Employees File Class Action Lawsuit Against Enron
In a class-action lawsuit filed in U.S. District Court, employees of Enron Corp. claim the company recklessly endangered their retirement funds, causing some employees to lose hundreds of thousands of dollars almost overnight. The suit also claims that after a surprising third quarter loss announcement, Enron illegally locked down employee retirement plans, making it impossible for employees to protect their already damaged retirement funds from a 70 percent drop in Enron stock price. Filed by attorney Steve Berman of the Seattle-based law firm Hagens Berman on behalf of a proposed class of participants in the Enron Stock Plan, the suit claims Enron retirement plan managers withheld crucial information on the risks of investing in Enron stock. Instead of being warned of the risks, employees were encouraged to invest heavily in Enron stock, according to the suit.
Named plaintiff Roy Rinard, a long-time employee, had more than $470,000 of his retirement savings invested in Enron stock on the advice of Enron plan administrators. Now his retirement fund is worth just $70,000 -- a loss of $400,000 in a little more than a month. "I feel like I have been betrayed," said Rinard. "I have lost my savings, my plans for the future, everything." On Oct. 17, Enron locked down employee 401(k) accounts, preventing employees from moving any of their investments out of Enron stock. Since then, employees have watched in horror as the company's stock plunged more than 70 percent after an announcement of a $618 million third quarter loss.
According to the suit, Enron executives engaged in extensive insider trading prior to the Oct. 16 announcement, gaining millions of dollars in personal proceeds.
The class-action suit seeks to represent as many as 21,000 employees who invested in the Enron Stock Plan between Jan. 20, 1998 and Nov. 20, 2001.
On October 16, 2001, Enron surprised the market when it announced that the company was taking non-recurring charges totaling $1.01 billion after-tax in the third quarter of 2001. Enron later revealed that a portion of the charge was related to the unwinding of investments with certain limited partnerships controlled by Enron's CFO, and the company would be eliminating more than $1 billion in shareholder equity as a result of the unwinding of investments. As this news began to be assimilated by the market, the price of Enron common stock dropped significantly.