A Texas bankruptcy judge has ordered nearly 40 former Enron Corp. energy traders to return $20 million in bonuses, money distributed just days before the company declared bankruptcy in December 2001. Barring appeals, the monies will be disbursed to about 4,500 other ex-employees who were fired.

In late November 2001, Enron paid out a total of nearly $105 million in bonuses to favored trading personnel in a deal named, “Project 911,” to ostensibly encourage the employees to remain with the company as it neared bankruptcy. Leading the bonus list was former Enron Americas CEO John Lavorato, who apparently received $5 million, while former COO Louise Kitchens was given $2 million (see Daily GPI, Dec. 12, 2001). Kitchens was credited with starting up the once unstoppable EnronOnline trading platform.

Dallas-based U.S. Bankruptcy Judge Robert McGuire, sitting in Houston for the case, said in a ruling last Friday some of the bonuses were fraudulent and improperly preferential. McGuire issued a 102-page memorandum, focusing on Enron in November 2001. He wrote it was obvious that profits, if any, would be lower and bonuses might be nonexistent in those final days. “During this time, chaos was reigning at Enron. The bonuses were paid prior to events they acknowledged.”

The $20 million ordered returned is in addition to $50 million already recovered through litigation. Most of those who were originally sued have settled their cases, according to the plaintiffs’ attorneys. The recovered monies will be disbursed to ex-employees based on each person’s years of service with Enron and their salary at the time they were fired.

Houston lawyer Mark Maney, who represented the group of ex-employees seeking the bonuses, said in a statement the ruling was “a complete vindication of the Employees’ Committee’s claims that there was actual fraud in Enron’s attempts to reward favored employees and executives on the eve of bankruptcy.”

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