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SEC Challenges Enron's Retention Bonus, Severance Plan

Courts: Agency wants to know who would share millions in payments. Creditors, fired workers also file objections.

April 13, 2002|THOMAS S. MULLIGAN | TIMES STAFF WRITER

NEW YORK — The Securities and Exchange Commission on Friday challenged a retention bonus plan for 1,285 "key employees" at bankrupt Enron Corp., saying the company must provide more disclosure to justify why the payments of up to $130 million are warranted.

Enron sought court approval for the plan last month but has not named the employees to receive bonuses or said how much each would collect, the SEC said in an objection filed Friday.

A group of fired Enron workers and at least three sets of Enron creditors also filed objections.

A hearing is scheduled for Tuesday before Judge Arthur J. Gonzalez in U.S. Bankruptcy Court in Manhattan.

"They are seeking such a large amount of money and providing so few critical details that there needs to be more public disclosure," SEC attorney Alistaire Bambach said Friday.

After learning of the SEC's objection, Enron lawyers contacted SEC staff Friday afternoon to offer further details of the plan, but the conference didn't satisfy the agency, Bambach said. The key is for Enron to state its case in public, giving names and dollar amounts, she said.

The SEC and the other objectors also criticized a component of the plan that would protect 237 top employees from having to give back any of the money they were awarded last year when Enron handed out $55 million in bonuses just two days before its Dec. 2 bankruptcy filing.

Some critics believe those payments were an improper transfer of assets--a "fraudulent conveyance," in legal terms--and should be recovered for Enron creditors and shareholders.

In proposing the new plan, Enron said senior managers possessing "unique knowledge, skills and experience" must be kept to get maximum value out of the energy company's remaining assets.

Besides $40 million in retention bonuses to be paid out quarterly through Feb. 28, the plan calls for an unusual "liquidation incentive pool" to benefit 150 to 200 "select employees possessing the requisite skill and expertise" involved in selling off Enron assets.

Pool participants would share in $7.4 million to $90 million, based on how much cash the assets generate. The rationale is that the employees will work harder for a top price if their compensation is tied to it, Enron said in its filing.

An additional $7 million in severance payments is earmarked for an estimated 842 employees not eligible for the retention bonuses. Finally, about 700 of those participating in the bonus plan also would receive severance from a pool totaling $500,000 if they get laid off, according to the Enron filing.

Dunhill Group, a collection of energy firms that are major Enron creditors, said in its objection that Enron has become so tainted that many of its workers are "otherwise unemployable, certainly not at their present salary. Giving such a person an additional financial incentive to stay employed with [Enron] is unnecessary."

A group of 22 laid-off Enron workers, in its filing, lashed out at Enron's official creditors committee for endorsing the bonus plan but opposing additional severance packages for their fellow 4,500 workers laid off last year.

The creditors committee "appears to prefer to join in the whitewash of past misdeeds than to assist thousands of innocent workers facing enormous financial and personal hardship," the filing states.

Neither Enron nor the creditors committee responded to requests for comment.

In a separate action Friday, Judge Gonzalez transferred Enron's $10-billion lawsuit against would-be merger partner Dynegy Inc. to U.S. District Court in Houston. Enron sued after Dynegy backed out of the deal, which was seen as a last-ditch chance for Enron to escape bankruptcy.

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