US sues Enron over pension losses

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US sues Enron over pension losses

Boston Globe, June 27, 2003

The charges are the first that the federal government has brought against Jeffrey K. Skilling, the former chief executive of Enron.

WASHINGTON - The Labor Department sued Enron and former executives and directors yesterday for allegedly violating pension laws and hurting 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 employees lost when the energy trading company careened toward bankruptcy 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 President Bush's friend and contributor Kenneth Lay, who was Enron's chairman, and former chief executive Jeffrey Skilling. The highest-ranking Enron executive charged to date in the scandal is former chief financial officer Andrew Fastow, who faces nearly 100 criminal charges including fraud, money laundering, conspiracy, and obstruction of justice. Fastow has pleaded innocent 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. Today we seek to vindicate that right,'' Labor Secretary Elaine Chao said at a news conference.

While seeking to recover the retirement savings of Enron employees, Chao said the action also is intended to send a message to pension plan officers. ''You have a solemn duty to safeguard your employees' pension assets. If you put those assets in jeopardy through neglect or malfeasance, we will hold you accountable,'' she said.

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 department 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 ex-Senator Phil Gramm, Republican of Texas.

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, the 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. The government's complaint ''that the Enron board breached its duty by failing to appoint a trustee of the employee stock ownership plan is wrong,'' Eggleston said.

Enron spokeswoman Karen Denne 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 immediately returned yesterday.

Chao noted that Lay ''went so far as to tout the [Enron] 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.''