Months after Enron's bankruptcy, ordeal not over
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By MARY FLOOD, ERIC BERGER and TOM FOWLER
Houston Chronicle
June 22, 2003
chron.com
Enron has practically become an employment act for lawyers, providing high-dollar work to attorneys across the country. But shareholders and employees have been left out in the cold and are likely to see little compensation for months if not years -- if ever.
Twenty people have been charged with crimes, five of them have entered into plea agreements and are awaiting sentencing, and 15 are awaiting trial. The one jury conviction, of audit firm Arthur Andersen, is on appeal. No charges have been filed against the two biggest fish: former Chairman Ken Lay and CEO Jeff Skilling.
Bankruptcy proceedings are grinding along, with many months of work remaining. And discovery has yet to begin on the wide-ranging civil cases.
A brief overview wraps up the status of the criminal, bankruptcy and civil Enron-related cases:
Criminal
The Enron Task Force, formed in January 2002, is far from finished with its work.
One case has been set for trial in spring 2004, but it's likely to be delayed and sentencing dates for five key witnesses who have entered into plea agreements continue to be moved further and further into next year.
"Just because they have the indictments doesn't mean there's not a lot left for prosecutors to do," said Phillip Hilder, a former federal prosecutor and Houston lawyer who represents several former Enron executives. "There are a lot of loose ends to tie up to make these cases trial-ready, and there are ongoing investigations."
The charges have come from two main investigatory fronts: off-the-books partnerships created by former Chief Financial Officer Andrew Fastow and alleged misrepresentation of the company's broadband capabilities.
Prosecutors have filed 109 charges collectively against Fastow, former Treasurer Ben Glisan and former finance employee Dan Boyle, ranging from securities fraud to insider trading.
The defense teams are wading through the millions of pages of documents the government used to build its case. More charges could be added related to the Whitewing and Osprey partnerships as soon as this month, defense attorneys said. But prosecutors said the government could forgo additional charges that might interfere with a fall trial date.
The 218-count Enron Broadband Services indictment is the single largest piece of the investigation so far, alleging that seven former executives knowingly made false statements about the technological capability of the division. But the charges may be difficult to prove, given the conflicting opinions about what the technology could do and the hype that was endemic during the '90s.
On another front, Fastow's wife, Lea, was charged, mostly with filing false tax statements. She is fighting to have her case tried after her husband's, arguing that he can provide exculpatory evidence only after his case is resolved, even if convicted.
Two former Enron energy traders are cooperating in an investigation of power market manipulation that took place in California during 2000 and 2001. A third Enron trader was indicted earlier this month.
And three British bankers accused of using a Fastow partnership to bilk their former employer, National Westminster bank, out of more than $7 million have been indicted but not arrested.
No criminal charges have been filed against one of Enron's key investment banking partners, Merrill Lynch, but four former executives face civil charges from the Securities and Exchange Commission. That case has been stayed pending the outcome of the criminal charges against Glisan and Boyle.
The only jury conviction so far, of former Enron auditor Arthur Andersen, is on appeal. Defense attorneys are arguing that, among other things, prosecutors should not have been allowed to present evidence of previous government actions against Andersen. The firm has all but disappeared, however, with fewer than 300 of its 28,000 U.S. employees left, most of them dealing with litigation and running a training facility.
Several defendants have talked to prosecutors about making deals, but none appears to have done so. Defense attorneys indicate prosecutors are insisting on prison time.
Despite the many charges, court filings and statements show the government continues to expand the investigation and task force director Leslie Caldwell said it is "active and ongoing."
Prosecutor John Kroger indicated last month there was a chance of a superseding broadband indictment. Attorneys close to the case and other sources indicate investigators are also looking at how Enron reported the value of its investment in a Houston company called Mariner.
Among the other unanswered questions is whether charges will ever be filed against Lay and Skilling. The grand jury heard testimony last year regarding Lay's finances, and many assumed the broadband charges were being used to build a case against Skilling.
Bankruptcy
When it filed for bankruptcy 18 months ago, Enron's former management listed the company's assets at $49.8 billion, the largest bankruptcy filing ever.
Although that total was soon eclipsed by WorldCom and much of Enron's asset value dissipated after a proper accounting, the bankruptcy remains the most complex, by far. At the time of its filing, the company encompassed 2,400 legal entities.
Enron's many well-paid lawyers are slowly sorting through the mess. This month, the company will file a reorganization plan, which could be approved by the second anniversary of its bankruptcy filing, Dec. 2. Given that many large Chapter 11 bankruptcies take five years or longer, Enron is making steady progress, specialists say.
"I would give them an above-passing grade," said Nancy Rapoport, dean of the University of Houston Law Center and a bankruptcy expert. "They haven't had to pull the plug, and they do seem to be moving forward."
There has been some pressure to speed things up. Creditors are increasingly critical of the unprecedented legal and accounting fees, which passed the $400 million mark this month, more than double any other bankruptcy on record.
