In an effort to recover the nearly $145 million lost when the price of Enron stock plummeted last fall, the University of California has recently joined a class action lawsuit against 29 top executives of the company and its accounting firm, Arthur Andersen, LLP.
The lawsuit alleges that the executives — including former CEOs — and the accounting firm “”engaged in massive insider trading while issuing false and misleading financial statements about the company’s purportedly ‘record’ results and strong operating performance.””
Executives who were aware of the true financial situation, according to the lawsuit, sold over 17 million shares for over $1.1 billion between Oct. 19, 1998 and Nov. 27, 2001. Throughout the majority of this time, the company reported a sound financial outlook.
“”The allegation is that company was misrepresenting its profit and debt by pushing debt and losses to its partnerships,”” said UC counsel Christopher Patti. “”It’s a problem when [the defendants] are doing that at a time when material information about the company is being withheld from the public.””
The Houston-based company became the nation’s seventh largest corporation through a broad-based business strategy centered around the trading of natural gas and electricity.
A spokesman for Arthur Andersen, LLP referred all comment to CEO Joe Berardino’s Dec. 12 testimony to the U.S. House of Representatives Committee on Financial Services.
Calls to Enron were unreturned.
Berardino told the committee that most information regarding the restatement of financial information was withheld from Andersen, but some information was not released due to an “”honest error.””
Enron is currently under investigation by the Securities and Exchange Commission, the Labor and Justice departments and congressional committees regarding any wrongdoing owing to its fall into bankruptcy.
So far, there have been no criminal charges filed against anybody associated with the bankruptcy or the company.
On Dec. 21, the University of California joined the lawsuit, which was originally filed Dec. 5 by the national firm of Milberg, Weiss, Bershad, Hynes & Lerach, LLP on behalf of Amalgamated Bank.
There are many suits alleging various illegal dealings associated with the Enron downfall. The University of California chose to sign on to the Milberg complaint because of the firm’s expertise and past performance in class action litigation, according to Patti.
Because the various suits are currently being consolidated into one single class action suit, the University of California petitioned to have Milberg serve as lead counsel. This would allow the University of California to have a greater role in the eventual disbursement of any recovered funds if the suit is successful, Patti said.
The University of California lost $144.7 million when Enron’s stock price fell from a high of $90.75 per share. Approximately $94 million of that was from the UC Retirement Fund.
The University of California sold its Enron holdings in November 2001. The losses resulting from the failed Enron stock will not affect the ability of the fund to meet its obligations to beneficiaries, stated David Russ, treasurer to the UC Board of Regents.
The University of California’s total investment in Enron comprised of three-tenths of 1 percent of the total UC investment portfolio, which is valued at $54 billion.