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Before Debacle, Enron Insiders Cashed in $1.1 Billion in Shares
The New York Times ^ | January 13, 2001 | LESLIE WAYNE

Posted on 01/12/2002 12:02:32 PM PST by sarcasm

While investigators are focusing on how much money investors and employees lost in the Enron Corporation (news/quote)'s collapse, some shareholders and lawmakers are now setting their sights on another target: Enron insiders who received millions selling their shares near the top of the market.

As Enron stock climbed and Wall Street was still touting it, a group of 29 Enron executives and directors began to sell their shares. These insiders received $1.1 billion by selling 17.3 million shares from 1999 through mid-2001, according to court filings based on public records. They continued selling as Enron's stock started to tumble early last year and the company began its slide into bankruptcy.

Kenneth L. Lay, who became prominent as the company's chairman and a leading contributor to President Bush, was among more than a dozen Enron executives who received $30 million or more. One sold shares valued at $353.7 million.

Lawyers and spokesmen for the executives, board members and the company say they had no insider information or other advantages over other investors.

"This issue is being investigated," said Robert S. Bennett, a lawyer for Enron. "But at this point in time, I am unaware of any evidence that supports the allegation there was improper selling by members of the board or senior management."

Some of them retained large holdings of Enron stock and sold regularly, much as executives at other companies do. "In many instances, the sale of the stock was pre-planned according to a strict timetable," Mr. Bennett said.

Mr. Lay himself sold Enron stock 350 times, almost daily, receiving $101.3 million. It has not been determined how much he or the others paid for their shares. In all, Mr. Lay sold 1.8 million Enron shares between early 1999 and July 2001, five months before Enron filed for bankruptcy.

Some of Mr. Lay's shares were sold for as much as $86. This week, Enron was selling for under 70 cents a share. Sometimes Mr. Lay sold in amounts as small as 500 shares, others times he sold as many as 100,000 shares at a time. Mr. Lay and other executives had much of their holdings in the form of stock options, that allowed them to buy shares at a discount to the market price.

Other top sellers were Lou L. Pai, the former chairman of an Enron subsidiary, who received $353.7 million for his 5 million shares; Rebecca P. Mark-Jusbasche , a director who received $79.5 million for 1.4 million shares and Ken L. Harrison, a director who sold 1 million shares for $75.2 million.

Jeffrey K. Skilling, the company's former chief executive, received $66.9 million for 1.1 million shares. Beginning in December 2000, Mr. Skilling began to sell his holdings at a pace of 10,000 shares about every seven days. Andrew S. Fastow, the company's ousted chief financial officer who set up many of the financial partnerships that have been criticized for concealing Enron's large debts, , received $30 million for his holdings.

A detailed accounting of these trades is contained in a lawsuit brought by Amalgamated Bank, of New York, which invested the pension money of union members in Enron shares. Representing the bank in this case, which is now in U.S. District Court in Houston, is the same law firm that successfully brought a shareholder suit against Charles Keating during the savings and loan scandal and against Michael Milken for securities fraud.

While the suit has received little attention to date in the growing Enron scandal, it highlights one of the main points in the political debate now taking place in Washington — how small shareholders were left out of a flow of information about Enron's deteriorating financial condition.

The differences in the trading strategies of the two groups — those outside the company who were buying Enron's shares and those inside the company who were selling them — reflect the different information that each group had, according to the suit.

"The defendants employed devices, schemes and artifices to defraud," the lawsuit stated. It also accused the 29 defendants of "unlawful insider trading," and said the group "materially misled the investing public" by issuing false statements about Enron's financial problems.

Sen. Joseph I. Leiberman, the Democratic chairman of the Senate government affairs committee, has already announced hearings that will, in part, look at how Enron shareholders might have been deceived by the company's financial statements. Democratic California Senator Barbara Boxer has also expressed concern for Enron's small shareholders, especially Enron employees who put Enron shares in their 401(k) retirement plans, only to lose their savings.

At Enron, more than half of the employee's 401(k) assets, or about $1.2 billion, was invested in company stock, which is now worthless. Billions more were lost by other investors, from individuals to large institutions who bought Enron shares for the pension plans of unions and corporation.

