, Norman Blake Jr., Ronnie Chan, John Duncan, Wendy Gramm, Robert Jaedicke, Charles LeMaistre, John Mendelsohn, Paulo Ferraz Pereira, Frank Savage, John Wakeham and Herbert Winokur have agreed to pay a total of $1.5 million out of their own pockets to compensate Enron workers for 401(k) and other pension-fund losses, Sarko said.
 
Savage is a director of Bloomberg News' parent company.

The Labor Department mandated a minimum $66.5 million be returned to the depleted Enron 401(k) and worker stock-ownership plans. Also, up to $300,000 of the directors' $1.5 million settlement with the Labor Department would be paid as a penalty.

In addition, the directors — including Gramm, former head of the Commodity Futures Trading Commission and wife of ex-Sen. Phil Gramm, R-Texas — would be barred for five years from acting as trustees of any federally regulated pension plans without the Labor Department's permission.

Under the settlement, the directors did not admit wrongdoing.

Cindy Olson, Enron's former head of human resources, also signed a note obligating her to pay $100,000 in installments to compensate workers as part of the settlement, Sarko added.

Enron shareholders and bondholders claim another $30 billion in damages as a result of the company's accounting fraud. Investors are pressing claims against Enron lenders, such as Citigroup and J.P. Morgan Chase, for allegedly helping the former energy trader disguise billions of dollars in bank loans as energy trades.