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Florida is rejected as lead Enron plaintiff
By HELEN HUNTLEY, Times Staff Writer
© St. Petersburg Times A federal judge has bluntly questioned Florida's effort to sue Enron and its accountants for securities fraud in the loss of more than $300-million from the state's pension funds. The Florida State Board of Administration, which runs the pension fund, is trying to recover some of the fund's losses on Enron Corp. investments, most of it in an account run by Alliance Capital Management of New York. But U.S. District Judge Melinda Harmon in Houston rejected the state's request to act as lead plaintiff in a class-action investor lawsuit. Instead, the judge awarded the role late Friday to the University of California Regents, which will lead the battle against Enron Corp.'s current and former top executives and its former auditor, Arthur Andersen. Florida, which lost more money in Enron's collapse than any other investor, remains part of the case but will not be calling the shots. The judge said Florida shouldn't represent Enron investors as a whole because its case is so different from that of other investors. Defendants in the class-action lawsuit might make the case that Florida "may not have a securities fraud claim for much of its investment because its investment decisionmaker was not deceived," Harmon said. Alliance Capital, a New York money manager, sank millions of the state's pension dollars into Enron stock after it was obvious there were big problems at the company: The Securities and Exchange Commission was investigating; the chief financial officer had been replaced; and the energy trading company revealed it had overstated its earnings. On top of that, a former Alliance executive, Frank Savage, sat on Enron's board of directors, which at least theoretically gave him some knowledge of the off-balance sheet partnerships Enron used to hide its debts and inflate its earnings. After the pension fund losses, the state fired Alliance as one of its money managers, issued subpoenas for Enron documents and began investigating the company's actions on several fronts. "This court cannot ignore that there is a clear possibility, indeed even a probability, that Florida will sue Alliance Capital," Harmon said. She said Florida's request to serve as lead plaintiff also had other strikes against it, including the fact that the state board had served as lead plaintiff in nine securities fraud class-action cases in the past five years, four of which are still active. In addition, the judge said Florida and the New York City pension funds, which asked to serve as lead plaintiffs together, filed their motion after the deadline and did not appear to be a cohesive group. "We are not commenting now," said Lee Baldwin, spokeswoman for the Florida board. She said the board's lawyers are reviewing the judge's order. Florida lost $325-million on Enron stock and another $9-million on Enron bonds. Alliance managers held the state's Enron shares until just two days before the Houston company filed for bankruptcy, then sold them for 28 cents a share. The losses represent about a third of 1 percent of the pension fund. The University of California Regents, the judge's choice to serve as lead plaintiff, lost $144-million on its Enron investments. Milberg Weiss Bershad Hynes and Lerach, known for its large class-action lawsuits, will serve as lead counsel, coordinating prosecution of the case and any settlement negotiations. The law firm's "zealous" prosecution of the case is already apparent, Harmon said. So farthat has included bringing into court evidence of document shredding that was going on at Enron headquarters in Houston. -- Helen Huntley can be reached at huntley@sptimes.com or (727) 893-8230.
 © 2006 • All Rights Reserved • St. Petersburg Times
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From the Times state desk
From the state wire
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