The lawsuit says Enron insiders knew of Enron's unraveling finances and traded on it for their own gain while not telling the investing public of the company's problems. The suit claims the insiders withheld information, allowing Enron's shares to remain at an artificially high level during the period in which they were selling their shares.

"This is the most massive insider bailout that we've ever seen and we've been prosecuting these cases for 30 years," said William S. Lerach, one of the bank's lead attorneys. "The overall size of this case is unprecedented. As Enron stock moved to an all-time high, the pace of insider selling accelerated dramatically. In the end, of the $1.1 billion of stock that was sold, hundreds of millions was sold at all-time highs."

Spokesmen for some of the defendants say that this group has done nothing wrong. While Enron was not named in the case, many of its employees, including Mr. Lay, were. Enron spokesman Mark Palmer dismissed the suit as "completely without merit" and a "weak arguement."

Gordon G. Andrew, a spokesman for Mr. Fastow, the former chief financial officer, declined to comment, but said that Mr. Fastow still has about 50 percent of his original holdings. Mr. Andrew said that Mr. Fastow's last stock sale took place in November 2000 and that Mr. Fastow bought some shares in early 2001, which was his last Enron trade.

The defendants have not yet filed answers to the complaint. Arthur Andersen, also named in the suit, declined to comment.

A spokeswoman for Mr. Skilling, the former chief financial officer, said that `'there is absolutely no basis to the allegation that Mr. Skilling did anything improper with regard to the sale of Enron stock."

The lawsuit contains pages on each stock sale made by the 29 defendants, with information collected from filings required with the Securities and Exchange Commission.

At the top end of the selling was Mr. Pai, who headed an Enron subsidiary called NewPower Holdings (news/quote), an online retailer of electricity and natural gas. Before leaving Enron last spring, Mr. Pai sold 5 million shares of Enron between January 1999 and July 2001 for $353.7 million.

In January 2000, just 60 days after the formation of NewPower, Mr. Pai received over 2 million Enron shares. He began to sell them almost immediately, mostly while the shares were trading at over $70 each.

Enron directors, who were also named in the case, were also big sellers — generally in the million-dollar range, often in double digits. A director, Robert A. Belfer, for instance, received $51 million. All Enron directors receive stock options as part of their $380,619 annual directors fees. Fifteen percent of this was paid in cash, the remainder in stock.

Yet, one of the most politically-connected directors, Wendy L. Gramm, wife of Republican Senator Phil Gramm, was one of the smaller sellers. She sold 10,256 shares and received $276,912. All her stock was sold on one day — Nov. 3, 1998 — for $27 a share. Ms. Gramm had said earlier that she and her husband decided to sell Enron common shares to avoid an appearance of conflict. She was paid then only in cash.

Other top Enron executives named in the suit who made big sales included Kenneth D. Rice, president of Enron Broadband Services, who received $72.7 million and Mark A. Fervert, chairman of Enron-North America Corporation, who received $50 million.

Besides this lawsuit, the Securities and Exchange Commission is also investigating Enron's financial transactions and public disclosure. The Justice Department is also conducting an inquiry.

The government investigations should make it easier for the lawyers bringing the case against the 29 insiders, according to Michael Hennigan, a Los Angeles attorney who represented the plaintiffs in the Orange County, Calif., bankruptcy litigation.

"I assume that the government is going after the exact same things that Lerach is after," said Mr. Hennigan, referring to the lead lawyer on the case. "They will be doing a lot of the investigating for him."


TOPICS: News/Current Events
KEYWORDS: enron; michaeldobbs
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To: A Citizen Reporter
"This issue is being investigated," said Robert S. Bennett, a lawyer for Enron.

Hmmm, wasn't this guy a Clinton lawyer during Monica? Awful incestuous...

21 posted on 01/12/2002 10:26:24 PM PST by Dianna
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To: boston_liberty
"Did some of the workers lose money because they were not allowed to sell Enron stock?"

