Enron Corp. shareholders and investors hoping to get their cut of more than $7.2 billion recovered as part of a lawsuit they filed in connection with the company's collapse are going to have to wait a little longer.
A federal judge on Friday delayed a decision on whether to approve a plan to distribute the money, part of a $40 billion lawsuit alleging that financial institutions that worked with Enron participated in the accounting fraud that led to the company's downfall.
U.S. District Judge Melinda Harmon also held off on whether to approve $688 million in attorneys' fees being requested by San Diego-based Coughlin Stoia Geller Rudman & Robbins LLP, the law firm for the lead plaintiffs in the case. If approved, the attorneys' fees would be the largest in a securities fraud case.
After a 4 1/2 hour hearing during which attorneys, Enron investors and former Enron employees argued both for and against the distribution plan and the attorney fees, Harmon said she would make decisions on both issues as soon as possible.
Patrick Coughlin, attorney for the regents of the University of California, who are the lead plantiffs, called the plan to distribute the $7.2 billion "fair and reasonable."
"The plan is doing whatever it can to help employees get whatever they can," he said.
In general, the plan is calculating shares of the settlement fund using a formula that factors in such things as when a security was bought or sold, the purchase price paid and the type of stock that was bought.
Enron stock sold for as much as $90 per share before plummeting to as low as $1 right before the company declared bankruptcy. But under the plan, shareholders and investors are set to get only a fraction of what they lost after the once mighty energy giant spiraled into bankruptcy.
To be eligible for the settlement, investors and shareholders needed to have bought Enron or Enron-related securities between Sept. 9, 1997, and Dec. 2, 2001.
About 1.5 million individuals are eligible to receive money from the settlement fund.
Coughlin also asked Harmon to approve the $688 million in attorneys' fees, saying the amount is part of an agreement his law firm signed with the regents when it first took the case six years ago to be given 9.5 percent of any settlement.
In justifying the fees, he cited several reasons, including that the 9.5 percent was far lower than the standard 33 percent most lawyers get in similar cases; the complexity of the lawsuit; and the risk involved in taking on a case that offered no guarantee of any settlements.
"This is the largest class (action) settlement ever. There is no case comparable to this result," he said.
But attorneys for several investors objected to the distribution plan and the attorneys' fees.
Avi Garbow, an attorney for former Enron workers who lost money through the company's savings plan and employee stock ownership plan, said the distribution plan was unfair because it doesn't treat all investors and shareholders equally and some will be compensated more than they should be at the expense of others.
Lawrence Schonbrun, who represents another investor, called the attorney fees being requested exorbitant and "an affront to every working person in this country."
The $7.2 billion comes mostly from settlements made with such financial institutions as Bank of America, JPMorgan Chase & Co. and Citigroup.
There are still several financial institutions that remain as defendants in the Enron case, including Merrill Lynch & Co., Credit Suisse First Boston and Barclays Bank PLC. Several former Enron officers also remain, including former chief executive Jeffrey Skilling.
But the lawsuit has been on hold since an appeals court last year ruled shareholders and investors could not sue as a class, which would have allowed them to pool their resources to sue as a group and have more leverage to settle the case out of court.
The U.S. Supreme Court in January refused to hear arguments in the lawsuit. The high court in a similar case gave a measure of protection from securities lawsuits to suppliers, banks, accountants and law firms that do business with corporations engaging in securities fraud.
Attorneys for Merrill Lynch & Co., Credit Suisse First Boston and Barclays Bank PLC have said they will again ask Harmon to drop their clients from the lawsuit in light of the Supreme Court's ruling in the similar case.
Enron, once the nation's seventh-largest company, entered bankruptcy proceedings in December 2001 after years of accounting tricks could no longer hide billions in debt or make failing ventures appear profitable. The collapse wiped out thousands of jobs, more than $60 billion in market value and more than $2 billion in pension plans.
Enron founder Kenneth Lay and Skilling were convicted in 2006 for their roles in the company's collapse. Skilling is serving a sentence of more than 24 years. Lay's convictions for conspiracy, fraud and other charges were wiped out after he died of heart disease in 2006.
