Presentation on theme: "Enron – Shareholders Aaron Palmer Seyoung Park. Shareholders Common shareholders - saw their holdings dwindle to almost nothing Employees - lost 401(k)"— Presentation transcript:
Enron – Shareholders Aaron Palmer Seyoung Park
Shareholders Common shareholders - saw their holdings dwindle to almost nothing Employees - lost 401(k) plan holdings that were heavily invested in Enron stock Unsecured creditors - are owed billions of dollars
Conflicts (1) Retirement 401(k) plan Enron Corp. also sponsored a retirement plan (401k) for its employees to which they can contribute a portion of their pay on a tax-deferred basis Unfortunately, pension benefit protections under the federal Employee Retirement Income and Security Act (ERISA) do not apply to 401(K) retirement investment plan because the employee bears the investment risk in a defined contribution plan, which is like a saving account maintained by the employer on behalf of each participation employee
Conflict (2) A Chapter 11 – Bankruptcy protection - To resolve financial problem and to maximize the value of all a company’s assets and operation for protecting benefits of all of its creditors - To reorganize its finance and operations to deal with financial obligations to creditors owed money - However, Enron existing equity does not and will not have value, and any chapter 11 plan of reorganization confirmed by the Bankruptcy court will not provide Enron’s existing equity with interest in the reorganized debtors.
Tort Claims Negligence claim Negligent misrepresentation - Economic loss by defendants’ unreasonable acts Intentional tort claim Fraudulent misrepresentation - The investment relied on fraudulent misrepresentation defendants made Tortuous Interference -Defendants intentionally interfere with the shareholders economic activity
Enron case -Possible claims Fraudulent misrepresentation under second restatement of Tort S a party making a misrepresentation will be held liable for the economic damages she causes if the parties injured reasonably relied on the misrepresentations, and if the parties who reasonably relied belong ‘to a class of persons’ whom the defendant ‘had reason to expect’ would rely on the misrepresentation - The main issue of fraudulent misrepresentation is dependent on scope of reliance. For Enron’s shareholders, false information on the annual report caused its stock price to be misleading, thereby setting up tremendous economic loss. Therefore, based on the ‘fraud on the market’ in federal securities law, the shareholders can prove that they read or relied on the false information in court without testifying to it.
Enron case -Possible claims (2) Tortuous Interference The law draws a line beyond which no one may go intentionally intermeddling with the business affairs of others. To be considered tortuous, a defendant’s action must substantially exceed fair competition and free expression
Possible defendants Lawsuit against Wall street firms and financial institutions - J.P. Morgan Chase & Co., Citigroup Inc., Credit Suisse First Boston USA Inc., Bank of America Corp., Merrill Lynch & Co. and Lehman Brothers Holding Inc Reasons Participated in underwriting of Enron over the years and selling Enron bonds Universally recommended purchase of Enron share Marketed investment in Enron-related partnership
Enron case -Impossible claim Negligent misrepresentation Against Lawyers Since 1994, the U.S. Supreme Court has ruled that advisers cannot be held liable for aiding fraud they did not participate in directly. Lawyers can certainly be sued for malpractice, but those claims would have to be made by Enron itself, or its bankruptcy trustee, not Enron shareholders. B ecause Enron's attorneys' duty would be held to be a duty to Enron, not its shareholders, it would be difficult for the shareholders to directly put the lawyers or law firms on a trial for economic recovery in a malpractice case.
Suggestions Congress Must strengthen the regulatory and enforcement power of the Securities and Exchange Commission (SEC) by extending jurisdiction over power marketer Must re-regulate the trading of energy future Corporations Should push for an ease on government regulations that prevent institutional investors from serving on corporations boards Shareholders Should not heavily rely on the information on annual report