A "freeze" in sales of stock from 401k employee accounts at Enron was instituted in September.

The nominal reason for the freeze was that Enron management had appointed a new 401k account administrator (an outside company specializing in financial services). A freeze is standard practice under these circumstances, so that the new administrator may audit and reconcile the accounts, satisfying itself that everything is in apple pie order before they assume responsibility.

Normally such freezes last 30 to 90 days, depending on the complexity of the administration.

There is a suspicion, however, that the primary objective of the new administrative appointment may well have been to achieve this freeze -- thereby mitigating the oncoming storm.

If the suspicion proves true, add another ten years or so to the prison terms.

22 posted on 01/12/2002 10:31:05 PM PST by okie01
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To: Rightuvu
"Whattya wanna bet that not one of these birds does more than six months at a Club Fed?"

If Clinton (or Gore) were in office, Enron never would've been allowed to go in the tank. And, of course, nobody would be going to jail.

As this is now playing out, though, I would not be at all surprised to see a gaggle of Enron execs and several Arthur Andersen officers packing their bags for an extended stay in Marion.

No amount of legal obfuscation can overcome the obvious fact that some rather elemental crimes have been committed.

23 posted on 01/12/2002 10:41:14 PM PST by okie01
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To: Dianna
Answering my own question..

Bennett was Clinton's Paula Jones atty. FR search has AP reporting on Dec 26, 2001 that Bennett has been hired.

The crap was hitting the fan and they needed a Clinton insider (or more Clinton insiders than they have?) to cover all their behinds.

24 posted on 01/12/2002 10:45:13 PM PST by Dianna
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Comment #25 Removed by Moderator

To: okie01; boston_liberty
A "freeze" in sales of stock from 401k employee accounts at Enron was instituted in September.

The nominal reason for the freeze was that Enron management had appointed a new 401k account administrator (an outside company specializing in financial services). A freeze is standard practice under these circumstances, so that the new administrator may audit and reconcile the accounts, satisfying itself that everything is in apple pie order before they assume responsibility.

Normally such freezes last 30 to 90 days, depending on the complexity of the administration.

Try 10 trading-days ...

From: http://www.freerepublic.com/focus/fr/607072/posts?page=17#17

Press Release ENRON EXPLAINS BASIC FACTS ABOUT ITS 401K SAVINGS PLAN FOR IMMEDIATE RELEASE: Friday, December 14, 2001 HOUSTON – Enron Corp. (NYSE: ENE) today explained basic facts about its 401K savings plan. This explanation is being provided to correct numerous inaccurate news reports and statements from plaintiffs’ attorneys over the past several days.

When companies change the administrator of a 401K program, a temporary shutdown, typically lasting several weeks, is required to allow employee account information to be accurately and completely transferred to the new administrator.

In February of 2001, in order to improve its 401K plan, Enron requested proposals from third-party benefits firms to take over administration of its plan.

After selecting a new 401K administrator, Enron notified all affected employees in a mailing to their homes on October 4, stating that a transition period would begin on October 29. Between the first notification and the first day of the transition period, the company sent several reminders to employees over the internal e-mail system.

The transition period during which employees were unable to change investments in their 401K accounts lasted just 10 total trading days, beginning on October 29 and ending on November 12, 2001. The transition applied to all plan participants, including senior executives.

From October 29, the first day of the temporary shutdown, through November 13, the first day participants could transfer funds, the Enron share price went from $13.81 to $9.98, a drop of $3.83. On five of those trading days, Enron’s share price closed below $9.98.

Outside of the brief transition period, Enron employees have always been able to transfer their own contributions in the 401K, at any time. They have 20 investment options to choose from, Enron stock being one of them.

Until recently, the company provided a 50% match on employees' 401K contributions of up to six percent of the their base pay. The match comes from Enron holdings. As is the case with most company matching programs, the match was provided in company stock.

