Dynegy Settles Employee Lawsuit for $30.8 Million

October 29, 2004 (PLANSPONSOR.com) - Dynegy, the firm that came close to purchasing now-defunct Enron, has reached a settlement in principal with employees who sued the company over retirement fund losses.

Dynegy will pay about 5,000 employees a total of $30.8 million in a settlement regarding charges that it improperly permitted investment in company stock when it was imprudent to do so, according to the Houston Chronicle. The charges alleged that the company and its managers failed to disclose the company’s proper financial statements, round-trip trade transactions, gas price index reporting and a transaction called Project Alpha.

Employees who held or invested in company stock from April 1999 to January 2003 will have the money placed in their 401(k) accounts based on the amount of company stock they held and the size of their losses due to the stock’s collapse. The employees allege that the stock collapsed due to the misinformation the company was reporting. The plan held $58 million in Dynegy stock in January 2002, but had only $13 million the following January, according to the Chronicle.

Dynegy will not admit nor deny any wrongdoing if the settlement is approved on December 10 by US District Judge Sim Lake. A shareholder lawsuit against the company and its former executives is still before Lake.

If approved, the cash for the settlement will come from numerous insurance policies that Dynegy has for such purposes. Federal Insurance Co. will pay $10 million, while Travelers Casualty and Surety Co. of America will pick up $15 million. Energy Insurance Mutual Ltd. will pick up the remaining $5.8 million.

Lawyer’s fees for the settlement may take up to 28% of the award, leaving employees with $22.1 million (See Lawyering Up ).