Ultimately, the fall of Enron Corp., the onetime rising star of the energy industry, may be remembered as a landmark in the annals of securities law and shareholder rights.
The firm's practices are under investigation by the Securities and Exchange Commission. Enron is the focus of numerous shareholder lawsuits that seek to recover damages from the $60-billion plunge in the company's value in the last year.
FOR THE RECORD
Los Angeles Times Tuesday November 27, 2001 Home Edition Part A Part A Page 2 A2 Desk 1 inches; 20 words Type of Material: Correction
Attorney's name--The name of San Francisco attorney Steven Sidener was misspelled in James Flanigan's column in the Sunday Business section.
The Enron case could result in new securities laws, experts say. It also could result in massive damage awards because of the extent of stockholder losses. Shares sold at more than $84 apiece a year ago, and at $36 a month ago before the emergence of hidden losses sent the price reeling downward to current levels below $5 a share. (The stock closed Friday at $4.71 on the New York Stock Exchange.)
Significantly, two suits against Enron charge that the firm's top executives breached their fiduciary duty of loyalty and prudence by failing to inform Enron employees of dangers to the company's finances while those employees held Enron stock in their 401(k) retirement plans.
The firm's troubles raise fundamental questions of what a company owes shareholders in the management and understandable disclosure of its accounts.
But Enron's predicament also goes to the heart of the U.S. financial system, says former SEC Chairman Arthur Levitt. Enron "represents a lack of the kind of disclosure that is fundamental to maintaining confidence in U.S. public markets," Levitt says.
Enron, technically speaking, disclosed in annual reports and proxy statements for 1999 and 2000 the existence of partnerships that in some cases "acquired debt and certain equity securities of certain Enron subsidiaries." But it did not disclose the significance of the partnerships, nor did it consolidate their transactions in its reports to shareholders and the SEC.
Its references to the partnerships were in footnotes to financial statements, written in the arcane legal language typical of such documents. For example, disclosure of one partnership, LJM Cayman, read in part: "LJM received 6.8 million shares of Enron common stock, subject to certain restrictions and Enron received a note receivable and certain financial instruments hedging an investment held by Enron."
Enron entered into at least 33 partnerships, attracting investments from pension funds and other investors in return for pledges of Enron stock at a guaranteed value. One partnership held 12 million Enron shares, which at one point were worth more than $1 billion.
