Risk & Compliance

Alabama Fund Cuts Its Own Enron Deal

''We knew we could get a higher percentage of recovery by bringing our own suit, and the amount of loss was large enough for it to be cost-effectiv...
Stephen TaubJune 16, 2005

Nearly overlooked by the recent multibillion-dollar settlements in the Enron bankruptcy was the agreement between Alabama’s state pension fund and five investment banks.

According to Reuters, the Retirement Systems of Alabama will receive $49 million, about 86 percent of the $57 million that the fund claimed it lost on Enron stock and bonds. The fund’s lead attorney, J. Michael Rediker of Haskell Slaughter Young and Rediker LLC, told the wire service, “I regard the settlement as an excellent recovery for a state pension fund.”

The five banks that settled with the Alabama fund — Bank of America Corp., Citigroup Inc., Credit Suisse First Boston, J.P. Morgan Chase & Co., and Merrill Lynch & Co. — did not admit wrongdoing and did not disclose their individual contributions toward the settlement.

In the past week, J.P. Morgan Chase agreed to pay $2.2 billion and Citigroup, $2 billion, to settle their parts of a class-action lawsuit. The Alabama fund did not join that suit, Reuters noted.

“We knew we could get a higher percentage of recovery by bringing our own suit, and the amount of loss was large enough for it to be cost-effective to sue separately,” Rediker told the wire service. “We also had somewhat different claims from the class-action plaintiffs and focused predominantly on state law.”

According to the Alabama fund’s chief executive officer, David Bronner, the fund still has litigation pending against former Enron chairman Kenneth Lay, former chief executive officer Jeffrey Skilling, and former chief financial officer Andrew Fastow, as well as Enron’s former auditing firm, Arthur Andersen. “Had we waited for the criminal cases to settle, we would have had to wait another three to five years and lawyers would be eating up fees,” Bronner told the wire service.

Lay and Skilling are scheduled to stand trial beginning in January 2006.

Last year, the Alabama fund did not join the class action regarding bond offerings related to scandal-plagued WorldCom Inc. Suing independently, the pension fund recovered $111 million from Citigroup, J.P. Morgan, and Bank of America, which worked out to 89 percent of the fund’s losses.