As the lead plaintiff in the class action lawsuit against Enron executives, the University of California has obtained more than $7.2 billion from the executives, accountants, attorneys and financial institutions that organized the fraud.
On July 27, officials announced a proposed allocation plan to distribute the money to defrauded Enron investors who submit valid claims.
“This is the first step in returning funds to these investors,” said Dan Newman, spokesman for lead counsel Lerach Coughlin, the law firm representing the university and the class of Enron investors.
The proposed plan allocates money to investors who purchased Enron securities between Sept. 9, 1997 and Dec. 2, 2001. Roughly 1.5 million Enron stock and bond purchasers lost more than $40 billion during this period, Newman said.
Due to accounting fraud, Enron shareholders have lost tens of billions of dollars. The company filed for bankruptcy in 2001.
In 2002, the United States District Court chose the university as the lead plaintiff in the lawsuit due to both financial and legal factors, which included the amount of losses the plaintiff endured from Enron investments, and the plaintiff’s ability to coordinate litigation as a single investor, according to a press release from the university. As lead plaintiff, the university helps monitor and oversee the litigation of the case, Chris Patti, UC general counsel, said.
The university lost $144.9 million based on 2.2 million Enron shares purchased during the class period, according to the press release. This money was taken from employees’ pension and endowment funds, said Trey Davis, director of special projections for the UC.
“The money the UC will receive (from the allocation plan) will go back to these funds, so there will be no effect on students directly,” he said.
The university worked with outside counsel and experts to design the plan. But it has been a difficult process, Patti said, to ensure that all investors receive the money they deserve. The allocation needs to account for what type of Enron stocks and bonds investors purchased, when they purchased them and when they sold them.
“We want to make sure it’s as fair as possible, and (we are) therefore taking extra steps to ensure we do not miss anything,” Patti said.
The UC is asking for feedback on the proposed plan from an independent expert consultant and the public. Comments from the public can be submitted until Aug. 20 through a specially created Web site, Enronfraud.com.
After reviewing the public’s comments, university officials will request permission from Judge Melinda Harmon of the U.S. District Court for the Southern District of Texas, Houston Division, to ask for formal input about the plan from members of the Enron class.
Only after Judge Harmon approves the plan and any appeals are resolved will the money be distributed. It is difficult to predict when this will happen, Davis said, but it will not be before 2008.
Other plaintiffs have still not settled cases against Enron executives. A similar case has appealed to the U.S. Supreme Court, and its result will determine if the case against the remaining defendants will continue, Newman said.
“This is an ongoing process, but investors have received a lot of support,” Newman said.
Most attorney generals, academic experts and professional groups have filed friends-of-the-court briefs with the U.S. Supreme Court in support of investor protections, according to the university’s press release.