Human Capital & Careers

Enron Traders Must Return $20 Million

The money will now go to the roughly 4,500 employees who were fired at the same time.
Stephen TaubDecember 13, 2005

About 40 former Enron Corp. traders have been ordered by a bankruptcy judge to relinquish $20 million in bonuses they received just prior to the energy company’s bankruptcy filing, according to the Houston Chronicle.

U.S. Bankruptcy Judge Robert McGuire ruled the bonuses were fraudulent and improperly preferential, according to the Chronicle. The money will now go to the roughly 4,500 employees who were fired at the same time.

“That doesn’t mean it was fraud on the part of the individuals who accepted the bonuses — those are just bankruptcy terms,” Richard Rathvon, a former Enron employee who helped form the committee that sued for the money, told the Chronicle. “But it does mean that we were right all along. These monies that went out the door 48 hours before the bankruptcy will now be put back in the hands of those who were thrown out the door.”

Altogether, Enron shelled out $105 million in bonuses to certain trading-related employees in “Project 911,” according to the report.

The paper noted that the $20 million recovery is in addition to $50 million that the employee committee has already recovered through negotiation and litigation, citing lawyers David McClain and Mark Maney. The lawsuit was initially filed against about 300 people.

In a 102-page memorandum explaining his decision, McGuire noted that in the days leading up to the December 2001 bankruptcy, it was obvious that profits, if any, would be lower and bonuses might not even exist, according to the report. “During this time, chaos was reigning at Enron. The bonuses were paid prior to events they acknowledged,” the judge reportedly wrote.

Amendments to the bankruptcy law that went into effect in October now make it much harder for companies to award bonuses to “key employees” during a bankruptcy.