As is also the case in many company 401K programs, until recently, stock holdings from the company match could not be transferred into other investment options until the employee reached age 50. Enron markets electricity and natural gas, delivers energy and other physical commodities, and provides financial and risk management services to customers around the world. Enron’s Internet address is www.enron.com. The stock is traded under the ticker symbol “ENE.” ### Click here to download this press release in Adobe Acrobat 4.0 format. Click here to download Adobe Acrobat 4.0. For additional information please contact: Mark A. Palmer (713) 853-4738 Elsewhere in Press Releases: Enron Corp 2002


26 posted on 01/13/2002 5:27:36 AM PST by _Jim
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To: BluH2o
"Bottom line folks ... while the little guys that worked for Enron scan their now virtually worthless Enron stock certificates and the senior officers of Enron ski at Aspen (with the liberal democrat crowd) ... I want to see some of those smug bastards doing jail time ... 15 to 20 minimum."

Me too. Just think, now one has to sell 5 shares of Enron stock in order to buy a hot dog at Enron field! Bastards.
27 posted on 01/13/2002 5:39:12 AM PST by demkicker
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To: demkicker
I thought I saw a post where the actual certificates are selling over at E-bay for $100 a piece. I guess it is the sentimental value. (grin)
28 posted on 01/13/2002 5:50:05 AM PST by Brad C.
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To: TruthShallSetYouFree
"If a burglar or purse snatcher who grabs a hundred bucks gets five years in the slammer, those guilty of ruining the lives of literally thousands of people should be forced to disgorge all the misbegotten profits, pay triple damages (to the extent their funds are available) and spend the rest of their lives in jail thinking about what they did."

I agree.

29 posted on 01/13/2002 5:56:19 AM PST by blam
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To: _Jim
"employees were unable to change investments in their 401K accounts lasted just 10 total trading days, beginning on October 29 and ending on November 12, 2001."

Ten very critical trading days, were they not?

And one might harbor legitimate suspicions with respect to the timing, mightn't one?

30 posted on 01/13/2002 7:27:39 AM PST by okie01
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To: okie01
Ten very critical trading days, were they not?

Sure ... the stock price had ALREADY declined into the single digit range by then ... critical? I would say not ...

By then the stock was already in the 8 dollar range (down from what?).

Are you prepared to defend a position that says a company may not change plan administrators and, in doing so may not 'lock down' the databases for a *reasonable* (and considerably shorter period than is standard in industry as you cited) length of time in order to assure an orderly and accurate change-over?

31 posted on 01/13/2002 7:38:44 AM PST by _Jim
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To: _Jim
"Are you prepared to defend a position that says a company may not change plan administrators and, in doing so may not 'lock down' the databases for a *reasonable* (and considerably shorter period than is standard in industry as you cited) length of time in order to assure an orderly and accurate change-over?

Absolutely not. But I am saying that the timing of the Enron 'lock down' was curious. And worthy of further investigation.

You don't?

32 posted on 01/13/2002 7:59:36 AM PST by okie01
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To: _Jim
The sales by company insiders needs to be investigated, and I'm sure it will be. If the amount of selling was extremely high, and the people who sold had material inside information which hadn't been disclosed which would have negatively affected the price of the stock, they will face some serious problems.

On the other hand, selling stock by company executives is routine. Much of this is in the form of exercising stock options which are part of their compensation. Such sales by insiders are publicly reported and there are very strict rules about how they do it.

Much of this could well be innocent behavior by executives who had nothing to do with the Enron scandal. Enron stock had already peaked in price in late 2000. Selling stock as the California power crisis came under control might have been a rational investment decision by some of these executives.

I buy and sell stock in the company I work for all the time. I sell when I think the prospects look gloomy for the next few months and buy when I think things are turning around. There's nothing wrong, illegal or immoral about that. Especially since I'm not always right!

Enron employees were free to do the same thing with the Enron stock in their 401ks that were purchased with their contributions. I'm sure the ones who actively managed their accounts did so. Any Enron employee who held such stock when in slid from $90 to $13 per share before the two-week lockdown pretty much has nobody to blame but themselves. The lockdown cost them another few bucks, but only if they would have sold their stock during that lockdown period. It's peanuts compared to what they had already allowed to happen.

