By Kelly Rayburn
Daily Bruin Senior Staff
A Houston-based court will soon decide whether the University of
California will lead a multi-entity lawsuit accusing senior members
of Enron Corp. and their auditor, Arthur Andersen, of fraud.
The UC claims it lost about $145 million in Enron stocks, which
they sold off in November, as the energy-supplying company went
tailspinning into bankruptcy.
Hundreds of investors have filed suit since Enron’s
collapse, claiming the corporation released false financial
statements ““ thus artificially inflating their stock prices.
Before watching their company collapse, senior members allegedly
cashed in on their own investments, yielding $1.1 billion.
Enron spokeswoman Peggy Mahoney was not available for comment
Monday afternoon, but Enron has repeatedly denied allegations of
fraud.
In Houston, a U.S. District court is in the process of turning
the thousands of suits into one class-action suit.
Judge Melinda Harmon is expected to name a lead plaintiff
““ an investor who will represent the interests of all parties
and individuals against Enron ““ sometime in the next seven to
10 days, said UC attorney Christopher Patti.
Though the suit will seek damages for all investors, the lead
plaintiff will have the greatest influence on legal strategy.
The UC recently submitted a final request to the court and is
awaiting a decision.
“Our goal would be to get the largest settlement
possible,” Patti said.
Besides the UC, a group made up of the Florida state pension
fund and the New York City pension plan is also seeking lead
plaintiff status, as is another group representing the Ohio,
Georgia and Washington state pension plans, according to Patti.
Only Florida’s state retirement fund, claiming $325
million in losses, has been hurt more by Enron’s collapse
than the UC.
While it is somewhat common for more than one lead plaintiff to
be named in class-action suits, Patti said that given Judge
Harmon’s record, the UC expects that she will only name one
entity as lead plaintiff.
Lead plaintiff status typically goes to the entity with the
greatest financial interest in a case.
While the Florida state pension fund lost more than twice as
much as the UC, the latter may be in a better position to slide in
as lead plaintiff for a couple of reasons.
First, the Florida state pension plan has been in numerous
security lawsuits in recent years, Patti said. Federal law
prohibits an entity from being a “professional
plaintiff” and so the Houston court may rule that Florida has
been involved in too many similar lawsuits lately to be lead
plaintiff, Patti said.
Secondly, a high-level employee of the money-managing firm that
purchased Enron securities for the Florida state pension fund also
sat on Enron’s board of directors. Because of a possible
conflict of interest, this could hurt Florida’s chances.
A phone call to the State Board of Administration of Florida,
which oversees the Florida state pension plan, went unanswered.
Enron has given many people financial headaches in the past
year, but not everyone got burned ““ investments in the
Houston-based company actually paid off for some California pension
funds, who sold off Enron stock before the company went
bankrupt.
For instance, in 1997, the California Public Employees
Retirement System, or Calpers, realized a $132.5 million profit on
a $250 million investment in an Enron-led investment called Joint
Energy Development Investments, or JEDI.
That investment’s success encouraged Calpers to pour an
additional $175.5 million into another Enron partnership, called
JEDI II.
Calpers has received $171.7 million of that money back so far
and eventually expects to break even on the deal, said fund
spokeswoman Pat Macht.
The San Diego City Employees’ Retirement system pocketed a
$328,000 profit during the last two years by selling off
Enron’s stock, said Doug McCalla, chief investment officer
for the fund.
Investors that sell stocks are essentially betting that the
share price will drop ““ a gamble that paid off when Enron
imploded.
With reports from The Associated Press.