By Kathleen Davis, Associate editor
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Wherever you look there is shrapnel from the Enron disaster: executives pleading the Fifth before Congress, laid off employees scoffing at the “emotional” interview with former CEO Ken Lay’s wife, even an unopened Enron ethics manual being sold on eBay.
It’s an Enron world-although admittedly not in the way many executives and investors expected just a few years ago.
But the Enron battle damage isn’t confined to the sharply defined energy corporation. It’s being felt all the way down the line, including at Portland General Electric (PGE), an Enron subsidiary utility. Enron brought PGE into the corporate fold in 1997 in a $2 billion merger, and although the Federal Energy Regulatory Commission recently approved PGE’s sale to Northwest Natural Gas Co., PGE is more than a way to provide cash to pay the bankrupt corporation’s creditors.
Even after the sale, PGE will remain a utility still feeling the heat of its former corporate Daddy’s wrongdoings. Although spokesmen for the utility declined to go into details for this article, saying they were “not really at liberty to talk much about the Enron situation,” one did comment that PGE was still smarting.
“I can say that the [Enron] situation has impacted employees at every level of the company, depending on their 401K investments and their other Enron holdings,” one spokesman stated in a quick phone call.
You can’t take it with you
Two PGE workers-Robert Vigil and Donald Eri-testified before the Senate Commerce, Science and Transportation Committee this winter about just how badly PGE employees were impacted by Enron’s fall from grace.Vigil, who has been with PGE for more than 20 years, explained that PGE employees have had the option of participating in a 401K since 1981. For every dollar they contributed-up to six percent of their income-the company contributed an equal value in its stock.
When Enron purchased PGE, all PGE stock in their 401Ks converted to Enron stock. Vigil admitted that-at the time-that shift looked to be a good deal. However, the picture was not to remain rosy for very long.
“Little did those of us working hard every day to help make the company successful know what was going on at the top of Enron,” Vigil testified. “We trusted management’s glowing reports of strong financial growth and opportunity with Enron. Then, in October 2001, Enron’s house of mirrors came crashing down in the largest bankruptcy in history.”
Vigil went on to point out a number of other blocks preventing employees from abandoning company stock, even when Enron began to publicly stumble. First, Vigil stated that any PGE employee under the age of 50 was prohibited from trading the company’s stock contributions. Second, until very recently, even after age 50 they could only trade 25 percent of the company’s contributions per year. Vigil also testified that the company’s policy of block-purchasing stock contributions at the beginning of the year locks in the “value” of the stock for the company’s 401K plan, making recent contributions actually worth a mere fraction of their prescribed “value.” Finally, as with direct Enron employees, PGE employees were also barred from trading stock during the controversial “lock down” of last fall.
“As the truth about Enron started to come to light-and as the officers at the top cashed out-we, the employees, had no choice but to ride the stock into the ground,” Vigil said.
“Every PGE employee has a story to tell about his or her losses,” Vigil added. “All of them are tragic, and most of them are life changing. All of us regarded the 401K plan as a way of investing our hard-earned wages for future security. And we assumed that, in matching our contributions, our employer was giving us something of value. It all now appears to have been a cruel illusion.”
Seeking an answer
Some PGE employees have decided to shatter that “illusion,” to fight back.
A group of present and former Enron employees, known as the Severed Enron Employees Coalition (SEEC), has filed a class action lawsuit in Houston federal court asking a jury to “make good” on the losses suffered by employees who contributed to Enron’s 401K corporate savings plan, citing the Employee Retirement Income Security Act (ERISA) as its basis. According to Dick Hile, a member of the SEEC legal team from the firm of Dies & Hile, SEEC includes PGE employees as well.
“It’s my understanding that there are several PGE employees who are members of SEEC,” Hile told EL&P in an interview. “Originally SEEC was only severed Enron employees, but it has been expanded to include current employees, retirees and subsidiary employees as well. This has all evolved in about 30 days, so we are still finalizing the membership list.”
The defendants of the SEEC lawsuit include former Enron CEO Ken Lay, former CEO Jeff Skilling, former CFO Andrew Fastow, the Northern Trust Co. (the retirement plan’s trustee) and accounting firm Arthur Andersen.
“ERISA imposes a lot of duty and obligations on a broad group of individuals. It’s not just the trustee-Northern Trust in this case-who has obligations to the plan participants,” Hile said, explaining the choice of defendants. “Any person who exercised any discretionary authority or control of the management or administration of the plan owes a fiduciary duty to all the plan participants.”
“And in this situation, Enron actually had control over much of the activities over what Northern Trust was doing. Therefore, they are liable for the losses,” he added.
Hile finds the evolution of SEEC one of the most interesting parts of the lawsuit’s story.
“So often these class actions are lawyer-driven, but SEEC is client driven,” he stated. “We didn’t go to them; they came to us.”
A Web site brought together a few Enron employees who decided to set up an org-anization to deal with issues that the company’s fall created and to see if there was a way to represent the employees in the blitz of media attention and legal actions to follow. And so SEEC was born.
“They were concerned that they would be unable to control their own destiny,” Hile said. “This is a much more sophisticated group than you’d normally see.”
“Hopefully, this lawsuit will recover some of the losses SEEC has sustained,” Hile concluded, adding that the fight could have additional benefits beyond the monetary. “I do anticipate that this action will be a means of finally drawing a true and accurate picture of what happened. We’ve only seen the tip of the iceberg in the Congressional hearings.”