The restrictions on the company matching portion of their accounts prevented them from selling the free stock the company had given them. That's terribly unfortunate, but it's also a very common feature in these types of accounts. I would support a law outlawing that type of restriction.

33 posted on 01/13/2002 8:03:23 AM PST by Dog Gone
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To: linn37
in 1998 no less

Certainly the conspiracy wasn't going on under Clinton's watch, was it?

34 posted on 01/13/2002 8:17:32 AM PST by FreePaul
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To: Dog Gone
The sales by company insiders needs to be investigated,

I see no propblem with that - as it assures that the law in the future has 'teeth' and will make those that think about trading on insider information perhaps think twice and decide against it.

35 posted on 01/13/2002 8:23:17 AM PST by _Jim
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To: Dog Gone
The restrictions on the company matching portion of their accounts prevented them from selling the free stock the company had given them. That's terribly unfortunate, but it's also a very common feature in these types of accounts.

I would support a law outlawing that type of restriction.

Oh no ... government just go bigger and I just lost more rights ...

I see laws like *this* having the 'Rule of Un-intended Consequences' kick in - like the employer might simply remove this particular compensation item ...

What part of the meaning of 'Free Enterprise' has been lost - should it be changed to 'Mostly-free Enterprise' or '99% Free Enterprise' or 'Only 1% Socialism Enterprise'?

36 posted on 01/13/2002 8:29:27 AM PST by _Jim
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To: TruthShallSetYouFree
Since the NYT uses figures over a period from 1998 to 2001 it is hard to know when these people sold (except for Mrs. Gramm). Stock sale prices range from $27 to $86. I'll bet most of the sales were made while the value was declining. When executives are selling and prices are declining shouldn't there be all kinds of warnings to investors? Why did the employees keep their retirement accounts invested in a failing company? If there was a company policy to misdirect the employees then those responsible should be held to account at least to some degree.

I have been suspicious of Enron since they paid Clinton a one hundred thousand dollar bribe to help them initiate what turned out to be a major fiasco in the Indian power plant. I believe that they thought the US government was going to guarantee that they wouldn't lose money on this mess.

37 posted on 01/13/2002 8:34:03 AM PST by FreePaul
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To: okie01
And worthy of further investigation.

If the *intent* was to simply change the plan's administrator so as to use the 'freeze provision' to stop blood-letting in stock sales by employees - how would you, how could one conclusively prove that? The 'investigation' could turn out to be no more than a witch hunt and a lesson in how the seemier side of business operates. No less than the way life exists in nature (eat or be eaten - financially in this case though) and the survival of the fitest.

That aspect (cutting the blood-letting), although down and dirty and looking VERY ominous in the eyes of the public - could turn out to be true and entirely legitimate.

It just looks bad is all ...

Do I/could I agree to such tactics? I'm afraid my conscience would prevent me from doing so.

38 posted on 01/13/2002 8:37:25 AM PST by _Jim
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To: TruthShallSetYouFree
The list of sales by top corporate officers for any stock, including Enron, is always readily available at any investment website, and could have been perused by any investor, throughout this whole period of time.

I know the employees were screwed by the 401k lockup, but "due diligence" would have waved off any other outside investor for the last year or two.

A list of ten or fifteen heavy sales in a row, with no buys, ought to be enough, despite the fraudulemt "buy" recommmendations of Wall street hucksters, ten or twelve of whom, rode Enron right down in flames, hollering BUY BUY the whole way.

39 posted on 01/13/2002 8:43:39 AM PST by hinckley buzzard
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To: _Jim
Oh no ... government just go bigger and I just lost more rights ...

Not all laws create a bigger government, and that one certainly wouldn't. I worked for a company for years that had a restriction like Enron. I couldn't do a darn thing with the stock they had contributed to the plan. It consistently underperformed the market, and I didn't think it was particularly fair. The stock was mine. The company couldn't take it back if I quit. But I couldn't sell it and put the money into a different financial investment.

Such a law would GIVE employees more rights with their own money. You certainly haven't articulated a good argument against that.

40 posted on 01/13/2002 9:13:52 AM PST by Dog Gone
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