This NY Times article reports on the $85 million partial settlement that has been in the works for quite some time in the Tittle class action lawsuit involving claims of former Enron employees who lost their shares in their 401K plans when Enron collapsed in late 2001 was filed today in U.S. District Court in Houston. Here is a copy of the plaintiff’s memorandum in support of the proposed settlement.
Enron employees lost hundreds of millions of dollars when the Enron stock in their 401(k) plan went up in smoke as the company slid into bankruptcy in late 2001. Under the settlement, the former employees may receive up to 10 cents on the dollar. Associated Electric & Gas Insurance Services Ltd., also known as Aegis, and Federal Insurance Co. will fund most of the settlement payment. Enron had $85 million in fiduciary liability insurance to cover company employees who were acting as fiduciaries.
The partial settlement resolves claims against Enron’s directors and human-resource staff, but does not settle claims against former Enron executives, Kenneth Lay and Jeffrey Skilling. The settlement also does not resolve claims against Northern Trust Co., who the former employees contend should have protected them in its capacity as trustee and a fiduciary of the plans, or Arthur Andersen, which was the auditor of the plans and Enron. Similarly, the settlement also does not release claims against Enron’s fidelity bonds, which cover losses to the plans caused by theft or dishonesty. Finally, the settement does not release the plans’ separate securities claims against Enron underwriters and investment banks.
The settlement will be presented for preliminary approval to U.S. District Judge Melinda Harmon Houston on May 20 in Houston. Plaintiffs still have some substantial hurdles to jump over in connection with Enron’s bankruptcy case in New York, where Enron’s creditors are contending (with considerable merit) that the former employees and retirees’ claims are subordinate to the claims of most other Enron creditors.