Florida Takes Alliance Case to US Senate

May 17, 2002 (PLANSPONSOR.com) - Still smarting from some $280 million in Enron-related losses, officials of Florida public pension fund took their battle against Alliance Capital Management to Capitol Hill for what they say were improper investments.

Thomas Herndon, executive director of the Florida State Board of Administration, which runs the $100 billion state pension fund, told a Senate committee that Alliance was negligent when it invested in 7.6 million Enron shares, according to a CBS Marketwatch news report.

Earlier this month, the state sued Alliance to recoup its Enron losses, claiming that Alliance breached its contract with the state by not conducting  “rigorous company specific research”.

“In spite of the continuing ‘red flags’ that were raised associated with Enron’s death spiral, the Alliance investment team continued to buy Enron stock in an accelerated fashion,” Herndon told the Senate Commerce subcommittee, according to CBS Marketwatch. “It is now clear to us that Alliance was buying Enron on faith – not on research.”

Meanwhile, Alliance officials fought back by telling senators that they were also victims of a deception from Enron and its auditor Arthur Andersen. Florida hired Alliance in April 1998 to invest a portion of its funds.

“I believe the blame for the collapse of Enron and the resulting loss to countless investors lay with Enron’s management team and its auditors,” Alliance chairman Bruce Calvert testified, according to CBS Marketwatch.

Alliance bought 2.7 million Enron shares – at prices ranging from $9 to $22.82 per share – after the Houston-based energy trader recorded a third-quarter loss of $618 million and a reduction in shareholder equity of $1.2 billion.

Alliance dumped all the Enron stock it held for the Florida pension fund for 28 cents per share on November 28, just days before Enron filed for the largest US corporate bankruptcy

For background on the Enron story, see our company stock page .