Nine banks including Merrill Lynch, Deutsche, J P Morgan, Credit Suisse, Barclays and Bankof America, have now been named, along with accountants Arthur Anderson and 26 directors and officers from Enron, in two class action lawsuits arising from the Enron bankruptcy. The University of California is leading an action on behalf of Enron shareholders that also names law firms Vinson & Elkins and Kirkland & Ellis. The value of the university’s Enron stock has dropped by around $145 million, part of some $25 billion lost by shareholders overall.
The class action alleges active complicity by the banks and law firms in creating a web of partnerships and off-balance-sheet subsidiaries that allowed Enron to create a false impression of financial strength. It includes allegations that bank executives had profited individually from fraudulent transactions and that Enron officers had carried out $1.2 billion in insider trading. The FBI is examining the actions of the former Enron management team, including former chairman Kenneth Lay, for evidence of misconduct and fraud, and is now focusing on allegations of insider trading. The second class action, on behalf of employees whose pensions are held in Enron stock that is now close to worthless, also named Vinson & Elkins. It said the defendants had advised employees to buy stock knowing its price had been inflated by the company’s accounting practice. The new filings are expected to reach the courts in 2003.
Enron has already received subpoenas over other actions. The Federal Energy Regulatory Commission issued a subpoena in March, investigating whether Enron had manipulated gas and electricity markets in California and other western states during 2001’s power crisis in the region. That issue will also be considered by a subcommittee from the Senate Commerce Committee. Other Senate committees are continuing their enquiries into other aspects of the Enron debacle. The Investigations subcommittee is planning to examine its first witnesses in May and has issued around 50 subpoenas to staff from Enron and Anderson. Another committee is examining contacts between Enron and the White House and has demanded access to all communications between the two parties. The Securities and Exchange Commission, meanwhile, has supported plans to appoint an independent examiner to investigate ties between Enron and financial companies on Wall Street. Investigators have been combing Enron and Anderson for staff who will accept plea deals. By early April it seemed that David Duncan, the accountant fired by Anderson after it said he oversaw destruction of Enron documents, would break ranks. He was thought likely to accept a single charge of obstructing justice.
Meanwhile, the disposal of Enron subsidiaries continues. UK water company Wessex Water will be acquired by YTL, the Malaysian construction group, for £1.24 billion.in the face of a bid by a Royal Bank of Scotland led consortium. In Spain, Iberdrola beat five other bidders to pay $105 million for Enron’s stake in a 1200 MWe gas-fired power plant at Arcos de la Frontera. As part of the package, Iberdrola plans to pay $210 million for turbines, generators and other equipment at Enron facilities in New York, Rotterdam and Cadiz. These assets all belong to non-bankrupt Enron affiliates, but Iberdrola has tried to avoid complications by making the deal conditional on bankruptcy court approval.
Among other assets still on the market are an independent power project in the Dominican Republic and half share of another in Puerto Rico. Discussions over whether those plants should be taken into temporary government ownership are ongoing. In early April disposal of Enron’s largest independent power project, Dabhol in India, looked likely to be back at square one. Bidders were invited in January for Enron’s 65 per cent holding in the plant, and a further 20 per cent held by other foreign owners. However, in March the Indian High Court stopped the plant from becoming part of US bankruptcy proceedings. It appointed an Indian receiver to oversee operation of the plant, and lenders considered whether the plant’s assets should be seized. If that happened, according to the Industrial Development Bank of India, the sale would be restarted with the plant itself up for bids. Three overseas companies and four Indian companies had expressed interest in buying the original 85 per cent stake.
