Just before the verdict in the Enron trial was announced James Lannen, an Atlanta business owner, was not thinking about the money he lost investing in Enron stock. He was thinking about how upset he would be if Kenneth Lay and Jeffrey Skilling were acquitted.
“I just believe they were too smart not to have known what was going on,” he says. Post verdict, Lannen was relieved, “Seeing them held responsible for what they did means more to me than getting my money back, which I’m obviously not counting on,” he adds.
Having come to terms with his Enron loss over four years ago, James Clark of Calabasas, Calif., was ambivalent about the verdict: “I thought Skilling was too smart not to know what was going on, but I was surprised by Lay’s conviction. Frankly I feel sorry for him. He could spend the rest of his life in jail.”
Empathy was not what Lois Black, founder of Tea-Parties-to-Go in Houston, and a former Enron employee and shareholder, thought she would be feeling upon hearing a guilty verdict.
“As much as I wanted to see justice served, these are people I saw at work. Now they are going to jail. I feel for them and their families. But when you cause that kind of chaos, you have to pay for it. It was not just losing money on a stock investment, I was putting money into the Enron retirement plan, month after month, with full confidence — suddenly it was all gone. Their actions affected thousands of people.”
Also among those thousands was Gerry Schiltz, of Aurora, IL. That a chunk of his retirement account disappeared with Enron is something he accepted a while ago. But the sting of having his trust violated lingers. When his portfolio manager added Enron to his retirement account, he did not give it a second thought. Having spent much of his career with the gas distribution company, NICOR, he was familiar with Enron’s transportation business and its solid reputation in the industry.
“I had a level of comfort with them, so it did not concern me at the time,” says Schiltz. “Had something gone wrong due to business reasons, well, that happens all the time in our industry and there is nothing you can do. But this, what happened with Enron, never seemed legit to me,” says Schiltz. “I am thankful to see justice prevail.”
Schiltz and other Enron shareholders, along with some former employees, will eventually see more than justice prevail — they will also see checks with their names on them. Though this week’s verdict will not be the reason.
“The criminal conviction of Ken Lay and Jeffrey Skilling will not make a difference to the securities class action litigation, which is a civil case,” explains Bruce Carton, vice president of securities class action services for Institutional Shareholder Services in Rockville, MD. “The two legal actions are separate.”
But action in the civil case was already well underway, prior to the criminal verdict, even though its court date is not until October 2006.
“Ours is an ongoing case,” says Trey Davis, director of special projects for the University of California System, the lead plaintiff in the class action shareholders’ suit against Enron and its banks. “We’ve already settled for more than $7 billion with several of the defendants.” Defendants who have yet to settle include Merrill Lynch, Credit Suisse First Boston, Barclays and Deutsche Bank.
Despite the holdouts, the civil case, which covers purchases of publicly traded equity and debt securities between 1997 and 2001, is already quite notable, says Carton: “It is already the largest settlement in history even before all the parties have settled.” The reason: The $7 billion plus and counting of the $47 billion in alleged losses is coming out of the deep pockets of Wall Street financial firms, not from the bank accounts of key company executives. The firms are being pursued for their alleged roles in the financial maneuverings implicated in Enron’s collapse.
For those covered by the class action it means collecting more than most class action shareholders do — instead of pennies for each dollar lost, Davis estimates they could be looking at dimes even after the legal costs are factored in. Cold comfort given what was lost, but cold cash is still better than a full write-off.
While the criminal case’s verdict will not get checks in the mail any sooner, Davis thinks it may indirectly push the shareholder matter toward a quicker resolution. “Completion of the criminal case should help focus the emotional rage and anger over the Enron fraud and shift it back toward our court where reasonable recovery can occur,” says Davis. It may also send a signal to the remaining defendants as the plaintiffs continue pursuing recovery of another $40 billion in losses
While the Lay/Skilling verdict may give shareholders some emotional satisfaction, the bigger development this week was court approval of the latest settlements reached with Citigroup, J.P. Morgan Chase and CIBC. Bank of America and Lehman settled earlier. Carton thinks this paves the way for mailing out claim forms and releases, which is the next step toward disbursement from the interest-bearing escrow account where the settlement money is being collected.
“It is not going to be as good as getting all your money back, but by comparison to other actions, this should be pretty good,” says Carton.
Whether closure comes with the handing down of sentences or receipt of a check, this week it got that much nearer for those with a financial stake in the collapse of Enron.
For more on the progress of the class action shareholder suit visit http://www.enronfraud.com/.