NEW YORK – Lawyers filing lawsuits against Enron Corp. Tuesday said the restatement last week of more than four years of earnings is a clear sign the energy trader and its chief executives misled investors.
At least 10 law firms are seeking class action status on behalf of plaintiffs they said were deceived by false and misleading statements or because adverse information was concealed, causing Enron's shares to be artificially inflated.
"Enron restating its earnings is certainly going to help our case. It demonstrates that in their opinion their earnings were false when initially published," said lawyer Arthur Stock of Berger & Montague PC in Philadelphia, one of the law firms seeking class-action status.
Enron declined to comment.
The lawsuits name the company, Chairman and Chief Executive Kenneth Lay, former CEO Jeffrey Skilling and Andrew Fastow, a former chief financial officer, as defendants.
In another blow to its damaged reputation among investors, the Houston-based company last week admitted it erred in reporting past results. It reduced its earnings from 1997 to 2000 by $591 million, or 22 percent of the amount that had previously been released on its financial statements. Earnings for the first two quarters of 2001 also were restated.
Enron has garnered investor ire since it unexpectedly reduced shareholder equity by $1.2 billion in mid-October, saying off-balance sheet transactions had contributed to that and to $1 billion in charges.
The company's stock plunged as almost daily developments sullied investors. It lost almost 80 percent of value from the day the company reported its first quarterly loss in more than four years on Oct. 16, to the announcement last week that rival Dynegy Inc. would buy Enron for about $9 billion in stock and the assumption of about $13 billion in debt.
Enron shares closed Tuesday 75 cents higher at $9.99 on the New York Stock Exchange, far off its August 2000 high of $90.56.
INCREASED TIME FRAME
In the latest lawsuit to be filed against Enron since it was rocked by a U.S. regulatory probe in October, the law firm of Cauley Geller Bowman & Coates said misrepresentations and omissions by the defendants violated their duty to release accurate and truthful information on the company's finances.
"Each of the defendants is liable as a participant in a fraudulent scheme and course of business that operated as a fraud or deceit on purchasers of Enron common stock by disseminating materially false and misleading statements," said Cauley Geller in a lawsuit filed in Texarkana, Texas.
The suit was filed Nov. 9, the day after the restated earnings were released, in the U.S. District Court for the Eastern District of Texas.
Prior to the restatement of results, prompted by concerns raised by the U.S. Securities and Exchange Commission, the lawsuits filed against Enron were on the behalf of shareholders who bought common stock between Jan. 18, 2000 and Oct. 17.
However, since Enron restated its results, Cauley Geller increased the time frame, or "class period" on behalf of investors who bought Enron stock, from Jan. 18, 1999 to Nov. 8.
"The effect of the restatement was dramatic," said Cauley Geller. "Enron insiders disposed of over $73 million of their personally held Enron common stock to unsuspecting investors."
Cauley Geller said selling of Enron stock by key executives was "unusual and suspicious given its timing." Lay sold $11.2 million worth of shares during the period, and Skilling sold $6.41 million in stock, the law firm said.
"People who have lost hundreds of thousands of dollars are naturally angry, Stock said. "It is expected in this type of situation."
In a filing with the SEC on Tuesday, it was reported Lay could walk away with more than $80 million if the acquisiton by Dnyegy closes this year.