Enron Employee Group Demands Bonus Returns

July 23, 2003 (PLANSPONSOR.com) - In the final hours before Enron Corp. filed for bankruptcy protection, the company awarded executives and others in the company $72 million in bonuses.

Now a group representing former Enron employees has gone to federal court to get the money back from the 292 people to whom it was awarded, according to an Associated Press news report.

Richard Rathvon, co-chair of the employees’ committee, accused the people who got the payouts of “self-dealing.” “Even as thousands of regular Enron employees and retirees were facing the loss of life savings, health benefits, their jobs or pensions , these favored few were scheming to get millions more for themselves,” Rathvon said, according to the AP.

The last-minute bonuses ranged from $200,000 to $5 million, according to four lawsuits filed by the group earlier this year in federal bankruptcy court in Houston and recently consolidated (see Enron Employees Form Coalition, Wage New Suit ). The four lawsuits were filed in March, April and May. The employees’ committee says the bonus checks should be returned because they didn’t clear Enron’s account until after the bankruptcy was filed and therefore should have been authorized by the New York bankruptcy court handling Enron’s case.

Unlike a federal class-action suit against dozens of Enron executives over retirement accounts packed with now-worthless Enron stock, the retention-bonus lawsuits seek funds handed out as Enron was failing – and they go farther down the food chain. Enron officials said they had to pay the money to keep needed employees as the company collapsed in December 2001 (see Enron Execs Pursue Deferred Comp Claims ).

One suit names Jeffrey McMahon, who became chief financial officer after Andrew Fastow stepped down in October 2001. According to the employee committee and papers filed in the lawsuit, McMahon amended his employment agreement November 29, the last day of business before the bankruptcy filing, and the following day received $1.5 million to remain with Enron through February.

Another lawsuit names James Fallon, former president and chief executive of Enron Broadband Services, who also received a $1.5-million payment November 30. Enron’s broadband unit was never profitable, and Enron laid off broadband employees when downsizing the unit months before the bankruptcy. The other two lawsuits name commodity traders and other employees, according to the AP story.