By Kelly Rayburn
Daily Bruin Senior Staff
In a unique situation, the University of California is hoping
Enron can keep supplying its campuses with energy, while at the
same time seeking money that, the UC claims, it unfairly lost from
the former giant.
The UC entered into a lawsuit Dec. 21 against senior members of
bankrupt Enron, claiming top-level employees released false
financial statements and engaged in massive, illegal “insider
trading” at the expense of its stockholders.
The UC was one of many groups to take legal action against the
Texas-based energy-supplying firm. A U.S. District Court in Houston
is currently “consolidating all of these lawsuits into one
humongous lawsuit,” said UC spokesman Charles McFadden.
The total loss for all UC portfolios from Enron’s collapse
measures $145 million, or 0.3 percent of the university’s
investment funds, according to the UC Office of the President.
Despite the loss, UC officials say the UC’s pension plan
recipients will not be hurt significantly.
“The alleged financial fraud losses from the (UC)
retirement plan’s Enron position in no way affects the
ability of the retirement plan … to meet its obligation to its
beneficiaries,” said David Russ, treasurer to the UC Board of
Regents.
The market value of the UCs portfolios was $54 billion as of
Nov. 30, according to UCOP.
“(The Enron loss) is a very small blip,” said UC
attorney Christopher Patti.
But the lawsuit isn’t the UC’s only worry concerning
Enron. Some believe the energy contract between the UC and Enron
““ which filed for bankruptcy, but is still operational
““ is on shaky ground after the company made massive
cutbacks.
As of now, seven UC schools ““ UCLA not included ““
are still receiving energy from the company under a contract that
requires Enron to supply the UC and CSU with energy through March
2004. UCLA and UC Riverside receive energy from local companies
such as the Los Angeles Department of Water and Power.
When asked Friday morning if Enron will be able to keep its end
of the contract, McFadden said: “Well, that’s a good
question. As of 10:44 on Friday, Jan. 4, we’re still getting
power from Enron.”
Neither McFadden nor University Counsel Lloyd Lee were sure how
long Enron would be able to supply the UC, but both said that right
now, the contract benefits the UC greatly.
The UC is receiving energy at the rate of about 6.9 cents per
hour ““ well below the ever-fluctuating market price ““
and a new contract could cost the university millions of
dollars.
“Currently it’s a very advantageous contract,”
Lee said.
After Enron filed for bankruptcy Dec. 2, a number of individuals
and groups filed lawsuits. By Dec. 6, 60 complaints had been
registered.
The lawsuit claims that people who purchased Enron securities
between October 1998 and Nov. 27, 2001 were cheated out of their
money as Enron executives released false financial statements,
artificially inflating the price of Enron securities. With inflated
stocks, Enron executives sold their shares, yielding proceeds of
$1.1 billion, before watching their company collapse, plaintiffs
allege.
Enron spokespersons were unavailable for comment after calls to
its Houston press office Friday, but Enron has repeatedly denied
allegations.
One person being sued for illegal trading is Wendy Gramm, an
Enron board member and wife of Texas U.S. Senator Phil Gramm.
“The management at Enron is, across the board, bitterly
disappointed at the failure of the company,” said Robin
Gibbs, Wendy’s attorney after the lawsuit was filed,
indicating senior members were not intending on the firm’s
collapse after selling their own stock.
In cases in which numerous parties are filing suit, courts
typically choose one or a few lead plaintiffs to represent the
interests of all. The UC is seeking to be a lead plaintiff in the
lawsuit against Enron, because the UC has a greater financial
interest in the case than most other groups, Patti said.
Others who might be considered for lead plaintiff status,
according to Patti, include the Ohio Sate Pension Plan, the Georgia
State Pension Plan and the New York City Pension Plan ““
entities that all lost millions of dollars when Enron
collapsed.
Patti likes the UC’s odds at being named a lead
plaintiff.
“I can’t predict what the court will do, but I think
there’s a good chance,” he said.
As for the contract, Lee said the UC would very much like to
keep it, but whether Enron can keep supplying energy is
unknown.
If Enron is unable to supply the UC with energy, they are
responsible for ensuring that another supplier does so at the same
price in the interim, McFadden said.
Many entities have expressed interest in working with the UC,
Lloyd said, though he would not release names.
With reports from Daily Bruin wire services.