The fees have gone to lawyers representing the company, its creditors and others sorting through the debris of Enron's stunning financial collapse. In some cases, however, the spiraling fees have been largely beyond Enron's control.
Bankruptcy Examiner Neal Batson, an Atlanta lawyer, has conducted a yearlong investigation into the causes of Enron's demise that has cost $60 million so far.
At its current torrid billing rate, his law firm, Alston & Bird, could exceed the fees charged by Enron's primary bankruptcy law firm, Weil Gotshal & Manges, by this October. Batson's bills will almost certainly exceed $100 million.
Some critics contend Batson is out of control, interviewing some former Enron employees three or more times, with three or more lawyers from his law firm present during every interview, each billing at rates of about $500 an hour.
His investigation is continuing, with a third report -- spotlighting the role a half-dozen banks played in Enron's collapse -- now planned to be made public by July 25. At least one more report, on the actions of other banks and law firms, will be filed in November or later.
If the reports are delayed, which is possible, it could slow completion of the bankruptcy, but some things are becoming clear.
The Enron name and infamous "E" logo will be no more. Already gone are the commodity trading business that once produced about 80 percent of Enron's reported operating profits, its much vaunted broadband trading business and several power plants and other projects. The company's iconic headquarters at 1400 Smith could be abandoned as early as February.
What will remain are two holding companies, one with Enron's interests in three pipelines, the other with Enron's interests in 19 international power generation and transportation assets.
In addition to stock in those companies, creditors will share at least $5 billion in cash, according to Enron. Since filing for bankruptcy, the company has netted about $3 billion from the sale of commodity trading contracts, and $800 million from the sale of noncore assets, such as its broadband network. An additional $1 billion has come from the sale of Enron's second office tower, Enron Wind and other selected assets.
When the checks are sent out, few creditors are likely to be happy. Claims exceed $200 billion, although a detailed review may cut that figure in half.
In the end, some jobs will be preserved. Of the 20,000-plus employees Enron boasted before bankruptcy, about 7,000 will still hold jobs. Some 500 or 600 workers should remain in Houston, albeit in different buildings and under different corporate logos.
Civil cases
Most civil lawsuits settle after each side shows its cards. But in the 20-month-old Enron shareholder and employee class actions, discovery has not yet begun, and no one knows when it will.
The lawsuits are creeping along because they involve thousands of plaintiffs, hundreds of lawyers and dozens of defendants.
U.S. District Judge Melinda Harmon, who oversees about six dozen Enron cases, has made rulings on a mountain of motions and released a handful of defendants but has not scheduled a trial or set a time frame for other pretrial matters.
A document depository has been created, but it's not being used. Enron itself has a mass of documents that could be made available electronically, but it wants Harmon to review and keep thousands of pages confidential.
"It is the nation's impression that the justice system grinds slowly in a Dickensian fashion, and it is the hope of this court that that impression can be changed by an efficient resolution of these cases," Harmon said in March 2002.
That was when she set a December 2003 trial date, now long abandoned, and before the extent of the cases became clear.
Harmon has two main cases, both yet to be certified as class actions. One gathers in shareholders suing under federal securities laws, including such big investors as the lead plaintiff: the University of California.
The second lawsuit represents Enron employees or ex-employees suing under both federal securities laws and pension fund laws, claiming losses caused by fraud.
In late May, hundreds of lawyers gathered in New York, Houston and on the phone around the nation to iron out discovery and scheduling disputes in these two cases. Instead, Harmon and the Enron bankruptcy judge appointed a mediator and sent the main parties to negotiate a settlement. A week later, the jurists said the mediator pulled out. They finally appointed another, an 83-year-old New York judge, just last week.
The lawyers say they don't know what is causing the bottleneck on discovery and scheduling.
But it's possible the works could be gummed up further by the criminal prosecutions.
"Whenever you have criminal investigations along with civil cases, there are a lot of complexities that slow it down," said J.C. Nickens, a lawyer representing a group of former Enron officials in the civil suits.
Several Enron figures accused in both civil and criminal court have already been let out of the civil cases until the criminal cases are completed. More are likely to follow.
The prosecutors could try to stop questioning of some witnesses because it could interfere with their investigation. Prosecutors have, for example, asked that civil Securities and Exchange Commission cases against Enron criminal defendants be frozen until the criminal cases are complete.
While the bulk of the Enron civil case remains in Harmon's court, a few cases have been filed in other states.
And a lone Texas Enron stock fraud lawsuit remains viable and could beat all others to a jury.
Washington County state District Judge Terry Flenniken seems determined to try it in Brenham in late September.
The suit was filed on behalf of a handful of Washington County residents who bought Enron stock after Lay spoke at a local Chamber of Commerce forum. The Brenham shareholders sued only Lay, Skilling, Fastow, Arthur Andersen and a few former Andersen executives.
"It could be in Brenham that the public first gets to see the defendants take the stand or take the Fifth again," said G. Sean Jez, the Houston lawyer who filed the Brenham suit. |
