>The DOL has sued Enron Corporation, former chief executive officers Kenneth L. Lay and Jeffrey K. Skilling, the former board of directors, and the former administrative committee for Enron’s retirement plans for failing to prudently protect Enron workers’ retirement assets invested in the stock of Enron.
>The Secretary’s lawsuit alleges that the defendants violated the Employee Retirement Income Security Act (ERISA) when they failed to consider the prudence of Enron stock as an appropriate investment for the retirement plans and did nothing to protect the workers and retirees from extensive losses. The suit, filed in federal district court in Houston, seeks a court order requiring the defendants to restore to the plans all losses with interest, forfeit their right to benefits from the plans and permanently bar them from serving as fiduciaries to any plan governed by ERISA.
>Secretary Elaine L. Chao. “As I said when we opened our investigation ‘Enron’s employees have gotten the short end of the stick in the collapse of this company, and we are committed to doing everything we can to help them.’ This lawsuit keeps that commitment.”
>The suit is a scathing indictment of a series of misdeeds and nonaction by the plan’s fiduciaries. The DOL specifically cited actions by Cindy Olson, who was Enron’s Executive Vice President for Human Resources, and a member of the plan’s Administrative Committee (see Enron 401(k) Investigation Heats Up in House ). The DOL cited Olson’s involvement with the memorandum of concerns by accountant Sherron Watkins, which Olson reportedly saw in draft from before it got to Kenneth Lay. The DOL alleges “instead of acting to protect participants, Olson assisted Lay in isolating Watkins and denying her further access to Enron’s financial information.” In fact, according to the DOL, Olson even helped Enron CFO Andrew Fastow confiscate the lap top computer Watkins had used to draft her memorandum.
>Even as the stock dropped in value throughout 2001, the DOL says that the committee’s members never:
- monitored, reviewed, analyzed, questioned, altered, slowed or stopped the plans’ investments in Enron stock;
- considered the significance of the large number of warning signs in 2001 which should have caused the committee to question the plans’ extensive holdings of Enron stock
- considered the prudence of the plans’ investment of most of their assets in Enron stock, or the prudence of investing Enron’s matching contributions on anything other than Enron stock;
- considered freezing or removing Enron stock as an investment option under the Savings Plan; and
- considered whether it would be prudent to sell some or all of the plans’ Enron stock.
>Although Enron Corporation was responsible for appointing and overseeing the Administrative Committee and was a named fiduciary, the DOL says the firm never:
- monitored the Administrative Committee in the performance of its duties;
- supplied the Administrative Committee with critical adverse information known to it about Enron's true financial condition;
- sought to remove Committee members for failing to discharge their obligations at any time before the bankruptcy;
- corrected misstatements made by Kenneth Lay to participants regarding Enron's financial condition.
>The DOL cites similar missteps on the parts of Kenneth Lay and Jeff Skilling, noting that Lay misled participants about the firm's financial condition, encouraged them to invest in Enron stock, and suggested that Enron's financial transactions had the complete support of the company's internal officers, external auditor, and counsel.
>The DOL faulted Enron's Board of Directors for failing to appoint a trustee to manage the ESOP's holding in Enron stock, nor did it undertake to perform the trustee's duties themselves or to safeguard the interests of the ESOP.
>The suit names as defendants former board of directors Lay, Skilling, Robert A. Belfer, Norman P. Blake Jr., Ronnie C. Chan, John H. Duncan, Wendy L. Gramm, Ken L. Harrison, Robert K. Jaedicke, Charles A. LeMaistre, John Mendelsohn, Paulo V. Ferraz Pereira, Frank Savage, John Wakeham, and Herbert S. Winokur Jr; and former administrative committee members James S. Prentice, Roderick J. Hayslett, Tod A. Lindholm, Cindy K. Olson, Sheila D. Armsworth and Paula H. Rieker.
>In the course of the investigation by the Dallas regional office of the department's Employee Benefits Security Administration (EBSA) and the Office of the Solicitor, the department collected and reviewed over 2.5 million pages of documents, questioned 110 witnesses and issued 78 subpoenas, according to a press release.
>Commending the action, Education & the Workforce Committee Chairman John Boehner (R-Ohio) said, "The Department's action puts corporate executives and pension plan administrators on notice: take your fiduciary duty to act in the best interests of your workers seriously or the Labor Department will hold you accountable." Employer-Employee Relations Subcommittee Chairman Sam Johnson (R-Texas) referred to the defendants as "corporate crooks", and cautioned, "Being a pension trustee is a 24-7 job. It doesn't go away or change just because you have additional corporate responsibilities."
>Congressman George Miller (D-California), the ranking member of the Education & the Workforce Committee (which has jurisdiction over ERISA), said, "After a long delay, the Labor Department appears finally to be taking a strong action against Enron regarding the enormous losses its employees suffered in their retirement accounts because of corporate abuse." However, chided the DOL for being "woefully slow" in filing the suit, and also called for an update on pending cases at Worldcom, Lucent Technologies, Qwest, Tyco, and Global Crossing where employees had their savings plans decimated or severely reduced due to corporate fraud and abuse.