Enron Execs May Have to Repay Plan Losses
In a legal brief filed in a federal court lawsuit against Enron, the DoL claimed former chief executive Kenneth Lay and other top officers breached their fiduciary duty imposed by ERISA, Washington-based legal publisher BNA reported.
The DoL agreed with claims in the employee lawsuit that Lay and the others may be personally liable to the employees, citing a case earlier this year involving Great-West Life & Annuity Insurance Co. The DoL said the earlier ruling held that the award of money damages were a proper outcome of a breach of fiduciary duty case.
Those fiduciary duties, the DoL argued, are “highest known to law.”
Those requirements “do not permit fiduciaries to ignore grave risks to plan assets, stand idly by while participants’ retirement security is destroyed, and then blithely assert that they had no responsibility for the resulting harm,” the DoL argued in its court papers.
“ERISA is unambiguous in what it requires of fiduciaries,” the DoL continued. “They must act to protect the interest of plan participants and beneficiaries. Such action could consist of disclosing vitally needed information to participants, investigating suspicious circumstances surrounding plans, or freezing further investment in stock that might be heavily overvalued and likely to crash. . . Defendants could not fulfill their fiduciary responsibilities by doing nothing at all to safeguard the interests of participants and beneficiaries who they were duty-bound to protect.”
DoL contended in its legal brief that Lay and others “knew or should have known that the plans were paying too much for Enron stock and that financial misstatements gravely threatened the integrity of Enron’s retirement promises.”
Executives Deny Wrongdoing
The DoL legal brief came in response to court papers filed by Lay and other Enron defendants in which they denied violating their ERISA fiduciary duties to participants in the Enron Corp. Savings Plan, the Enron Corp. Employee Stock Ownership Plan (ESOP), and the Cash Balance Plan.
Lay and the others argued that ERISA, “imposed no obligation on them as fiduciaries to do anything even if they knew or should have known that it was not in the best interest of the plans or their participants to continue to buy and hold Enron stock.”
In response to one of the employees’ claims, Lay and the others argued that they did not breach their fiduciary duties by acquiring and retaining Enron stock for the ESOP because the plan documents directed that most of the assets of the ESOP should be Enron stock.
DoL said Lay and the others not only had a duty to refrain from misleading plan participants or to correct their own misstatements, but also had a duty to protect plan participants from misleading information.
“[When] a fiduciary is aware that participants have been misinformed about the very stability of their retirement assets, they must take action to protect the participants,” DoL said.
Lay and the others knew or should have known about Enron’s grave financial condition, the department said and withheld that information from plan participants and the plans’ administrative committee, the DoL said.
The brief was filed in Tittle v. Enron Corp., S.D. Texas, No. H-01-3913, brief filed 8/30/02.
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