Labor Dept. Questions Enron's Truthfulness
The New York Times
April 19, 2002
By RICHARD A. OPPEL Jr.
WASHINGTON, April 18 - The
Labor Department is suggesting
that Enron deceived the government
by reaching an agreement it never
intended to keep to turn over control
of its employee pension plans to an
independent firm whose fees it would
pay.
"It seems reasonable to conclude that
Enron did not merely break its
agreement with the government, it embarked on a course two months ago to
deceive the government by entering an agreement that it had no intention of
honoring," Eugene Scalia, the Labor Department's solicitor, said in a letter to
Enron.
Enron did not respond to a request for comment about Mr. Scalia's letter.
Last year, as Enron collapsed in an accounting scandal, the value of the 401(k)
plans for employees and retirees plunged by more than 60 percent because the
plans were largely invested in Enron stock. Lawmakers expressed outrage after
learning at Congressional hearings that an Enron executive who serves as a trustee
of the pension plans had been alerted to warnings about Enron's finances but
never acted to protect employees' investments.
Amid pressure from lawmakers and threats by the Labor Department to go to court
to oust the trustees, Enron agreed in March to turn over control of the plans to the
State Street Corporation, which was to be paid up to $2.7 million a year out of
Enron's assets. The retirement plans have combined assets of more than $2 billion,
according to government and company officials.
Two weeks ago, Labor Department officials said that Enron backed out of the deal
at a bankruptcy hearing in New York. After Judge Arthur J. Gonzalez of United
States Bankruptcy Court asked whether the payments to State Street might be
considered "prepetition" claims, and thus ineligible to be paid from the estate,
lawyers for the company agreed that the events that led to the deal with the Labor
Department arose before Enron filed for bankruptcy protection. Judge Gonzalez
did not approve paying the fees out of the company's assets.
The Labor Department may soon file papers in bankruptcy
court seeking to have State Street take over the pension
plans anyway and be paid temporarily out of the assets of
the plans while the government's quarrel with Enron
continues, people close to the case said.
After the bankruptcy hearing earlier this month, Enron
insisted that its lawyers had stuck to the deal with the
Labor Department and had even told the judge that the
company did not oppose paying the fees out of the estate.
But in his letter to Enron, sent last week, Mr. Scalia said
the transcript showed that Enron went out of its way to
tell the judge not to approve the fees. He contended that
the company's lawyers even suggested that the only
reason Enron agreed to the Labor Department's deal in
the first place was to avoid a dispute with the agency.
Mr. Scalia's letter cited a transcript of the bankruptcy
hearing in which a lawyer for Enron states that "We did
agree [in] the underlying agreement to pay those [fees],
your honor, but as I indicated, we did not believe that we
had the ability to argue otherwise." Mr. Scalia's letter says
the Enron lawyer stated that "we were attempting to avoid
litigation with the Department of Labor" and "did not
believe that we had much in which room to negotiate."
Early in that hearing, Mr. Scalia said, the Enron lawyer
also stated that "the company does not believe that it
should be taxed with the fees and expenses of the State
Street obligation." By contrast, Mr. Scalia said, the
company agreed in its deal with the government to
"support prompt approval by the bankruptcy court" of the
fees.
"The question now," Mr. Scalia said in his letter, "is
whether Enron will take the steps necessary to remedy
the damage done in bankruptcy court, or whether, as
certainly seems the case to this point, the conduct I have described was planned,
endorsed, and ratified by Enron and its senior officers."
Representative George Miller of California, the ranking Democrat on the House
Education and Workforce Committee, said the Labor Department should move
swiftly to oust the Enron pension plan trustees.
"It is unconscionable to allow these pension plan executives to take any further
action on behalf of Enron employees," Mr. Miller said.
"Apparently the Labor Department did not get the ironclad agreement from Enron
that it had previously announced," he added. "After Enron executives lied to their
families, employees, shareholders, stock analysts, and business partners, it wasn't
much of a stretch for them to lie to the Secretary of Labor."
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