Hoping to spearhead the fight to recoup billions of dollars of retirement fund losses, representatives of five states are asking to lead a nationwide class-action lawsuit against bankrupt energy giant Enron Corp.
The attorneys general of Georgia, Ohio and Washington jointly petitioned a federal judge in December to name their states' retirement systems as lead plaintiffs in a class-action lawsuit filed in the U.S. District Court in Houston.
"Public employees depend on their investment portfolios to produce a stable income for their retirement," Ohio Attorney General Betty Montgomery said in announcing the court filing. "We owe it to these public servants to get back as much of their money as we possibly can."
Florida, which lost more money than any other state, and New York City filed a competing motion to be named lead plaintiffs. The university pension fund in California filed a lead plaintiff motion as well.
A federal judge will choose among these petitions in the coming weeks. This is likely, though not certain, to result in the consolidation of other class-action lawsuits on behalf of shareholders.
In addition, several states, most notably Florida, California and Texas, are launching independent probes into whether state fraud and racketeering laws were violated by Enron, and its auditor, Arthur Andersen.
Florida Attorney General Bob Butterworth issued subpoenas to Enron and Andersen officials on January 17. He also issued a subpoena to Alliance Capital Management Corp., and is investigating whether Alliance may have overexposed the state to Enron stock. One of Alliance's executives, Frank Savage, was also an Enron board member. Alliance held Enron stock until just two days before the company filed for bankruptcy, resulting in a loss to Florida's pension fund of more than $300 million.
Losses across all states have been estimated at over $1 billion, but vary greatly from state to state. Tennessee lost $18 million, far less than even one percent of its $23 billion retirement fund. Ohio's Public Employees Retirement Systems reported losses of roughly $59 million, also a tiny percentage of its $54 billion in total investments.
Though small in percentage terms, these losses are significant enough to attract the attention of state employees and mobilize armies of lawyers.
The National Association of State Retirement Administrators complained in a January 25 letter that poor reporting by news organizations has wasted hundreds of thousands of hours of pension plan staff time in dealing with "anxious plan participants."
"While many state pension funds did invest in Enron, and took a loss from that specific investment, those losses represented less than a fraction of one percent of their total pension fund portfolios," writes NASRA chief Gary Findlay. "[T]heir losses from Enron investments have had no material impact whatsover on the funds or on member benefits."
Lawyers for the states have been convening occasional conference calls to discuss the Enron bankruptcy and possible avenues for cooperation. At this point, many states are still sorting out their losses and brainstorming ways to recoup them.
Florida's attorney general may have been among the first state lawyers to initiate a formal investigation of Enron and Andersen for violation of state law, but it's unlikely he will be the last.
On January 17, Connecticut Attorney General Richard Blumenthal asked the State Board of Accountancy to begin an investigation into Arthur Andersen, citing allegations that Enron's auditor concealed losses and overstated Enron's financial condition.
"The issue is simply one of trust," said Blumenthal. "Under the law, we have a duty to assure that public auditors and accountants uphold the public trust inherent in their permit. Public auditors have a duty to protect the public. When they fail in that duty, the public must be protected from the auditors."