Enron Investors Seek Texas Senator’s Help in $40 Billion Lawsuit

August 1, 2007

Ex-Enron Corp. worker George Maddox holds financial institutions that did business with his former employer responsible in part for the company’s collapse that cost him $1.2 million in retirement funds.

On July 30, Maddox and 19 other former Enron workers whose retirement savings were wiped out by the former energy giant’s 2001 bankruptcy asked U.S. Sen. John Cornyn to help a $40 billion lawsuit that is seeking to recoup their losses by suing financial institutions that did business with Enron.

The ex-Enron workers implored Cornyn in a letter they sent to the lawmaker to reaffirm his previously stated beliefs that banks and financial firms can be held responsible for fraud they helped commit during business dealings.

They also asked Cornyn, R-Texas, to urge the Bush administration not to support such institutions in a similar case before the U.S. Supreme Court.

The high court’s ruling in the case could determine whether the Enron lawsuit against investment banks and firms – stalled by a federal appeals court ruling in March – can proceed.

The Enron suit alleges that various financial institutions played roles in the accounting fraud that led to the company’s collapse.

In Washington, two chairmen of House committees filed a brief with the high court Monday in support of the shareholders’ position. Reps. John Conyers, D-Mich., chairman of the Judiciary Committee, and Barney Frank, D-Mass., who heads the Financial Services Committee, said they believe the law in the case is clear and that parties that knowingly engage in deceptive acts as part of a fraudulent scheme should be held liable for their actions.

Maddox, 74, who after Enron’s collapse had to lease his Houston area home and move to East Texas, said that instead of enjoying their golden years, he and his wife, Phyllis, still work to make ends meet.

“Had the large banking industry not conspired to defraud the public, we may have gotten to enjoy our retirement and had the finances to help our grandson’s college needs,” Maddox said during a news conference.

When Cornyn was Texas’ attorney general in 2002, he joined 26 other states in filing a brief supporting the Enron investors’ claims.

“Senator Cornyn stands in support of the shareholders and behind the 2002 brief he filed on behalf of 27 state attorneys general,” said Brian Walsh, a spokesman for Cornyn.

Maddox and other former Enron workers also asked Cornyn to urge President Bush to not have Solicitor General Paul Clement file a brief in support of financial institutions that are defendants in a U.S. Supreme Court case that is similar to the Enron one. Clement represents the government’s views before the Supreme Court.

“The White House will be made aware of Senator Cornyn’s views on this matter,” Walsh said.

The similar lawsuit accuses two equipment manufacturers, Motorola Inc. and a unit of Cisco Systems Inc., of colluding with cable TV provider Charter Communications Inc. to deceive investors.

The Supreme Court last month took no action on the Enron lawsuit because it had already agreed to consider the Charter Communications case.

Both cases raise an issue known as scheme liability: whether shareholders also can collect damages from investment banks, attorneys and accountants believed to have aided fraud by their corporate clients.

The Bush administration earlier this year decided against filing a brief on behalf of the investors in the Charter case, even though the Securities and Exchange Commission had recommended doing so.

President Bush and Treasury Secretary Henry Paulson weighed in on the side of the investment banks.

The deadline for the Bush administration or others to file briefs in the Charter case is Aug. 15.

Erik Ablin, a Justice Department spokesman, said Clement’s office does not announce ahead of time if it plans to file a brief in any case.

Enron, once the nation’s seventh-largest company, entered bankruptcy proceedings in December 2001 after years of accounting tricks could no longer hide billions in debt or make failing ventures appear profitable.

The collapse wiped out thousands of jobs, more than $60 billion in market value and more than $2 billion in pension plans.

Enron founder Kenneth Lay and former chief executive Jeffrey Skilling were convicted last year for their roles in the company’s collapse. Skilling is serving a sentence of more than 24 years. Lay’s convictions for conspiracy, fraud and other charges were wiped out after he died of heart disease last year.

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