HOUSTON – The University of California Regents will lead the charge for big-time investors and individual shareholders collectively suing current and former Enron Corp. officials for more than $1 billion gained in stock sales before the company imploded last year.
U.S. District Judge Melinda Harmon designated the university Friday as the head decision-maker in a massive securities-fraud lawsuit against current and former executives and directors.
"We take up this responsibility with the deepest sense of obligation not only to the UC family of employees retirees and students, but to the millions of Americans who invested in good faith with Enron," said James E. Holst, general counsel for the university.
Milberg Weiss Bershad Hynes & Lerach LLP, the law firm representing the university and Amalgamated Bank, stands to collect the most in attorneys' fees for taking on the lion's share of work in the case as well.
The firm could generate fees reaching hundreds of millions of dollars if an Enron judgment comes close to last year's record $3.2 billion settlement that Cendant and its accounting firm made with stockholders. That case stemmed from a 1998 scandal involving the then-Connecticut company that became the largest financial fraud case ever brought by the Securities and Exchange Commission.
"Millions of Americans invested in Enron because of the confidence they placed in the business practices of the company and the public information provided by its senior executives and accountants," said Milberg Weiss partner William Lerach of San Diego, who has spoken for the regents and Amalgamated in hearings before Harmon.
"On behalf of the University of California as lead plaintiff and working in concert with all the plaintiffs, we look forward to vigorously pursuing the shareholders' case," he said.
The fees provide a big incentive for law firms competing to be lead counsel representing lead plaintiffs in large class-action lawsuits, said Henry T.C. Hu, a corporate law professor at the University of Texas School of Law.
The lead plaintiff doesn't get a bigger slice of the judgment pie. But the university will have more power to plan strategy and direct the case, Hu said.
"From a monetary standpoint there's nothing in it for the lead plaintiff," Hu said. "You don't get any more money than your prorated share. But that law firm will be putting in a lot of time, and it could be very attractive financially."
The original class-action fraud case was filed in Houston on behalf of Amalgamated and several investment funds days after Enron filed the largest bankruptcy in history on Dec. 2.
Amalgamated lost $10 million in the meltdown, and sought $25 billion in damages. The suit is seeking $1.1 billion gained by current and former Enron executives and directors who sold stock from October 1998 through November last year.
Other plaintiffs that lost more money have since joined the suit, including:
— The Florida State Board of Administration and the New York City Pension Fund. Combined loss: $443 million.
— The University of California Regents. Loss: $145 million.
— Pension funds for the states of Georgia, Washington, Ohio and Alabama. Combined loss: $416 million.
Lawyers representing shareholders and former employees also since joined the suit. Employees watched their Enron-stock loaded 401(k) accounts evaporate as the company collapsed.
Milberg Weiss had argued that as a single plaintiff, the regents would be able to better manage the case than multiple pension funds. Amalgamated did not seek the lead plaintiff designation.
The Florida and New York City funds argued they should be lead plaintiffs. Both lost more money than others in the running.
A spokesman for the Boston-based law firm Berman DeValerio Pease Tabacco Burt & Pucillo, which represents those funds, said lawyers were unavailable for comment Friday because they hadn't yet seen Harmon's 87-page ruling.