In an amicus court briefing by the U.S. Department of Labor, federal officials considering a motion to dismiss a class-action lawsuit over alleged mismanagement of Enron Corp.’s 401(k) losses have indicated that former Enron Chairman Kenneth Lay and other Enron executives could be held personally liable for millions of dollars in the fund losses. The brief was filed by the Labor Department on behalf of former Enron employees and retirees who participated in three benefit plans sponsored by Enron.

The lawsuit, filed in the U.S. District Court for the Southern District of Texas, Houston Division, was brought by Pamela Tittle on behalf of herself and a class similarly situated, against Enron Corp., Oregon Corp. The defendants, all former Enron executives, had moved to dismiss the lawsuit, arguing that there was “no set of facts” alleged that would make them liable for the losses suffered by the plans and the retirement accounts.

The Labor Department brief said that “essentially, the defendants argue that the Employee Retirement Income Security Act of 1974 (ERISA), 29 USC § 1001-1169, a statute designed to protect the financial stability of employee benefit plans and the retirement benefits of American workers, imposed no obligation on them as fiduciaries to do anything even if they knew or should have known that it was not in the best interest of the plans or their participants to continue to buy and hold Enron stock.”

However, the amicus brief expresses the department’s view that “based on the allegations in the complaint, ERISA required the fiduciaries to take action to protect the interests of the plans, their participants and beneficiaries, and that ERISA provides remedies for the failure to have done so. The allegations of the complaint are sufficient to withstand motions to dismiss, and the plaintiffs should be allowed to conduct discovery to prove those allegations.”

In responding to arguments made by the defendants that they should not be held liable, the brief states, “Plaintiffs point to a Sept. 2001 meeting at which Lay belittled the ‘reckless and unfounded rumors about Enron and the financial condition of Enron.’ He insisted that the company’s financial status was very strong, but he did not inform the employees of the information he had received which indicated that the company’s financial status was in jeopardy.” Cindy Olson, said the brief, a 401(k) plan fiduciary, “allegedly stood by his side and failed to correct his statements that the employee-participants, whom she was duty-bound to protect, should continue to invest in Enron stock, despite dire warnings about the company’s viability that she had personally received from Sherron Watkins, a company Vice-President.”

Plaintiffs further allege that Lay was asked by an employee for confirmation that Enron was not engaged in accounting irregularities, and responded that neither he nor the board would approve the use of any special purpose vehicles ‘unless we were convinced both by all our internal officers as well as our external auditor and counsel, that they were both legal and totally appropriate,’ according to the brief. “He did not, however, correct this statement by disclosing that ‘internal officer’ Watkins had raised serious concerns about Enron’s accounting irregularities and that, in response, Lay had asked ‘counsel’ to determine whether Enron’s accounting was in fact legal.”

The Labor Department said the complaint “sufficiently alleges that Lay’s and Olson’s statements were inaccurate and misleading at best, and flatly inconsistent with the basic fiduciary obligation of candor and loyalty.”

Responding to the brief, the employees’ class action attorney said the motion could have “broad implications not only with Enron litigation,” but also other cases over 401(k) alleged mismanagement. Steve Berman, an attorney leading the class-action litigation, said he applauded the brief, and said he agreed “with the department’s analysis wholeheartedly. We will prove Lay and his cohorts not only failed to protect the interests of employees, they intentionally misled employees and retirees in convincing them to continue investing in the company stock. They should be held personally liable for their misdeeds.”

Berman said Enron’s management “had a responsibility to protect the interests of those invested in the 401(k) program, an obligation they abrogated,” adding that “it is only fair that when we prove our case, the Enron officials who pocketed millions be held accountable. Pictures of mansions and swimming pools grate against our concept of fairness.”

The complete amicus brief, filed Aug. 30, may be viewed at the Department of Labor’s web site at www.dol.gov/sol/media/briefs/main.htm.

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