SEC Opposes Enron's Hiring of Cooper as Interim CEO (Update2)
quote.bloomberg.com
03/08 18:12
SEC Opposes Enron's Hiring of Cooper as Interim CEO (Update2)
By Jeff St.Onge
New York, March 8 (Bloomberg) -- The U.S. Securities and Exchange Commission asked a judge to reject Enron Corp.'s hiring of Stephen F. Cooper as chief executive officer, saying his contract is too generous and he may have conflicts of interest.
Enron is seeking court approval for its Jan. 29 decision to hire Cooper as an independent contractor under the title of interim CEO and chief restructuring officer. Enron wants to pay the bankruptcy specialist $1.32 million a year and a bonus of at least $5 million if he revives the Houston-based energy company.
Cooper's New York-based consulting firm, Zolfo Cooper LLC, would also provide Enron with as many as 15 ``associate restructuring officers'' at $864,000 each per year, under the proposed agreement, the SEC said in papers filed in U.S. Bankruptcy Court in Manhattan.
``In a Chapter 11 case with public policy implications that are as far reaching as Enron's, creditors, security holders and the public are entitled to a chief executive officer whose selection can not be subject to question,'' the SEC said in the filing.
Cooper, 55, was named to replace Kenneth Lay, who resigned Jan. 24 amid dozens of government investigations and investor lawsuits spawned by the biggest Chapter 11 bankruptcy ever. Enron created an office of chief executive that includes Cooper and Enron officers Jeff McMahon and Ray Bowen.
Wednesday Hearing
U.S. Bankruptcy Judge Arthur J. Gonzalez in Manhattan will consider Enron's hiring of Cooper and his firm at a hearing set for Wednesday.
The company, once the seventh-largest U.S. corporation, filed for bankruptcy Dec. 2 as its stock slid below $1 from more than $70 a year ago, and the company was unable to finance its business. In November, Enron said it overstated profits by $586 million since 1997, about two weeks after reporting $1.01 billion in third-quarter losses from failed investments. Almost $78 billion in market value has been wiped out since August 2000.
In its filing today, the SEC takes issue with terms of Cooper's employment agreement that would require Enron to reimburse him and his firm if they're sued in connection with the services they provide.
The SEC also suggested that Cooper may have conflicts of interest in the case. The agency notes that he has ``numerous connections'' with parties in the case, including eight members of Enron's creditors' committee.
Conflicts
The potential conflicts ``raise legitimate concerns in a case where there are serious allegations that Enron's former officers and directors engaged in improper self-dealing at the expense of Enron's shareholders,'' the agency said.
A bankruptcy judge in 1994 denied Zolfo Cooper's request for about $750,000 in fees in the Chapter 11 case of Colt's Manufacturing Co. The company's creditors had said Cooper had a conflict of interest. Gonzalez worked on the case as a U.S. Trustee, a Justice Department official appointed to oversee bankruptcies to prevent abuses.
The SEC is also fighting the proposed $5 million bonus for Cooper, which is payable if he helps reorganize or liquidate the company. The agency also said it needs more information on the hiring.
35 Hours a Week
In today's filing, the SEC also complained that the contract requires Cooper to work just 35 hours a week. The agency said this is less than a regular Enron full-time employee and ``undoubtedly much less than the average CEO of a public company.''
Enron spokeswoman Karen Denne said Cooper wasn't in Houston and referred questions to a Zolfo Cooper representative.
``Steve spends four days a week in Houston,'' Denne said. ``He has been working from 6:30 in the morning until 10 or 11 at night,'' she said.
Lay, Enron's founder, received a $1.3 million base salary in 2000, the last year for which a proxy statement is available. Lay also received a $7 million bonus that year and 106,578 shares of restricted stock, which Enron valued at the time at $7.5 million. He also got about 783,000 options in 2000, with exercise prices ranging from $47.31 to $83.13, which are now worthless.
The terms of Cooper's employment ``cast doubt on the fairness of Enron's handling of its bankruptcy and on the bankruptcy process as a whole,'' the SEC said. |
