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UC Announces $69 Million Enron Settlement

Tuesday July 06, 2004

The University of California announced Friday a $69 million settlement with the Bank of America in the ongoing Enron class action lawsuit. 

UC is the lead plaintiff representing Enron investors, who lost an estimated $25 billion when the energy giant went belly up in 2001 after listing revenues of $100 billion the previous year.  

The company’s collapse came amid allegations that executives manipulated balance sheets to artificially inflate stock prices. UC lost $145 million in what was—at the time—the largest corporate bankruptcy ever. 

The UC Board of Regents and a U.S. District Court Judge for the Southern District of Texas must now approve the proposed settlement. 

The Bank of America was not implicated in the fraud, but was sued in its role as an underwriter for Enron debt offerings. The $69 million settlement represented more than 50 percent of the bank’s liability for the investors’ total losses allowed under the 1933 Securities Act, according to UC spokesperson Trey Davis. 

“This is a positive development for shareholders,” he said. “Normally plaintiffs receive pennies on the dollar.” 

The settlement from Bank of America will be distributed to all plaintiffs, leaving UC with a total of less than $1 million. Nevertheless, UC attorney, William Lerach of San Francisco-based Lerach, Coughlin, Stoia and Robbins LLP, hailed the settlement and insisted it “will be the precursor of much larger ones in the future, especially with the banks that face liability for participating in the scheme to defraud Enron’s common stockholders.” 

Since Enron has no assets, the plaintiffs are targeting investment banks they claim facilitated fraudulent transactions that cost Enron investors millions. Among the key defendants are J.P. Morgan Chase, Citigroup, Merrill Lynch, Credit Suisse First Boston, Canadian Imperial Bank of Commerce, the Royal Bank of Scotland and Arthur Andersen. 

In 2002 UC reached a $40 million settlement with Arthur Andersen Worldwide. However, the company’s U.S. arm, which served as Enron’s outside auditors, remains liable. 

The Enron suit is part of a broader UC strategy to file lawsuits against corporations they believe defrauded the university out of roughly $1 billion in an investment portfolio that totaled $60 billion as of June 30. 

In addition to Enron, UC is the lead plaintiff against Dynergy, a former Enron competitor, and has filed separate suits against WorldCom and AOL Time Warner. 

UC claims to have lost $112 million from Dynergy and $353 million from WorldCom, both of which declared bankruptcy after accounting scandals. UC says it lost $450 million from the 2001 merger of AOL and Time Warner and accuses the company of falsifying financial results leading up to the merger. 

“These companies committed fraud and stole money from the University of California and we want the money back,” Davis said. “It’s a simple principle of fairness and justice.” 

The Enron case is scheduled to go to trial in October, 2006.ô